The Canadian real estate landscape is constantly shifting, and recent data from Statistics Canada (StatCan) reveals a major development impacting the sector: a sharp rise in construction costs. For real estate professionals, developers, and investors, understanding these growing expenses is key to making informed decisions and planning strategically in both residential and commercial markets.
Construction Costs Rising Faster Than Inflation
In the second quarter of 2025, Canadian building costs accelerated significantly. Quarterly growth rates more than doubled the Bank of Canada's 2 percent inflation target. This increase adds a new layer of inflationary pressure, directly affecting the viability of projects and the broader market environment.
Residential Building Cost Trends
Residential construction costs rose by 1.0 percent in Q2 2025. That translates to an annualized rate well above the Bank of Canada’s inflation target. It's also an increase from the 0.9 percent growth in Q1, with home building costs now sitting 3.7 percent higher than the same time last year. For developers, this means higher expenses when bringing new housing to market.
Non-Residential Construction Growing Even Faster
The non-residential sector saw an even steeper rise, with costs increasing by 1.6 percent in Q2, following a 1.0 percent rise in Q1. Compared to the same quarter last year, these costs are now up 4.0 percent. The annualized rate for this segment is now running at more than triple the Bank of Canada’s target, putting serious cost pressure on commercial and industrial projects.
What’s Driving Construction Costs Up?
According to StatCan, two main factors are behind this rapid increase:
- Counter-tariffs on imported materials
- A continued shortage of skilled labour
Key Material and System Increases
Some of the biggest year-over-year cost increases include:
- Plumbing: up 3.7 percent
- HVAC systems: up 3.0 percent
- Utilities: up 2.9 percent
- Structural steel: up 2.7 percent
These rising input costs make budgeting and forecasting more difficult across all construction types.
Skilled Labour Shortage Still a Major Issue
Despite efforts to address workforce gaps through immigration, the construction industry remains stretched thin. The fast pace of building in recent years has created overcapacity in some areas, while specialized trades remain in short supply. Although a recent slowdown in overall population growth could help ease demand over time, it is unclear how much impact that will have on the need for skilled labour.
What This Means for Real Estate Professionals
Higher construction costs could slow new development and reduce supply, particularly in high-demand markets. For investors, this may support rising property values. At the same time, project delays, thinner margins, and tighter budgets could complicate timelines and investment returns.
Stay Ahead in a Shifting Market
At Coldwell Banker Horizon Realty, we are dedicated to keeping our clients informed about key market developments. Understanding the economic forces behind construction trends allows you to make smarter real estate decisions with confidence.
The content of this article is for informational purposes only and should not be considered as financial, legal, or professional advice. Coldwell Banker Horizon Realty makes no representations as to the accuracy, completeness, or suitability of the information provided. Readers are encouraged to consult with qualified professionals regarding their specific real estate, financial, and legal circumstances. The views expressed in this article may not necessarily reflect the views of Coldwell Banker Horizon Realty or its agents. Real estate market conditions and government policies may change, and readers should verify the latest updates with appropriate professionals.
