Canada’s real estate market is facing a complex storm—one fueled by rising interest rates, economic uncertainty, and now steep tariffs that are pushing construction and housing costs even higher. At the center of it all is a 25% Canadian tariff on $29.8 billion worth of U.S. imports, including critical goods like steel and aluminum, which form the backbone of the construction industry.
As these economic forces converge, their impact is felt across the real estate spectrum: from developers and homebuilders to first-time buyers, low-income households, and even municipal governments. What once felt like a manageable market correction is beginning to show signs of a more profound and structural crisis in housing affordability and supply.
Tariffs Drive Up Construction Costs—and Stall Development
Tariffs function as taxes on imported goods, and their direct consequence is increased costs. When applied to essential building materials like lumber, steel, and aluminum, much of which is sourced from the United States, those costs get passed along the construction chain. Already operating under tight margins, developers are now facing skyrocketing input costs that make many new housing projects financially unfeasible.
The result? A slowdown—or outright freeze—in new development. Projects are being delayed, scaled down, or shelved indefinitely as builders hesitate to commit capital in a volatile climate. This decrease in supply will only exacerbate the housing shortage in major Canadian cities, driving up prices and locking more potential homeowners out of the market.
Buyers and Sellers Enter a Standoff
The psychological toll of this economic instability is visible in buyer behaviour. With rising borrowing costs and an uncertain future, many would-be buyers are pausing. First-time buyers and those from lower-income brackets are the hardest hit. Mortgage payments are increasingly unaffordable, and qualification standards have tightened as lenders grow more risk-averse. Add in elevated credit card interest and consumer loan rates, and the financial pressure becomes overwhelming.
On the other side, sellers are also in a bind. Home values may stagnate or decline due to lower demand, yet many are reluctant to reduce prices, especially if they bought during the market peak. This creates a gridlock: fewer transactions, longer listing times, and declining momentum.
Inflation and Interest Rates: A Vicious Cycle
Tariffs also fuel broader inflation. Since the U.S. accounts for approximately 50% of Canada’s imported goods, the ripple effect goes beyond real estate. Groceries, vehicles, appliances, and household goods become more expensive, increasing the overall cost of living. In response, the Bank of Canada may feel pressure to maintain or even increase already-high interest rates to control inflation, further discouraging borrowing and investment.
This cycle—higher costs prompting higher rates, which suppresses consumer confidence and market activity—creates a dangerous feedback loop with real implications for Canada’s housing sector.
A Hidden Toll on Municipal Budgets and Local Economies
Sluggish real estate transactions hurt buyers, sellers, and municipalities. When fewer homes are sold, land transfer taxes, a significant revenue source for many local governments, are affected. That shortfall may impact city budgets and reduce funding for essential infrastructure, services, and housing programs.
Meanwhile, sectors tied to the housing economy—like home furnishings, renovations, and retail—feel the squeeze too, compounding the economic slowdown.
A Market in Need of Intervention
The Canadian real estate market is at a crossroads. If tariffs persist and inflation remains unchecked, housing affordability will continue to erode. Policymakers must distinguish between addressing inflation and maintaining economic growth. For developers and real estate professionals, the path forward may involve greater innovation, government partnerships, and reimagining housing models that can succeed in a high-cost, high-risk environment.
But one thing is clear: without relief from these compounding pressures, the dream of homeownership could drift further out of reach for many Canadians—and the long-term health of the real estate market may hang in the balance.
