Trump’s tariffs on steel and aluminum would inflict more damage than they did in 2018, Canadian homebuilders say
Canadian homebuilders are fearing a return to pandemic-era construction cost increases as the U.S. gets ready to slap steep tariffs on the country’s imports, with levies on steel and aluminum set to inflict serious damage on the industry.
After material shortages pushed up expenses during the global health crisis, developers say tariffs would pose a big problem – and hurt more than when U.S. President Donald Trump imposed levies on the two metals in 2018.
Tariffs on all Canadian imports are set to take effect Tuesday. While most goods face a 25-per-cent levy, energy products and critical minerals – including aluminum – are subject to a 10-per-cent tariff. Mr. Trump has also said Canadian steel and aluminum would be hit with 25-per-cent levies on March 12.
The White House has suggested various tariffs will layer on top of each other, which could mean tariffs of 50 per cent on steel and 35 per cent on aluminum.
Any tariffs on the metals would drive up costs of key building materials such as electrical components and window frames. Canada’s expected retaliatory measures, as well as threatened reciprocal tariffs by the U.S., would ramp up expenses for wide swaths of the home-building process from appliances to carpets.
“It’s literally like, you know, throwing a proverbial match on a gasoline-doused house, if that image conjures up any thoughts,” said Tariq Adi, chief executive of Adi Development Group. “I mean, we have an already challenged industry.”
One of the industry’s most acute challenges is the lack of demand for preconstruction homes. Investors, who once accounted for at least 70 per cent of the purchases, have disappeared because the preconstruction homes are no longer profitable. As well, borrowing costs and construction expenses are higher than during the pandemic.
Developers used to be able to pass on higher costs to buyers but that has become much harder given that homebuyers and investors are no longer interested in preconstruction homes and can find cheaper properties on the resale market.
“It’s going to be worse,” said Mr. Adi, whose company has 400 housing units under construction in Burlington, Ont. Mr. Adi said one of his electrical suppliers has already told his company to be prepared for a price increase.
“We’re buying all of our fixtures for buildings from the U.S., so we can’t just eat that. We’re going to have to pass that on. So now we’re scrambling, saying, ‘okay, like we obviously don’t want to pass this on to our homeowners.’”
Plaza Corp., a major condo developer in the Toronto region, estimates that the vast majority of building materials pass through the U.S. in some shape or form.
Chief operating officer Scott McLellan said he could not begin to figure out the size of the potential cost increases because there are so many unknowns, including how Canada would respond, the number of times a product crosses North American borders and how long a possible trade war would last.
He provided the example of raw Canadian steel, which is shipped to the U.S. to be made into sheets for heating, ventilation and air conditioning systems. “That company down in the U.S. has to pay 25 per cent more and then send it back up here. Absolutely, there’s an increase,” said Mr. McLellan.
Given that the entire industry has been built around the free trade of goods between Canada, the U.S. and Mexico, major developers such as Plaza Corp. routinely source throughout the North American continent.
“There are reasons why we buy from the U.S. and not from Canada, and a lot of times it’s because it’s cheaper, or they have bigger factories down there, and they can produce it quicker and cheaper. And then maybe it goes from Mexico to the U.S. and has the final polish put on it, and it has to come up here,” Mr. McLellan said.
Other condo developers, such as Equiton Development Inc., said they had already been trying to source more of their materials from Canada before Mr. Trump first floated the threat of tariffs in November. Equiton chief operating officer Christopher Wein said his main concern is how steep tariffs on steel and aluminum would affect large employers such as the automakers in Ontario as well as aluminum producers and refiners in Quebec and B.C.
“People losing their jobs, not being able to afford homes, maybe losing their homes and maybe defaulting on mortgages. So I think the knock-on effect is possibly a bigger concern than simply ‘is this going to affect the price of rebar or is it going to affect the price of aluminum windows?’” Mr. Wein said.
Since Mr. Trump imposed tariffs on the two metals during his first term in office, the cost of residential construction across the country’s largest cities has climbed about 70 per cent, according to Statistics Canada data. As well, the price of a preconstruction home is higher than seven years ago. Prospective homebuyers simply can’t afford higher-priced preconstruction homes.
“This is different than 2018,” said Richard Lyall, president of the Residential Construction Council of Ontario, an association of more than 200 homebuilders in the province. “This is really serious stuff. We are already in a market correction and our costs have gone through the roof.”
This article was first reported by The Globe and Mail
