Construction GDP rises 2.6% as costs and tariffs squeeze margins
Canada’s construction output climbed to $170 billion in Q3, driven by engineering work, while an industry price index rose 4.2% as tariffs and labour shortfalls pressure the sector.
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By Torontoer Staff
Canada’s construction sector grew in the third quarter, but rising material costs and persistent trade frictions are limiting gains. Sector GDP reached $170 billion, up 1.3 percent from the prior quarter and 2.6 percent year over year, according to the Canadian Construction Association’s winter 2026 economic insights report.
The quarter marked the largest three-month gain in roughly 3.5 years and was the sixth consecutive quarterly increase, with engineering and other construction activities driving most of the advance. Still, the report flags higher input prices and supply chain disruptions as major ongoing risks to growth.
What lifted output
Engineering projects, public infrastructure spending and non-residential activity pushed quarterly growth. The construction sector outpaced the all-industry average, which grew 0.5 percent for the same period, illustrating stronger momentum in project work compared with the broader economy.
Rising building costs and what’s driving them
The Building Construction Price Index, which tracks the cost of constructing a typical building in 15 major Canadian markets, rose 4.2 percent year over year in Q3. Metal fabrications, structural steel and plumbing were key contributors, while factory and office construction costs climbed 5.7 percent and 3.2 percent respectively.
The report highlights the role of the Canada-U.S. trade dispute. A notable share of firms reported major negative impacts from tariffs on cross-border purchases, and some companies have had to change suppliers in response to trade disruptions.
- Sector GDP: $170 billion in Q3, up 1.3 percent quarter over quarter
- Year-over-year GDP growth: 2.6 percent
- Building Construction Price Index: up 4.2 percent year over year
- Factory construction costs: up 5.7 percent
- Office construction costs: up 3.2 percent
Tariffs, procurement rules and regional impacts
The report notes that 16.4 percent of construction firms said Canadian tariffs on U.S. goods had major negative effects, while 13.6 percent reported major disruptions from U.S. tariffs on Canadian goods. Only a small share of firms reported major benefits from the removal of interprovincial trade barriers. Regions such as London, Ontario, and Quebec City were singled out as particularly affected by price pressures.
New policy measures will add pressure in the near term. A global 25 percent tariff on steel derivative products took effect on Dec. 26, and several tariff remissions were scheduled to expire on Jan. 31. Ongoing buy-Canadian procurement rules will also shape sourcing decisions for many projects.
Labour shortfalls and the workforce outlook
Workforce challenges remain acute. BuildForce Canada estimates a potential shortfall of 108,300 workers by 2034, driven largely by retirements and demographic trends. The Canadian Home Builders’ Association estimates that about 22 percent of residential construction workers could retire over the next decade, adding to recruitment and retention pressures.
Investments from the federal government will drive growth, but rising costs and workforce constraints will continue to limit the industry’s ability to unlock its full potential and deliver on Canada’s ambitious construction agenda.
Rodrigue Gilbert, president, Canadian Construction Association
How developers and firms are responding
Some developers are shifting procurement strategies, re-evaluating supplier relationships and adjusting project budgets to account for higher input prices. Others are accelerating timelines for projects where labour and materials are secured, while some are pausing or redesigning plans until cost pressures stabilise.
The report also points to the limits of domestic production for certain materials, which leaves firms reliant on cross-border supply chains and vulnerable to tariff changes. That exposure, the association says, will likely persist into 2026.
What to watch in 2026
Key indicators to follow include quarterly GDP for construction, movements in the Building Construction Price Index, the progression of tariff and procurement policies, and labour market trends such as retirements and training outcomes. Those factors will determine whether current growth can be sustained or if cost and workforce headwinds will slow activity.
For now, the sector shows resilience, but policymakers and industry leaders face choices that will affect project costs, timelines and capacity to meet Canada’s infrastructure and housing objectives.
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