What Do U.S. Tariffs Mean for the Canadian Housing Market?

If the U.S. goes forward with unprecedented tariffs on Canadian goods, fewer homes will get built, and they’ll be less affordable, those who specialize in the real estate sector say.

By Josh Sherman | 4 minute read

The U.S. plan to levy widespread tariffs on Canadian goods has homebuilders raising the alarm about the implications for the housing market.

If U.S. President Donald Trump moves forward with plans to slap heavy tariffs on Canadian goods, the country’s housing crisis will only intensify, market-watchers are warning.

“It would be significantly impactful for the economy in and of itself in terms of our economic growth and things like our labour market,” says Bryan Yu, chief economist at Central 1. “We’re likely to see higher unemployment rates, and that’s of course going to be bad for the economy — and for the housing market as well,” he tells Wahi. 

The Trump administration had earlier touted that as of early February duties of 25% would be applied to most Canadian exports, with energy resources facing a lesser 10% rate. Those plans have now been put on the backburner for at least 30 days, with negotiations ongoing after the two countries reached an agreement just before the clock struck midnight on Feb. 3.

Should the tariffs ultimately come into effect, they won’t just sideline homebuyers through unemployment and potentially higher living costs. They’ll also drive up building costs and, consequently, fewer new homes being built at a time when the country is already grappling with a supply shortage, suggests a spokesperson for the Building Industry and Land Development Association (BILD).

“Where we head to, nobody knows, but assuming that we get to the end of 30 days and there is no resolution, I think the first significant concern for the Canadian homebuilding industry is the impact on the Canadian economy and consumer confidence,” says Justin Sherwood senior vice president of communications, research, and stakeholder relations at BILD, which represents homebuilders across the Greater Toronto Area.

“In particular, if we’re seeing a slowdown in the Canadian economy due to fewer exports to the US because of tariffs, the obvious concern is a reduction of sales, residential real estate investment, starts, and supply,” Sherwood tells Wahi.

Another big concern is how Canada responds to the tariffs. The federal government has already pledged to respond with its own tariffs on imports from the U.S. Sherwood suggests this would make it more expensive to construct homes since Canadian homebuilders rely on a variety of materials from the states, including appliances and glass.

“Countervailing duties and tariffs, which presumably Canada would put in place from a retaliatory perspective… if those are applied broadly to construction goods, that’s going to increase the cost of construction further eroding affordability,” Sherwood says.

Such a response would represent yet another knock to the economy overall. “We did say we’re going to retaliate, and that’s going to deepen any weakness in the economy,” says Yu. He expects the overall “negative economic shock” of a trade war would spur the Bank of Canada to trim the overnight rate to 1.5% — down from its current 3% level — in a bid to stimulate spending. But any benefits to mortgage borrowers from lower rates would be overridden by slow economic growth and higher unemployment. “The dominating overriding factor would still be that the economy would be quite weak at that point as well,” he explains.

On a positive note, the Central 1 economist notes that Canada does have an abundance of certain building materials. “We are a little bit fortunate, I think, that when you talk about concrete, you think about lumber, we tend to have a lot of that domestically — so that’s positive,” he tells Wahi.

But for items Canada does rely importanting, there’s no telling how long it would take the building industry to adjust — or whether comparable materials could be sourced from elsewhere.

“As you descend into [tariffs on] steel and aluminum and glass you start to increase the cost of building in an environment where we’re already struggling with the cost to build at a rate that the market can absorb,” Sherwood adds. 

A day prior to the announced delay in the U.S. tariff regime, the Residential Construction Council of Ontario warned that having to seek out new suppliers would cause a major — and costly — disruption for homebuilding activity. “Builders in Canada will likely look to alternative sources, such as domestic Canadian producers or suppliers from other countries, but the disruption — along with increased costs — could lead to delayed or canceled projects or slowdowns in new home construction as supply chains adjust,” said RESCON president Richard Lyall in a Feb. 2 statement. “Such a scenario could exacerbate existing housing shortages and drive-up prices.”