US Tariffs on Steel and Aluminium: A Blow to Canada's Housing Market
The announcement of new tariffs on Canadian steel and aluminium imports by the United States is creating serious worries within the Canadian housing sector. Set to go into effect on March 12, these 25% tariffs, signed into law by former President Donald Trump, are expected to increase the cost of essential building materials. With housing affordability already at a critical point, these tariffs could worsen the situation for both builders and homebuyers across the country.
Impact on Homebuilders and Construction Costs
The Ontario Home Builders’ Association, representing over 4,000 companies in the construction and renovation industries, warns that the tariffs will further escalate the already high construction costs. The industry is reeling from years of pandemic-driven supply chain disruptions and inflation, which have driven up the cost of materials like lumber. Steel and aluminium, key materials for construction, are now facing additional pressure from the tariffs, leading to fears of another wave of price hikes. OHBA’s CEO, Scott Andison, called the tariffs a "brutal blow" to housing affordability, emphasizing how these additional costs could push already narrow profit margins even lower.
A Complex Situation: Tariffs and Market Pressures
The impact of these tariffs goes beyond just price increases. Homebuilders are concerned that the reduced demand for Canadian-made steel and aluminium in the US market could decrease production levels in Canada. As the US is a significant importer of Canadian materials, the lower demand could drive up domestic costs. Builders could be forced to pay more for the same raw materials, ultimately resulting in higher prices for new homes.
Andison highlights how the dynamics of the market are already out of balance. The steel and aluminium tariffs, when combined with other challenges such as high interest rates and inflation, may make it more expensive to build homes, directly affecting affordability for potential buyers. Homebuilders are already working with limited margins, and these new tariffs could make it even harder to maintain sustainable operations.
Potential Retaliation and Further Economic Impact
Canada exports a staggering $20 billion worth of steel and aluminium to the United States annually, with the US being the largest market for Canadian aluminium. The threat of retaliation tariffs from Canada could further escalate the problem, especially if additional taxes are applied to critical construction materials like cement, gypsum, and lumber. According to Andison, this would drive construction costs "into a crazy level," potentially making the building of new homes completely unfeasible.
While there is concern about retaliatory tariffs, even without such measures, Canadian homebuilders are grappling with significant cost challenges. Many homebuilders may be able to continue constructing homes, but the rising material costs could make these homes unaffordable for most buyers, particularly first-time homebuyers, who are already priced out of many markets.
Broader Economic Ramifications
The US tariffs are also likely to have broader economic consequences beyond the housing sector. BMO economist Robert Kavcic points out that Canada's steel and aluminium exports to the US represent about 1% of the country's GDP, making the trade relationship between the two nations crucial to Canada's economic health. With the US market receiving over 3 million metric tons of aluminium from Canada annually, any disruption in this trade flow could have long-lasting effects on Canada's manufacturing sector and overall economic stability.
The Canadian Chamber of Commerce has voiced its concerns over the tariffs, with President Candace Laing criticizing the decision as "wrong on so many levels." Laing further emphasized the uncertainty surrounding trade policies and the ongoing volatility that businesses in Canada will face, making it harder to plan for the future.
A Precarious Situation for Housing Affordability
At the heart of the issue is the affordability of housing in Canada, which has already become a challenge for many citizens, especially young people and first-time buyers. Builders are worried that these tariffs will push prices beyond the reach of average Canadians, exacerbating the affordability crisis in the housing market.
While the tariffs will undoubtedly increase the cost of construction, it’s the long-term impacts on housing availability and affordability that remain the most concerning. As construction becomes more expensive, fewer homes may be built, and even fewer buyers will be able to afford to purchase them. For an industry already in crisis, these new tariffs only add more pressure.
The combination of rising material costs, trade tensions, and a housing market already struggling to keep pace with demand could lead to a significant downturn in housing accessibility across Canada, making it difficult for many to achieve the dream of homeownership. The outcome of these trade disputes may shape the future of Canada’s housing sector for years to come.
