Updated 3 months ago on . Most recent reply
Tariffs, Insurance, and the Midwest Window Nobody's Watching
I spend most of my time looking at where different industries intersect — insurance, construction, trade policy, demographics — and right now there's a pattern forming across all four that I think is worth laying out.
**The construction pipeline is structurally broken.**
This isn't cyclical. The 50% tariffs on steel and aluminum are adding $11,000-17,500 per unit to new multifamily construction. Lumber futures hit $658/MBF — a two-year high. The Center for American Progress projects 450,000 fewer homes built through 2030 as a direct result. Multifamily starts have dropped 53% from the 2023 peak. NAHB builder confidence has been below 50 for 23 straight months — the longest stretch since the Great Recession. 37% of builders are cutting prices, and 64% are offering incentives just to move inventory.
Meanwhile, residential construction has shed 43,600 jobs over the past 12 months. Eleventh consecutive month of decline. Fewer workers and more expensive materials is a combination that doesn't fix itself quickly.
**Insurance is quietly becoming a migration event.**
Florida homeowners insurance averages $7,136 for $300K coverage — roughly 3x the national average. California's FAIR Plan enrollment surged 43% in 15 months as private carriers pulled out of wildfire zones. The FAIR Plan is now seeking a 36% rate hike on top of that.
The numbers are showing up in migration data. Florida's net domestic inflows collapsed from 310,892 in 2022 to 22,517 in 2025 — a 93% drop. That's not a blip. And here's the part most people miss: insurance carriers price coverage based on replacement cost, not market value. When tariffs raise lumber and steel prices, replacement cost calculations jump on existing properties too. So tariff policy is feeding insurance inflation even on buildings that were built years ago.
**The Midwest math changed while nobody was watching.**
Only 6% of institutional multifamily capital (NCREIF) sits in the Midwest, despite the region holding roughly 20% of U.S. rental housing stock. That 14-point gap is the setup.
Columbus is outperforming national rent growth. Indianapolis multifamily starts dropped 70% in 2024, so almost no new supply is coming online through late 2026. Cleveland is running 9.8% rental yields with cap rates above 8%. The Midwest-to-West cap rate spread already compressed from 123 bps in 2019 to 59 bps in 2024 — and that happened before this thesis was on anyone's radar.
Ohio is getting the Intel fab. Indiana is getting the Eli Lilly manufacturing campus. These aren't small bets — they're multi-billion-dollar facilities that create permanent, high-wage employment bases. The "no growth" narrative about the Midwest is running on 2019 data.
**Where the domains cross.**
Tariffs are choking new supply nationally. Insurance costs are pushing people out of coastal markets. And the Midwest is the only region where cap rates, entry prices, and incoming demand all point the same direction. The reinforcing loop looks like this: tariffs raise construction costs → fewer starts → supply constrained → rents rise. But simultaneously, tariffs raise replacement costs → insurance premiums rise on existing coastal properties → migration accelerates toward affordable, low-risk metros.
Whoever already owns existing multifamily in those receiving markets holds both the supply moat (because nobody can afford to build next door) and the demand tailwind (because coastal markets keep getting more expensive to insure).
**The honest risk case.**
I don't want to oversell this. If tariffs trigger a genuine recession, Midwest manufacturing cities get hit hard. The same industrial base attracting capital becomes a liability in a downturn. Columbus is more diversified (state government, education, healthcare), but Indianapolis and Kansas City carry real cyclical risk.
And there's a counter-signal worth noting: reinsurance rates actually declined 15% at January renewals. If that softening flows through to retail premiums in 12-18 months, the insurance push factor weakens. Florida just approved the first meaningful rate decrease on Citizens policies since 2015. It's modest — 8.8% off a base that's still double the national average — but it's directionally different.
**What I think the play is.**
Existing Class B/B+ multifamily, 20-80 units, in Columbus, Indianapolis, and Kansas City metros. Not new development — tariffs make that math almost impossible at current rents. Target properties where the rent roll is below market and where the tariff premium on new construction ($11,000-17,500/unit) effectively prevents competitive supply from getting built nearby.
Conservative underwriting at 3.5% rent growth still pencils at $80-120K/unit versus $180K+ for new builds. The moat isn't the renovation — it's the tariff wall that blocks new competition.
I'd size it at 60-65% LTV and make sure you can service debt even if rents flatten for 24 months. This isn't a "go all-in" signal. It's a favorable structural setup with real downside scenarios that deserve respect.
**Sources I pulled from:**
- NAHB Housing Market Index, March 2026
- Center for American Progress: tariff impact on housing supply
- BLS Employment Situation: residential construction job losses
- Census Bureau: net international migration decline
- J.P. Morgan Asset Management: Midwest multifamily allocation research
- Arbor Realty: regional cap rate convergence data
- NCREIF: institutional allocation by region
- Florida Realtors: Citizens policy data
- Insurance Journal: California FAIR Plan enrollment
- Axios: Florida domestic migration collapse