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The Impact of Potential U.S. Tariffs and Canadian Retaliation on Real Estate Development and Affordability

Writer's picture: ROSS TALIBOVROSS TALIBOV

United States to impose 25% tariffs on Canada United States to impose 25% tariffs on Canada
United States to impose 25% tariffs on Canada

As former U.S. President Donald Trump re-enters the political stage with discussions of potential new tariffs, Canada is preparing to respond with retaliatory measures. These trade policies could have far-reaching consequences for the real estate sector, particularly in development costs, affordability, and housing inventory. At the same time, persistent inflation concerns place the Bank of Canada (BoC) in a difficult position, as interest rate decisions could either ease or exacerbate market challenges. With economic uncertainty looming, how will these factors shape the future of real estate in Canada?


Tariffs and Their Effect on Developers


Tariffs on Canadian goods, such as steel, aluminum, and lumber, could directly impact the cost of construction materials. Should Trump impose new tariffs on these commodities, Canadian suppliers may raise prices in response to increased export challenges, leading to a surge in domestic costs. This could further squeeze developers already grappling with high develipment costs and high interest rates. Moreover, if Prime Minister Trudeau retaliates with tariffs on U.S. goods, imported materials commonly used in construction—such as heavy machinery, electrical components, and specialty glass—could become more expensive. This scenario would exacerbate the financial burden on developers and potentially slow down ongoing and future projects, worsening Canada’s already constrained housing inventory.


Affordability Concerns for Homebuyers


With rising costs for developers, home prices may continue their upward trajectory, pushing affordability further out of reach for many Canadians. The increased construction costs would likely be passed on to buyers, making both pre-construction and resale homes more expensive.

This could be particularly detrimental in major urban centers like Toronto and Vancouver, where affordability is already a key issue. Higher home prices, combined with sustained high interest rates, could reduce demand among first-time buyers and middle-income families, further exacerbating the housing crisis.


Impact on Housing Inventory


Canada has long faced supply shortages in housing, and escalating costs due to tariffs could delay or even halt some developments. If profit margins shrink too much, developers might opt to scale back or cancel projects altogether, worsening the inventory crunch. In an environment where demand remains strong due to population growth and immigration targets, a reduced supply of new homes would further strain the market and drive prices higher.


The Bank of Canada’s Dilemma


The BoC is already navigating a delicate balance between inflation control and economic stability. Should trade disruptions lead to higher construction costs and further inflationary pressures, the central bank may find itself needing to maintain or even increase interest rates to curb inflation.

However, a more aggressive rate hike could stifle borrowing and investment in real estate, causing a slowdown in development and further worsening housing shortages. On the other hand, if the BoC decides to cut rates to stimulate economic activity and housing development, it could risk reigniting inflation, especially if tariffs create additional price pressures.


What Comes Next?


For developers and investors, the key will be to closely monitor trade policies and their ripple effects on material costs and labor markets. Governments at both federal and provincial levels may need to intervene with incentives or subsidies to offset rising costs and ensure the housing supply keeps pace with demand.


For prospective homebuyers, staying informed about potential interest rate movements will be critical. If rates remain elevated due to inflationary concerns stemming from trade tensions, affordability could deteriorate further. However, if economic uncertainties prompt the BoC to ease monetary policy, it could create more favourable borrowing conditions.


Ultimately, the intersection of trade policies, construction costs, and interest rates will define the trajectory of Canada’s housing market in the coming months. As these economic forces play out, both developers and buyers must adapt to a rapidly evolving landscape.

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