CONSTRUCTION MARKET OVERVIEW
Building through headwinds
Aggressive US trade rhetoric, particularly around tariffs on steel and aluminum, has overshadowed Canada’s economy and its construction sector. Yet, despite these headwinds, the industry has remained resilient. Construction gross value added (GVA) rose by 0.3 percent on the quarter, following on from Q4 2024’s 1.0 percent growth.
Source: Statistics Canada
Non-residential construction expanded by 2.5 percent on the quarter, reinforced by continued progress on institutional projects including schools, hospitals and other government buildings. Meanwhile, engineering construction contracted by 2.0 percent on the quarter, as expenditure ramps down on major projects approaching completion.
Investment in building construction, which captures total construction expenditure rather than just labour and capital inputs like GVA, rose by 5.6 percent in Q1 2025. This marks the strongest quarterly gain since Q3 2020 and signals renewed momentum following recent volatility. Residential sector investment increased by 8.2 percent, supported by a backlog of multi-unit projects initiated in previous quarters and a shift in appetite for rental apartment construction. Institutional and governmental investment grew by 2.9 percent in Q1 2025, reflecting steady capital flows through ongoing multi-year provincial and federal programs.
Nearly all major building construction segments posted investment gains in Q1 2025. This broad-based increase could reflect efforts to advance construction timelines in the face of trade policy uncertainty rather than a sustained industry recovery. As forward planning effects taper off, Q1 2025 momentum may not persist.
Building permits, a forward-looking indicator of construction activity, remained subdued in Q1 2025 and increased by 0.7 percent on the quarter. Housing starts, another gauge of potential activity, fell sharply by 10.2 percent - the steepest quarterly decline since early 2023. This drop reflects a combination of reduced immigration levels, elevated borrowing costs and condominium market struggles.
Source: Canada Housing and Mortgage Corporation, Aggregate bank forecast
Prospects are perhaps brighter outside of the residential market, with the newly elected Liberal government rolling out its ‘nation-building’ agenda. This aims to unlock and bring forward investment in infrastructure projects and programs to kickstart economic growth by reducing regulatory red tape and accelerating federal and municipal approvals.
Prime Minister Mark Carney’s government also plans to expand skilled trades training programs to help industry supply meet demand. However, should several new projects be greenlit concurrently and development accelerate simultaneously, significant strain would be placed on the labour market, as the construction industry is unlikely to scale up quickly to match rapidly increasing workloads.
Nonetheless, public sector investment is likely to drive construction activity growth moving forwards, particularly as private sector investment appetite remains sensitive to external shocks. Geopolitical uncertainty and trade volatility will undoubtedly influence development needs. However, should tensions de-escalate, the Canadian construction industry has solid building blocks in place to move forwards.
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