Oops! U.S. tariffs could lower Canadian homebuilding costs

Key Takeaways:

• U.S. tariffs on Canadian lumber are diverting timber back into domestic markets, creating potential cost savings for ground-oriented housing developments.
• Increased domestic wood utilization could lower construction costs for single-detached homes and townhouses by up to 17% and add 4,000 new housing starts annually.
• Unlocking these supply chain benefits will require investments in east-west transportation links and the removal of interprovincial trade barriers.

The Whole Story:

American tariffs meant to punish Canada could go against the grain when it comes to housing.

According to new analysis from Canada Mortgage and Housing Corporation (CMHC), U.S. tariffs on Canadian softwood lumber and transformed wood products could inadvertently lower domestic residential construction costs by redirecting timber supplies back into the Canadian housing market. The study, authored by CMHC Chief Economist Mathieu Laberge, reveals that utilizing surplus domestic timber could reduce ground-oriented housing construction costs by up to 17% in select major markets.

The analysis indicates that retaining more wood products within Canada could spur a 3.5% national increase in annual ground-oriented housing starts, translating to nearly 4,000 additional single-detached homes and townhouses built each year. The supply benefits are projected to be most pronounced in Western Canada and Ontario, with estimated starts increasing by 8% in Calgary, 6.1 percent in Edmonton, 4.5% in Ottawa, and 4.3% in Toronto.

“While U.S. tariffs on Canadian lumber and wood products continue to weigh on our economy, they also create an unexpected opportunity,” said Mathieu Laberge, Chief Economist and Senior Vice-President at CMHC. “If more Canadian wood products stayed in Canada and were used more consistently across the country, construction costs for ground-oriented housing could fall significantly, helping address supply challenges while building a more resilient forestry sector.”

The report highlights a structural shift in homebuilding inflation since the introduction of U.S. tariffs in 2025. While pandemic-era construction inflation was driven primarily by a 147% spike in wood and composite prices, post-tariff inflation has been dominated by cost increases in steel, aluminum, plumbing, HVAC, and imported metal fabrications. Meanwhile, domestic wood product prices flattened to zero growth between late 2024 and mid-2026, making timber-heavy construction increasingly cost-competitive relative to high-rise steel and concrete builds.

To capitalize on domestic lumber supplies, CMHC emphasizes the need to adopt advanced mass timber technologies and expand east-west freight networks. The housing agency noted that leveraging federal infrastructure programs under the Build Canada agenda and eliminating internal provincial trade barriers will be essential to moving forest products efficiently from mill regions to high-demand urban housing markets.