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Real-Estate & Development

Hawaii Construction Costs Risk Escalation Amid Lingering Tariff Uncertainty

·6 min read·👀 Watch

Executive Summary

Developers in Hawaii face continued delays and cost overruns in construction projects due to ongoing tariff uncertainty, placing them 6-12 months behind mainland schedules. Real estate owners and investors should anticipate higher project costs and longer timelines. While no immediate action is mandated, proactive project management and contingency planning are advised.

Watch & Prepare

Medium Priority

Continued uncertainty could lead to projects falling further behind mainland timelines and experiencing escalating costs if not proactively managed.

Monitor announcements regarding new tariffs on construction materials from the U.S. Department of Commerce. Track Hawaii's construction cost indices and compare them to national averages. If the gap between Hawaii's project timelines and mainland timelines exceeds 15 months, or if new, broad tariffs are imposed on key building materials, re-evaluate project budgets and consider pausing new acquisitions.

Who's Affected
Real Estate OwnersEntrepreneurs & StartupsInvestors
Ripple Effects
  • →Increased construction costs → Delayed project completions → Reduced supply of new housing and commercial space → Upward pressure on existing property rental rates → Increased cost of doing business for local companies → Potential for slower job growth in sectors reliant on new development
A diverse group of professionals having a meeting in a modern office setting with large windows.
Photo by Rebrand Cities

Hawaii Construction Costs Risk Escalation Amid Lingering Tariff Uncertainty

Even following a Supreme Court decision, uncertainty surrounding tariffs continues to impact Hawaii's construction sector, extending project timelines and increasing costs relative to the mainland. This ongoing situation necessitates a watchful approach for real estate owners, entrepreneurs, and investors involved in development and construction.

The Change

While a Supreme Court ruling has addressed some aspects of tariff application, the broader landscape of international trade and potential future levies on imported construction materials remains a point of concern. Developers on the mainland are generally experiencing a more stable cost environment and project completion schedule. However, Hawaii's construction industry continues to lag, with project costs and timelines trailing the mainland by an estimated six months to a year. This disparity is attributed to a combination of factors, including supply chain complexities unique to island economies and the lingering effects of trade policy ambiguity.

Who's Affected

  • Real Estate Owners (Developers, Landlords, Property Managers): You should expect ongoing volatility in material costs and extended construction timelines. Projects already underway or in the planning phase may face budget overruns of 5-15% and delays of 3-9 months beyond initial projections. This can impact rental income projections and the feasibility of new developments.
  • Entrepreneurs & Startups (Construction Tech, Developers): Businesses focused on construction, particularly those relying on imported components or offering services tied to project completion timelines, need to factor in extended lead times and potential cost escalations. Scaling plans may need to be adjusted to accommodate these unpredictable factors.
  • Investors (Real Estate Investors, Venture Capital): Investment in Hawaii's real estate development sector requires a greater allocation for contingencies. Projects may yield lower returns or take longer to come to fruition than initially modeled, necessitating a more conservative approach to capital deployment and a longer investment horizon.

Second-Order Effects

Continued tariff uncertainty → Increased construction costs → Delayed project completions → Reduced supply of new housing and commercial space → Upward pressure on existing property rental rates → Increased cost of doing business for local companies → Potential for slower job growth in sectors reliant on new development.

What to Do

Given the persistent uncertainty and its impact on project timelines and costs, the recommended action level is WATCH. The key is to stay informed and proactive in project management rather than making immediate, drastic changes.

For Real Estate Owners:

  • Continue to monitor fluctuations in raw material prices for key components like steel, lumber, and concrete.
  • Incorporate robust contingency budgets into all new project financial models. Aim for 10-20% above initial cost estimates for any project with a timeline extending beyond six months.
  • Maintain close communication with general contractors and suppliers regarding potential tariff impacts and delivery schedules.

For Entrepreneurs & Startups:

  • If your business is directly involved in construction, evaluate supply chain vulnerabilities and explore diversification of suppliers, potentially including local alternatives or those with more stable import routes.
  • Adjust project timelines and client expectations to account for potential delays.

For Investors:

  • Underwrite real estate development deals with longer payback periods and higher risk premiums.
  • Track the performance of publicly traded construction material suppliers and international trade policy developments.
  • Consider investments in construction technology that can mitigate supply chain risks or improve project efficiency.

What to Monitor:

  • Indicator: U.S. Department of Commerce pronouncements on tariffs and trade policy, and relevant court filings.
  • Indicator: Monthly construction cost indices for Hawaii.
  • Trigger Condition: A clear indication of new or broadened tariffs on essential construction materials, or if Hawaii's construction cost/timeline gap compared to the mainland widens to over 15 months.
  • Trigger Action: If a trigger condition is met, immediately re-evaluate all project budgets and potentially pause new land acquisitions until market conditions stabilize, or significantly increase contingency funds.

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