Rising costs, trade risks cloud Canada’s construction outlook despite activity uptick

Canada's construction sector faces a mixed outlook heading into 2027, despite a slight uptick in activity last quarter, according to the Canadian Construction Association's latest report. While construction sector GDP grew by one percent in the second quarter, driven by gains in engineering and residential construction, the sector still grapples with rising costs and trade risks.

Non-residential building construction costs surged 3.5 percent year-over-year, while residential building construction costs climbed 2.3 percent. Steel-intensive divisions are experiencing some of the steepest cost increases, with more than eight percent year-over-year hikes. Factors contributing to these price hikes include higher fuel prices, steel and aluminum tariffs, and additional duties on imported wood cabinets and vanities.

The broader impact of trade uncertainty is also looming. Roughly 40 percent of inputs used by Canada's construction industry are imported, primarily from the United States, which accounts for 25 percent of those inputs. Exposure to trade risks is particularly pronounced in engineering construction, with a significant portion of inputs for communications and oil and gas engineering coming from the U.S.

Despite the sector's resilience, there are growing concerns about the residential pipeline in major markets. Contractors are struggling with a lack of growth in the existing project pipeline, especially for highrise residential properties. This comes as Canada's population growth has stalled and the largest housing market shows subdued demand, with the pace of new condo projects in the Greater Toronto and Hamilton Area slowing compared to previous years.

Nicole Emmett, the association's vice-president of communications, marketing and members services, noted that while the industry remains resilient, it is increasingly divided between emerging opportunities and near-term challenges.