Ontario’s housing market is intricately tied to global lumber prices and trade policies. Future increases in lumber tariffs, such as higher duties on Canadian softwood lumber, could ripple through the construction industry and influence home prices. This report analyzes how projected lumber cost hikes from tariffs may affect Ontario home prices in coming years. It examines the direct impact on construction costs and new developments, supply chain disruptions and material shortages, effects on housing demand and affordability, and broader economic factors (like interest rates and government policy) that might offset or amplify these trends. Historical cases of past lumber tariffs are also reviewed to provide context and insights for future projections.
Projected Increases in Lumber Costs Due to Tariffs
New or higher lumber tariffs are expected to raise the cost of wood used in homebuilding. In the United States, a major buyer of Canadian lumber, import duties on Canadian softwood were recently increased from about 8% to 14.5% in 2024, with proposals to push combined tariffs to nearly 40%.
Experts warn that such steep tariffs could “significantly escalate the cost of lumber”, with the National Association of Home Builders (NAHB) cautioning that lumber costs might “nearly triple” under a 25% across-the-board tariff hike. treefrogcreative.ca
While a tripling is an extreme scenario, even smaller increases can be notable. Wood typically comprises 15–25% of a new home’s building cost u.osu.edu, so any tariff-driven jump in lumber prices directly feeds into construction expenses. One analysis using a global timber model estimated that raising U.S. softwood lumber tariffs to around 39% could push lumber prices up by 2–5% in the short term u.osu.edu. For homebuilders, a 5% rise in wood costs can translate to roughly a 1% increase in overall house construction cost, given lumber’s share of total building materials u.osu.edu. Although 1% may sound minor, in a market already grappling with affordability issues, even modest cost upticks “will have an important impact” on pricing and profit margins u.osu.edu.
It’s important to note that tariff costs are often passed along. The importing country’s consumers usually bear the brunt of tariffs in the form of higher prices. U.S. homebuyers, for instance, faced sharply higher lumber bills during past tariff showdowns, which indirectly affected Canadian producers’ pricing power. If American buyers must pay more due to tariffs, Canadian mills might charge closer to those elevated prices domestically as well, especially if global demand remains strong. Overall, future tariffs are expected to keep lumber prices above pre-dispute norms, preventing the kind of price relief that might otherwise occur during market lulls
u.osu.edu. Builders and developers therefore need to plan for persistently high lumber costs if tariffs stay elevated.
Impact on Home Construction Costs and New Housing Developments
Rising lumber costs feed directly into higher construction costs for new homes. When lumber prices spiked in 2020–2021 (due to a mix of tariffs, supply bottlenecks, and surging demand), it added an estimated $30,000 to the cost of building a typical new single-family house in Canada ontarioconstructionnews.com. In Ontario, builders reported that unprecedented lumber prices in 2021 drove up construction budgets substantially. An RBC analysis noted that “higher prices for lumber…have added about $30,000 on to the cost of the typical new home” ontarioconstructionnews.com. The CEO of the Canadian Home Builders’ Association (CHBA) confirmed that, for a standard 2,500 sq. ft. house, lumber inflation “added as much as $30,000” in building costs
ontarioconstructionnews.com. While future tariffs might not spark increases as extreme as those seen during the pandemic housing boom, even a partial repeat could mean many thousands of dollars in added expense per new home.
Such cost jumps pose challenges for developers and can discourage new housing projects. Builders often price new homes based on expected material costs, and sudden lumber hikes can wreck those estimates. “Our members price houses based on expected near-term prices for lumber and then, when they go up, it becomes very hard to operate,” said CHBA CEO Kevin Lee during the 2021 lumber price surge.
If tariffs drive lumber costs up unpredictably, developers may delay or cancel projects rather than risk slim or negative profit margins. Higher construction costs also force builders to raise home sale prices to maintain viability, which can slow sales absorption if buyers are unwilling or unable to pay the premium. In some cases, builders might opt to construct smaller units or use alternative materials (steel, engineered wood products, etc.) to mitigate lumber needs – but such substitutions have limits and sometimes higher labor or other costs.
New townhomes under construction in Canada. Elevated lumber costs from tariffs increase construction expenses for developers, which can slow the pace of new housing projects and lead to higher listing prices for the completed homes.
Ontario’s ambitious housing development plans could be tempered by these cost pressures. The province has set a goal of building 1.5 million homes by 2031, but recent trends show housing starts “slipped” from 100,000 units in 2021 to about 90,000 in 2023.
Soaring construction costs are one factor behind this slowdown. If lumber tariffs remain high, contributing to elevated material prices, builders may struggle to ramp up to the construction levels needed. This could worsen the housing supply gap over time. In short, expensive lumber acts as a brake on development: fewer projects get built, and those that do proceed will likely carry higher price tags to recoup costs, ultimately affecting home price levels in Ontario’s market.
Supply Chain Effects and Material Shortages
Tariffs on lumber can also disrupt supply chains and create material shortages that exacerbate cost issues. When tariffs constrain the normal flow of wood between countries, supply imbalances can occur. For example, if U.S. tariffs price some Canadian lumber out of the American market, Canadian mills might reduce production or seek other export markets.
In the short run this can lead to logistical bottlenecks and regional oversupply or undersupply. During the 2021 price spike, North American sawmills had “limited capacity to increase production” quickly to meet surging demand.
Some mills had cut output during earlier low-demand periods and were slow to restart, and pandemic-related labor and transport issues further choked supply.
Tariffs layered on top of these issues make the supply chain even less flexible by discouraging cross-border trade that might otherwise even out regional mismatches.
