Canadian home builders started 2025 on a high note, starting construction on new homes at a rate that would see close to 240,000 new units started this year, according to Canada Mortgage and Housing Corporation (CMHC).
“Actual (not seasonally adjusted) housing starts in urban centres with populations of 10,000 or more saw an even stronger 7% year-over-year gain, reaching 15,930 units, compared to 14,883 in January 2024,” said the CMHC report, adding the upcoming tariffs, especially on aluminum and steel, will likely increase new home prices and slow down the pace of construction.
Prior to the advent of tariffs, CMHC anticipated a slowdown in construction in its 2025 Housing Market Outlook projecting a decline in starts from 2025 to 2027, primarily due lower condominium starts, particularly in the Greater Toronto Area, where a number of major projects have already been cancelled, due to lower investor confidence.
The cost of building materials escalated during the pandemic, due to strangled supply chains and haven’t recovered since and tariffs could have serious consequences for builders and buyers across the country, said Scott Andison, CEO of the Ontario Home Builders Association.
“When you throw something as dramatic as trade tariffs into an environment that’s already suffering from low margins, high interest rates and high input costs, the potential for costs going up makes builders quite nervous,” Andison said in a statement. “This is just something that puts the development market into a bit of chaos.”
Canada sends $20 billion worth of steel and aluminum products to the US each year, making the American market critical to Canadian manufacturers. Some industry leaders fear that if Canada retaliates with its own tariffs, it could make matters worse by further raising costs on imported construction materials like cement, gypsum, and lumber, reports Canadian Mortgage Professional (CMP).
The 25% US tariff on steel and aluminum, set to take effect on March 12, will result in price increases, says Andison.
“When you start making Canadian products less of interest to other markets such as south of the border, that reduces the amount being produced because markets have decreased outside of Canada,” he said. “And when you start reducing the amount that’s being produced, the cost of domestic sales obviously goes up.”
“That’s a major concern in a housing market where affordability is already a critical issue, particularly for first-time homebuyers.”
“Right now, our builders can build homes, but the problem is that they would have to build them at a price that consumers cannot afford. They’re looking at numbers that are just in many ways outside of their scope.”
To offset potential increases, there are measures that could, and should, be implemented at the federal level, Kevin Lee, CEO of the Canadian Home Builders Association, told CMP, adding it should start with tax relief.
“We do expect construction costs to go up,” Lee said. “And there are ways that the government can address that immediately. One is with respect to removing the GST on new construction, which is something that the [federal Conservatives] have already talked about if they’re elected, for homes under $1 million.”
“The current government could do the same thing to really offset some of those costs.”
Another area of government’s adding to construction costs is municipal development fees (taxes), which Lee says have gotten “out of hand” and require reform if building is expected to ramp up in the years ahead.
In Canada’s major markets, development taxes can reach as high as $200,000 per home, said Lee.
“So, there’s obviously an opportunity to reduce those, and there are other means to replace those revenues for municipalities that would make a lot more sense.”
“But bringing those down could more than make up the difference for any increase in construction costs. Those things should happen anyway, but they’re doubly important with tariffs.”
The Bank of Canada could also contribute to lowering overall costs by continuing to lower its key rate, said Lee.
“We’re certainly hoping that interest rates continue to come down. We now have 30-year amortizations for insured mortgages on new construction, so that should help as well,” he said. “So, it could certainly be worse. But what we don’t see is an increase in housing starts which is, of course, what we actually need to address our housing supply moving forward.”\
