Introduction

As Canada enters 2025, construction costs remain a central concern for developers, investors, and lenders alike. After years of intense volatility driven by the pandemic, supply chain disruptions, and inflationary spikes, the industry is now experiencing a period of relative stabilization. However, this doesn’t mean the challenges are over.

Labour shortages, new regulations, and tariff risks continue to shape the cost environment in complex ways. Understanding the latest trends in Canada’s construction costs—across both residential and non-residential sectors—is essential for planning, underwriting, and executing successful real estate projects in today’s cautious but opportunity-rich market.

National Overview: Construction Cost Trends in Q4 2024

Construction costs across Canada continued to rise in Q4 2024, albeit at a slower pace compared to post-pandemic highs. Both residential and non-residential sectors recorded similar quarterly increases of 0.8%, signaling persistent—yet stabilizing—pressures on project budgets and financing needs.

Slowing Momentum But Ongoing Cost Pressures

Residential Sector

Residential construction costs rose by 0.8% in Q4, following a 0.9% increase in Q3. Despite a moderation in growth, the rate remains elevated compared to pre-pandemic levels.

Non-Residential Sector

Non-residential construction matched the 0.8% rise, up from 0.6% in Q3. Year-over-year, construction costs climbed by 3.7% for residential buildings and 3.8% for non-residential buildings across Canada’s 15 largest Census Metropolitan Areas (CMAs).

Structural Cost Drivers

Key long-term cost pressures include:

• Skilled labor shortages and wage inflation

• Updated building codes and regulatory compliance

• Limited urban land supply in high-demand regions

These factors are reshaping financial strategies for both developers and lenders.

Regional Insights: Variations Across Canada

Residential Sector Highlights

• Regina saw the largest Q4 increase at 2.5%, followed by Calgary at 1.8%.

• Vancouver posted the smallest rise at just 0.2%.

• Major cost drivers: general requirements (+1.6%), interior finishes (+1.5%).

Non-Residential Sector Highlights

• Toronto led with a 1.1% rise.

• Québec City followed with 0.9%, while Calgary saw no change.

• Inflated components: Conveying equipment (+2.4%) and electrical systems (+1.3%).

These regional dynamics guide investor and lender risk assessments.

Quarterly Construction Cost Comparison

Source: Statistics Canada

A Market at the Crossroads: Stabilization Ahead?

In 2025, the Canadian construction sector is entering a phase of cost stabilization. The extreme volatility of 2021–2023, driven by global supply chain breakdowns and inflation, is giving way to a calmer environment. Most material prices now show year-over-year changes of just 0–3%.

Market-Wide Influences

1. From Surges to Stability

Costs for concrete, steel, and mechanical components have normalized, allowing more reliable budgeting.

2. Tariff Uncertainty Returns

With 8.1% of inputs imported from the U.S., tariff risks remain—especially for steel and specialty materials.

3. Labour and Regulation Pressures

Skilled labour shortages and updated building codes (e.g. climate resilience standards) continue to drive costs.

Regional Construction Trends – 2025

Source: Altus Group

The Tariff Effect on Canadian Real Estate

Currency Volatility

• Tariffs weaken the Canadian dollar

• Imported materials cost more, squeezing budgets

• U.S. investors benefit from favourable exchange rates

Industrial Sector Vulnerability

• Cost pressures challenge tenant margins

• Rent concessions or slower leasing activity may emerge

Interest Rate Uncertainty

• Tariff-driven inflation complicates central bank decisions

• Lenders react by tightening underwriting conditions

Geographic Impact

• Manufacturing-heavy areas like Windsor are more exposed

• Tech-driven markets show more resilience

How Smart Capital Can Help Navigate the Uncertainty

At Smart Capital, we help clients:

Assess Feasibility

• Analyze cost projections and material sensitivity

• Identify risk factors related to tariffs and interest rates

Secure Tailored Financing

• Flexible structures: construction, bridge, CMHC-backed loans

• Optimized loan-to-cost ratios with contingency planning

Leverage Lender Networks

• Strong ties with banks, credit unions, and private lenders

• Ability to negotiate competitive terms

Proactively Engage Lenders

• Early involvement to avoid delays

• Scenario modeling and risk-mitigation planning

Frequently Asked Questions

Why are construction costs still rising in 2025?

Labour shortages and regulatory changes are the primary drivers—even though material prices have stabilized.

How do U.S. tariffs affect project budgets?

They raise the cost of imported materials and complicate procurement strategies.

Which Canadian cities offer better development feasibility?

Toronto and Ottawa, where demand has softened and incentives exist, are currently more favourable.

What sectors are most exposed to cost volatility?

Industrial, high-rise residential, and infrastructure projects—due to high material and labour demands.

How does Smart Capital support developers?

We provide custom financing, risk mitigation, and underwriting support to align funding with market conditions.

Conclusion: Planning Ahead in a Stabilizing Market

While Canadian construction costs are no longer spiraling, persistent headwinds—from labour to regulations to tariff impacts—mean smart planning remains essential.

Partnering with experts like Smart Capital ensures access to:

• Predictable financing

• Strategic cost modeling

• Resilient capital structures

Ready to Navigate Cost Volatility with Confidence?

Book a free consultation with one of our commercial real estate financing specialists. We’ll help assess your project’s feasibility, identify the best funding options, and structure a capital stack that aligns with your timeline and budget.

👉 Schedule Your Free Consultation Now

Sources & Further Reading

• Statistics Canada – Building Construction Price Index, Q4 2024
• Altus Group – Canadian Cost Guide 2024
• Bank of Canada – Monetary Policy Reports
• Government of Canada – Tariff Information