There is no question that President Trump’s unjustified and unreasonable tariffs will have very negative impacts on the residential construction industry, as well as the economy and people of both Canada and the U.S. Over $2.5 billion worth of goods and services cross the border every day. Adding 25 percent tariffs to many of those goods will drive up costs for consumers, erode housing affordability, and negatively impact the economy in both countries, further limiting purchasing power for housing and no doubt slowing housing starts, when it is more – not fewer – homes that we need.

A tariff is basically a tax on an imported good, where the importer pays an additional cost imposed by the government for importing such an item from another country. This raises the price of imported products, and while some of the cost may be absorbed by the importer, typically most – if not all – of that cost is passed on to the consumer. Tariffs on building materials raise the cost of housing, and consumers will end up paying for the tariffs in the form of higher home prices. The Trump tariffs will therefore raise the cost of housing in the U.S. What will harm housing affordability in Canada will be the effect of those tariffs in slowing Canadian exports, and hence slowing the economy and residential investment, plus any Canadian countervailing tariffs applied to imports from the U.S. used in construction – directly increasing construction costs.

 

CHBA Action

CHBA has been engaged on this issue since prior to the inauguration of President Trump. CHBA CEO Kevin Lee testified at the House of Commons Standing Committee on International Trade prior to the end of 2024 on the very negative impacts of tariffs on residential construction. CHBA has been engaged with the Bank of Canada, officials from Infrastructure, Housing, and Communities, and the Minister of Foreign Affairs about the impacts of both potential U.S. tariffs, as well as Canadian retaliatory tariffs, on the home construction sector. In its formal letter to the government (see CHBA’s letter here), CHBA explained the dangers of both U.S. and Canadian tariffs and sought a commitment from the federal government that the housing and affordability crisis remain top of mind in trade dealings, advising that should retaliatory tariffs become necessary, that construction products and materials be exempt. CHBA has also been in contact with our U.S. counterparts, NAHB, who have been lobbying for construction materials and products to be exempt from the Trump tariffs, in their case to no avail.

The Tariffs

With the February 1^st announcement by President Trump of the 25% tariffs across the board (and 10% on energy products), Canada is also responding with countervailing tariffs on $155 billion in U.S. imports in two tranches (see the release here). CHBA advocated that construction goods not be included in these countervailing tariffs, and the initial lists suggest that this has mostly been attained, with the important exception of steel and aluminum. The first $30 billion tranche, effective February 4^th, shows an initial list that will mostly be on consumer products where there is ample choice from other alternative countries – though appliances are on that list and can affect construction. Canada imports some $3.1 billion in appliances from the U.S. each year, so builders and suppliers will need to look domestically and to other countries to avoid the 25% price increase. The second tranche of duties on $125 billion of imported U.S. goods, coming after a 21-day consultation period, will also principally be on consumer goods, though on that list for construction are trucks (which industry will now want to look to source from other counties) and steel and aluminum products (Canada has a trade surplus in this area, with over $20 billion exported to the U.S. each year, so some re-profiling of trade destination and products may ease that impact here in Canada, though that will take time). Canadian tariffs on metal imports are particularly concerning for high-rise development, unless and until the Canadian industry can pivot to supply Canada.

CHBA will continue to engage with government officials, including through the next 21-day consultation period, on how best to handle the tariff situation, with mutual industry interest on both sides of the border to limit tariffs on construction products and materials. The government is establishing a remission process to consider requests for exceptional relief from the tariffs imposed as part of Canada’s immediate response, and says it stands ready to support affected workers and businesses—the residential construction industry is very likely to be in need of that support (see Outlook on impacts below).

It is worth noting that the Trump tariffs across the board in the U.S. will have a much bigger impact on construction costs and housing affordability in the U.S. than the tariffs under consideration thus far in Canada. NAHB has been actively advocating with the Trump administration accordingly to remove these tariffs as well as the tariffs of the long-standing softwood lumber dispute.

As CHBA CEO Kevin Lee said when interviewed with Global News prior to the official announcement of the tariffs, tariffs will slow the Canadian economy and home construction, and Canadian countervailing tariffs – if imposed on construction product imports – will increase construction costs in Canada. CHBA advises that in addition to support measures for industry and workers, very productive housing-related actions are available to government, like removing the GST on new homes federally (and PST/HST provincially) and lowering the high municipal development taxes municipally, both of which could go a long way to countering the increased costs that would come from tariffs, and enable Canada to still build homes to address the housing supply shortage.

