When served with tariff lemons, let’s make housing lemonade

What if the latest U.S. tariffs ended up lowering housing construction costs in Canada? While this may sound counterintuitive, new CMHC analysis suggests that tariffs on Canadian lumber and transformed wood products could create an opportunity to build some homes more affordably.

If more Canadian wood products stayed in Canada and were used more consistently across the country, construction costs for ground-oriented housing could fall by as much as 17% in some centres. This would include costs for detached houses and townhouses. Such a change in building habits may lead to an increase of 3.5% in annual ground-oriented housing starts across the country, or close to 4,000 more starts annually. In centres like Calgary, the increase would be close to 8%, while in Toronto and Ottawa it would be about 4.5%.

Since 2025, Canadian lumber and, more recently, some transformed wood products have faced steep U.S. tariffs. Economists generally expect these trade measures to weigh on Canada's economy and increase costs for businesses and consumers.

But there is a potential upside. If fewer Canadian wood products are sold in the U.S., more may remain available in Canada. That could help lower costs for homebuilders by changing the materials and techniques they use to build.

When the math stopped working for housing construction

During the pandemic, costs of inputs to residential construction grew fast, leading major developers to ring the alarm bell: the math of housing construction was no longer working.

Since 2019, the cost of building homes has increased by 74% across Canada's largest housing markets. That increase far outpaced overall inflation. But an important shift occurred after the U.S. introduced tariffs in 2025: the materials driving construction costs changed.

During the pandemic, wood-based building materials saw some of the largest cost increases, rising by 147%. Those increases played an important role in making housing more expensive to build. The next category was metal fabrications, with a 66% increase over the same period — still high but nowhere near the cost for wood, plastics and composites (see Figure 2).

This growth pattern impacted unit types and regions differently.

Ground-oriented housing costs rose more than high-rise housing costs because these homes rely more heavily on wood products. The share of construction costs directly due to wood, plastics and composites is roughly 16 times larger in ground-oriented housing than in high-rise apartments.

Across all 15 markets in Canada’s census metropolitan areas (CMAs), ground-oriented input costs grew 59% from 2020 to 2023, compared with 37% for high-rise apartments.

Construction costs also evolved differently across major markets. Vancouver and Montréal experienced much lower cost increases than several other large cities. This may be due to their proximity to major lumber-producing regions, which may have improved access to wood products during the pandemic.

Then the tariffs hit

The pattern changed after the U.S. introduced tariffs in 2025. Construction costs increased the most in categories tied to steel, aluminum and manufactured products.

The largest increases between the end of 2024 and the second quarter of 2026 were in utilities, plumbing, HVAC, metal fabrications and structural steel framing — all categories that rely heavily on tariff-affected inputs.

In contrast, traditionally volatile pandemic-era materials such as wood, plastics and composites (0%), and concrete (+1%) completely reversed the trend and showed little to no growth over the same period.

So, where’s the lemonade?

The idea is simple: if Canada makes greater use of its own wood products, we may be able to slow the rise in average construction costs by changing the mix of material and techniques we use to build, especially for ground-oriented housing units.

U.S. tariffs have had and will continue to have a detrimental impact on the Canadian economy and job market, including in many industries that provide inputs to residential construction. But tariffs can also make Canadian wood products less attractive to U.S. buyers.

In the short term, that could leave more supply available in Canada and put downward pressure on price growth. We may already be seeing signs of this shift: wood went from being one of the fastest-rising construction input costs during the pandemic to one of the most stable after tariffs were introduced.

One possibility is to expand the use of mass timber and other advanced wood-building technologies. While still relatively uncommon in Canada¹, countries like Sweden have demonstrated that these approaches can be used at a much larger scale².

The biggest opportunity may lie in ground-oriented housing. These homes use more wood products and have become increasingly financially difficult to build in recent years. They are also the most sought-after types of homes for many young families and first-time buyers.

If wood, plastic and composite costs had grown at the rates seen in Vancouver and Montréal since 2019 across major CMAs, construction costs for ground-oriented housing could be up to 17% lower in some centres.

According to industry stakeholders, one obstacle to making greater use of domestic wood products is the lack of east-west transportation infrastructure.

The federal government's ambitious Build Canada agenda may create opportunities to strengthen the transportation networks needed to move building materials more efficiently across the country. Ongoing efforts by federal and provincial governments to reduce internal trade barriers could also help address that challenge. Together, these initiatives could make it easier to move Canadian wood products to the housing markets that need them most.

Canada can’t control U.S. trade policy. But it can control how it responds. The current tariff situation presents an opportunity to address Canada's housing supply challenges while strengthening the connection between the forestry and housing sectors. A stronger domestic market for Canadian wood products can support both increased homebuilding and a more resilient forestry industry.

Contributors: Jordan Nanowski, Brahim Lgui, Thomas King

¹ Mass timber construction in Canada | Natural Resources Canada
² Wood construction cuts climate footprint | Swedish Wood