The Looming Trade War: A Threat to Canada’s Housing Market

In recent months, industry experts have been sounding alarms about the potential ramifications of a looming trade war between the United States and Canada. As one of the world’s largest trading partners, the intricate web of economic interdependencies between these two nations means that any conflict could have serious repercussions, particularly for Canada’s housing market.

A Fragile Construction Landscape

Canada and the U.S. engage in a multifaceted trade relationship, exchanging billions of dollars in homebuilding materials annually. This trade is crucial, as it supports a vibrant construction industry on both sides of the border. Kevin Lee, CEO of the Canadian Home Builders’ Association (CHBA), warns that if U.S. President Donald Trump goes ahead with proposed tariffs—up to 25% on Canadian goods—Canada’s housing market could be significantly impacted.

Such tariffs would not only increase costs for Canadian builders but could also compel Canada to respond with retaliatory tariffs. "A trade war started by U.S. tariffs would really be an unfortunate and problematic thing for housing in Canada," Lee asserts, highlighting the potential for increased construction costs, diminished housing supply, and reduced affordability.

Economic Ripple Effects

The most pressing concern, according to industry analysts, is the broader impact on the Canadian economy. An economic slowdown typically leads to fewer housing starts, exacerbated by consumer uncertainty and potential job losses. “An economic slowdown or recession always translates directly into less housing starts because people are hesitant to invest in homes,” Lee notes.

Experts point to a promising real estate recovery on the horizon, with Royal LePage projecting a 6% jump in average home prices in 2025. However, economic uncertainty from a trade war could quickly derail plans for growth in the housing sector.

The Impact of Tariffs on Construction Costs

The introduction of tariffs could raise the cost of essential building materials, directly affecting housing affordability. For example, Canada imports significant quantities of construction materials from the U.S., including:

• Glass Products: Approximately $3.5 billion annually
• Major Appliances: Over $3 billion annually
• Hardware: Roughly $2 billion annually
• Primary Metals: Over $14 billion annually

These materials are vital for new construction and renovations. Increased tariffs would likely push builders to transfer these costs to homebuyers, thereby making homes less accessible for many Canadians.

The Role of Government and Alternatives

As the threat of a trade war looms, both industry leaders and policymakers are beginning to explore solutions to mitigate its impact. Lee suggests that optimizing supply chains and seeking alternative sources for building materials will be essential. "Our supply chains are going to be critical in finding some alternative solutions," he argues.

Moreover, Soper points to the potential silver lining of a trade war, suggesting that it may prompt Canada to diversify its supply chains and lessen reliance on the U.S. economy in the long term. "Canada is a G7 country, and we will adjust," he confidently asserts.

In an effort to alleviate the pressure on the housing market, Lee proposes several immediate measures that the government could implement. Eliminating the Goods and Services Tax (GST) on new homes and reducing excessive development taxes could help cushion the blow of increased construction costs.

Conclusion: Preparing for Uncertainty

As Canada prepares for the potential fallout from tariffs, it must brace for both immediate and long-term effects on its housing market. The combination of rising material costs and economic uncertainty could challenge an industry already poised for growth. While experts remain cautiously hopeful about the housing market’s potential recovery, the possibility of a trade war remains a formidable threat. Policymakers, builders, and homeowners alike must remain vigilant, proactive, and adaptable as they navigate this uncertain economic landscape.

In the face of conflict, Canada’s ability to adjust and innovate will be pivotal in ensuring a resilient housing market capable of supporting its citizens’ aspirations for homeownership.