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The Impact of Tariff Chaos on Canada’s Home Building Industry

The Impact of Tariff Chaos on Canada’s Home Building Industry

In recent months, Canada’s housing development industry has found itself at the mercy of global trade turbulence, with the uncertainty surrounding tariffs and trade policies threatening to slow new investments in the country’s housing market.

As the Trump administration’s fluctuating trade policies create an unpredictable environment, investor confidence has been shaken. President Trump’s repeated announcements and delays regarding steep tariffs on Canadian goods have made it harder for developers to plan and secure funding for new housing projects.

A Slower Market: Land Acquisitions and Housing Development

The ongoing global trade conflict has been blamed for a noticeable slowdown in land acquisitions and home resales. According to Colliers, a commercial real estate firm, there was a period of positive momentum towards the end of last year when land purchases and housing development were on the rise after a couple of years of low activity. However, that optimism has been fading, with investors becoming more cautious and pulling back from the market.

Steve Keyzer, an executive vice-president with Colliers Canada, noted that the uncertainty surrounding the trade war has eroded investor confidence. “If this goes on for a long time and tariffs do come into effect for the medium term, then we’re going to see less confidence in all aspects of investment in the economy, and definitely, housing will be affected,” he said.

In fact, land sales in Canada’s major regions saw a slight uptick in the last quarter of 2024, reaching $2.29 billion. But this is still well below the peak of $5.21 billion seen in the second quarter of 2022, highlighting how investor interest has cooled significantly. Meanwhile, sales in key Canadian cities like Toronto, Calgary, and Vancouver have dipped from February to March 2024, further reinforcing the impact of these uncertainties.

The Ripple Effect: Construction Costs, Supply Chains, and Buyer Confidence

The trade war isn’t the only challenge facing home builders. Rising construction costs, material shortages, and disruptions caused by the pandemic have already strained the housing market. These issues were compounded by rising interest rates, which made it harder for homebuyers to qualify for mortgages. In turn, the increased borrowing costs also impacted developers, further dampening investor interest in new housing projects.

As Shaun Hildebrand, president of Urbanation Inc., explains, “100 per cent this uncertainty around a trade war will impact new development.” The consequences are already evident in the resale market, as many potential buyers have pulled back, uncertain about future costs and the broader economic outlook.

Homebuilders have also struggled with the unknown effects of tariffs on construction materials and supply chains. The global trade war adds another layer of unpredictability, making it harder for developers to forecast costs and timelines. Mazyar Mortazavi, CEO of TAS, an Ontario-based home builder, pointed out that economic turmoil and tariff uncertainties make it more difficult to secure capital and provide investors with confidence in the stability of their projects. "Capital flows to where certainty lies," Mortazavi said.

A Shaky Future for Housing Investments

The uncertainty created by the tariff war is making it increasingly difficult for developers to secure funding for new projects. Mortazavi revealed that while TAS raised capital last year, it was far below the level they had historically achieved, both in terms of total funds and the speed at which they were able to raise it.

Furthermore, the potential for new tariffs on Canadian goods continues to cause disruptions. In early March, President Trump announced a doubling of tariffs on Canadian steel and aluminum, which would increase to 50 per cent. Though the tariffs were temporarily suspended after negotiations with Ontario, the lack of clarity regarding trade policies makes it hard for businesses to plan for the future.

Meanwhile, Canada has retaliated with its own tariffs, imposing them on $30 billion worth of U.S. goods, and China has introduced new taxes on Canadian agricultural products. With this continuous back-and-forth, the broader implications for housing development remain unclear.

Navigating Uncertainty

For home builders, the uncertainty around tariffs and trade policy disruptions has become a significant barrier to new development in Canada. With rising costs, fluctuating trade policies, and a lack of clarity, investor confidence is waning, and projects are being delayed or scaled back. As Ted Betts, a partner with Gowling WLG, explained, “The worst part is not even the tariff. It is the disruption and uncertainty. The uncertainty is what kills projects.”

Until there is greater stability in the global trade landscape, it seems likely that Canada’s housing market will face continued challenges, making it more difficult for developers to meet the growing demand for new homes.

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