The Impact of Tariffs on Canada’s Housing Development Industry

The Canadian housing market, a cornerstone of the nation’s economy, currently faces a myriad of challenges exacerbated by volatile global trade dynamics. The ongoing trade war, primarily fueled by changing policies from the U.S. government, has sparked concerns within the housing development industry. Developers are particularly anxious about the effect of tariffs on the cost of building new homes, which could stifle investment confidence and slow down growth.

The Uncertainty of Global Trade

The Trump administration’s erratic trade policies have left investors feeling uneasy. With repeated announcements regarding potential steep tariffs on Canadian goods, many developers are unsure of how to proceed with new projects. Michael Waters, CEO of Minto Group—one of Canada’s leading housing developers—articulates this sentiment succinctly: “All of the uncertainty is generally unwelcome and makes it difficult to underwrite new investments.” As a result, housing development could potentially stall, impacting thousands of ongoing projects across the country.

A Decline in Land Acquisitions and Home Resales

The repercussions of the trade war extend to a slump in land acquisitions and home resales. Recent data from Colliers commercial real estate indicates that, despite a significant increase in land sales in late 2024, the total value remains far below historical highs. Steve Keyzer, executive vice-president of Colliers Canada, highlighted a shift in momentum. After a promising end to 2023, investors have begun pulling back, leading to fears of prolonged economic instability that could further depress the housing market.

Real Estate Market Trends

While analysts were optimistic about a surge in home sales early in the year, recent months have shown a dip in activity across major cities such as Toronto, Calgary, and Vancouver. Shaun Hildebrand, president of Urbanation Inc., notes the inescapable link between trade uncertainty and a decrease in new developments. He states, “You can see how it’s already affecting the resale market as buyers are moving to the sidelines,” showcasing that market hesitation often leads to diminished opportunities for growth.

Rising Construction Costs

The construction sector has faced a series of challenges over the past few years, including rising material costs and delays from government shutdowns during the pandemic. With central banks, including the Bank of Canada, raising interest rates to combat inflation, the cost of borrowing has surged. This spike has made it considerably harder for prospective homebuyers to qualify for mortgages, directly affecting developers as well.

As a consequence, individual investors—who previously made up a significant portion of the market—have largely exited, further complicating the landscape for new developments. The long-term investment outlook for rental-only apartment buildings is similarly uncertain, pushing the industry into a precarious situation.

The Challenge of Securing Funding

“For any development, capital flows to where certainty lies,” explains Mazyar Mortazavi, CEO of TAS, a prominent home builder in Ontario. The unpredictability caused by the trade war and negative economic indicators has begun to affect both the availability of capital and the costs for developers. Mortazavi further observes that budgeting has become increasingly difficult, making it challenging to instill confidence in investors regarding how costs will balance with revenue.

TAS has found that while they are still able to raise capital, the amounts are significantly reduced compared to past norms. This dwindling financial support has forced developers to reassess their growth strategies and project timelines.

The Back-and-Forth of Tariff Policies

This ongoing scenario is complicated by rapid changes in U.S. tariffs on Canadian goods. In a recent announcement, President Trump proposed to double tariffs on Canadian steel and aluminum from 25% to 50%. However, the situation seems fluid, as the administration soon suggested a potential return to the original rates after Ontario’s commitment to suspend its surcharge on U.S. electricity exports. This tug-of-war exacerbates the already intense climate of uncertainty, making long-term planning for developers all the more difficult.

The True Cost of Uncertainty

The true toll of these tariffs and trade war conditions may not even stem directly from the tariffs themselves, but rather from the uncertainty they engender. Ted Betts, a construction law expert with over 25 years of experience, underscores this point, asserting, “The worst part is not even the tariff. It is the disruption and uncertainty.” The long-term viability of many projects hangs in the balance as investors await clarity on future trade relations.

Conclusion

The current landscape of Canada’s housing development industry is fraught with uncertainty, stemming primarily from global trade tensions and fluctuating tariffs. This situation has led to declining investment confidence, rising construction costs, and hesitance among both developers and potential homebuyers. As the market grapples with these challenges, it remains to be seen how long the effects will linger and when stability might return. In the interim, the industry must navigate these turbulent waters with caution and resilience.