Outlook on Impacts

The 25% tariff on Canadian imports imposed by the United States could affect Canada's residential construction industry through several channels. Here's how:

1. Impact on the Economy

The number one issue would be an overall economic slowdown, given that recessions always mean fewer housing starts and less renovation activity. Canada is heavily reliant on exports to the U.S., particularly in sectors like lumber, steel, aluminum, and automotive. A tariff could reduce Canadian exports, slow economic growth, and weaken many industries. Reduced exports may lead to job losses in export-reliant sectors, depending on government relief programs, lowering consumer income and spending power. A tariff and its associated consequences could create economic uncertainty, leading to reduced consumer confidence. All of this in turn would stifle housing investment, slowing starts and renovation activity.

2. Supply Chain and Construction Costs

While U.S. tariffs could initially lower prices for Canadian industry on domestic products and materials that are typically exported to the U.S., struggling manufacturers trying to stay afloat may not be able to lower prices. Meanwhile, any retaliatory Canadian tariffs on construction materials would have substantial effects on the cost of construction. Canada imports some $3.5B in glass and glass products, $3.1B in major appliances, $2.2B in hardware, about $1B in ceramic tile and products, just to name a few—all of these would go up in price, though only appliances are being targeted by Canada so far.

All importers in the residential supply chain will need to look at alternatives to U.S. goods upon which Canadian countervailing tariffs are placed, seeking sources in Canada and from other countries. Products will still likely be more expensive than the U.S. goods prior to tariffs, but may be less than the 25% increase. This adjustment period will be difficult, though it may create more resiliency and certainty through diversification for industry in the long run. All efforts to “buy Canadian” will also serve to bolster the economy now and into the future.

It is worth noting that very worrisome with these tariffs is the potential impact on the Canadian lumber industry, as tariffs and resultant reduced exports could cause Canadian mills to shut down, permanently reducing lumber output capacity for the Canadian market and increasing costs domestically over time. Support for Canada’s lumber industry will be very important for residential construction as well.

NOTE: A common question is “how much of the products and materials used in a typical house are imported from the U.S.?” Determining the exact percentage and average dollar value of U.S.-imported products and materials in a typical Canadian home is challenging due to the complexity of supply chains and variability in purchases, and regional variations. Data collected by Statistics Canada and CMHC does not break down to that level. Further, many products may be assembled in Canada using components sourced from multiple countries, including the U.S., complicating the assessment of origin.

3. Currency Effects

If the tariff weakens Canada's trade balance, the Canadian dollar could depreciate relative to the U.S. dollar and relative to the currencies of other countries. A weaker Canadian dollar makes imported goods (like building materials not sourced domestically) more expensive, potentially raising construction costs in Canada.

4. Inflationary Pressures

If the tariffs lead to inflation in Canada due to currency effects or increased costs in the supply chain, it could influence housing affordability indirectly. Central banks might respond to inflation with interest rate adjustments, which affect mortgage rates and financing costs. CHBA has just met with the Bank of Canada to discuss these issues. While raising interest rates can control inflation, it cannot address tariffs that would be driving inflation, and would slow economic growth. A sluggish economy would typically point to lowering interest rates. The Bank of Canada would need to balance these risks carefully, especially if economic growth is already under pressure from external factors (i.e. the tariffs causing weaker exports).

Conclusion

The effect of U.S. tariffs on Canadian residential construction industry, housing supply and home construction costs has the potential to be very significant. Because imports vary significantly regionally and by project, exact cost impacts for each company will vary, but the broader economic impacts could be significant. Reduced exports, a weaker economy, and currency depreciation would collectively influence construction costs, interest rates, and housing demand. The net effect would depend on the scale of economic disruption and how other factors such as domestic policies and global trade dynamics evolve, and what, if any, supports are provided by the Canadian government.

CHBA will remain engaged with the government to ensure all considerations regarding the industry, housing supply and affordability are considered. Beyond avoiding tariffs on construction materials and ensuring there are supports for the industry if needed, removal of the GST on new construction would have a large impact. At the municipal level, where in some municipalities development taxes have reached outrageous levels of as much as 25% of the cost of a home (about $200,000 of municipal tax on typical homes in Canada’s largest urban centres), lowering of development taxes could completely erase any cost impacts from the tariffs.