Builders in Ontario reported that volatile lumber supply was a serious headache in recent years. “It hurts you as a business when you have to say that you don’t know when you’re going to get the lumber that is requested and you can’t tell what the price will be,” explained one Ontario lumber supplier during the 2020–2021 shortages.
Tariffs can contribute to this uncertainty by suddenly shifting where suppliers send their wood and at what cost. In a tariff scenario, Canadian suppliers might prioritize domestic buyers if U.S. demand softens – but if domestic construction is also strong (as it has been in Ontario), mills could still struggle to fill orders on time. This was evident when “mills [were] struggling to get logs, and thus being short of supply”, causing contractors to pay steep prices for the limited lumber available.
Beyond lumber itself, broader supply chain effects often accompany tariffs. Trade disputes that start with lumber may spread to other building materials (for instance, steel, aluminum, or drywall). In fact, more than 70% of Canada’s gypsum (drywall) exports go to the U.S., so tariffs on building goods can hit multiple inputs at once.
Contractors have noted that shortages are not just in lumber, but in many other building materials like drywall, plumbing fixtures, and electrical supplies.
These shortages cause construction delays and further cost inflation. If a builder has to wait or pay extra for not only wood framing, but also finish materials, the overall project cost and timeline are impacted. The net result is often fewer homes delivered on schedule, which constrains housing supply and can put upward pressure on prices for existing inventory. Tariff-induced uncertainty in supply chains thus contributes to an environment of scarcity and caution, reinforcing high price levels for new construction.
Influence on Housing Demand and Affordability
When lumber tariffs drive up construction costs and new home prices, there are direct implications for housing demand and affordability in Ontario. Higher prices for new homes can price some buyers out of the market or push them to seek cheaper alternatives (such as smaller homes, condos, or resale properties). In the U.S., the NAHB estimated that a mere $1,000 increase in a new home’s price “prices out” approximately 150,000 potential buyers from qualifying for a mortgage.
A lumber tariff shock that adds, say, $5,000–$10,000 to the cost of a new house could thus exclude a significant number of would-be homeowners, especially first-time buyers. During the 2017–2018 tariff round, rising lumber costs (largely due to a ~20% U.S. duty) added about $9,000 to the price of a typical new single-family home.
That run-up alone was enough to render over 1 million U.S. households ineligible for a new-home mortgage.
In Canada, where overall housing affordability is an acute concern, similar dynamics hold – even a few percentage points increase in price can erode affordability metrics further in cities like Toronto and Ottawa.
On the demand side, reduced affordability tends to cool buyer demand, all else being equal. If new homes become more expensive due to tariffs, some buyers will delay purchases or seek lower-cost markets, easing upward pressure on prices. However, Ontario’s housing demand is supported by strong fundamentals (population growth through immigration, job creation, etc.), which means that any reduction in demand might be modest relative to the supply shortfall. In a high-cost environment, many buyers will shift to the resale market or to multi-family units, potentially bidding up prices in those segments instead. So while expensive lumber can dampen demand for new single detached homes, it might spill over demand into other segments, keeping housing prices elevated across the board. Crucially, the effect on home prices will reflect a tug-of-war between cost-push pressures and what buyers can afford (which is linked to interest rates and incomes). If tariffs push home prices higher, fewer people can afford to buy – but those who can will end up paying more, and renters might stay in the rental market longer (adding pressure to rental prices). In the medium term, worsened affordability due to tariffs could spur policy responses (discussed below) or market adaptations, but unless alternative housing supply comes on line, the reduced affordability is likely to translate into higher prices for a narrower pool of buyers rather than significantly lower prices. In other words, lumber tariffs act like a tax on home construction – and much of that “tax” gets passed to consumers, “putting homeownership out of reach for many”, as NAHB’s chief economist noted.
Broader Economic Factors and Policy Responses
The ultimate impact of lumber tariffs on Ontario home prices will be mediated by broader economic forces – notably interest rates, government policies, and macroeconomic conditions – which can offset or amplify the cost pressures. A key factor is the interest rate environment. Over 2022–2023, the Bank of Canada raised interest rates sharply to combat inflation, which directly cooled housing demand. Higher mortgage rates significantly increase the cost of financing a home, often exerting downward pressure on home prices (or at least slowing their growth). For instance, in 2023, elevated interest rates contributed to a 10–15% drop in national housing starts (about 30,000 fewer new builds) compared to what lower rates would have supported.
If interest rates remain high or rise further as lumber tariffs bite, they could counteract some of the upward price pressure by limiting what buyers can afford each month. Buyers faced with both higher home prices and higher borrowing costs will likely reduce their bids or sit out of the market, which could temper price growth. In this scenario, the tariff-driven cost increases might mostly manifest as slower construction (fewer new listings) rather than across-the-board price hikes, since demand is simultaneously being suppressed by financing constraints.
Conversely, if interest rates start to fall in coming years (for example, if inflation abates and the economy weakens), the housing market could rebound strongly on the demand side. Lower rates improve affordability and often unleash pent-up demand. Should that occur while lumber tariffs (and hence construction costs) are still high, the resurgence in demand could quickly translate into higher home prices, as buyers compete for limited supply that is costly to expand. In short, interest rate movements could either dampen or amplify the price effects of lumber tariffs: high rates can partially offset tariff impacts by cooling demand, whereas low rates can magnify upward pressure by boosting demand in a high-cost supply environment.
Government policy will also play a critical role. On the trade front, Canadian officials continue to fight U.S. lumber duties through negotiations and legal challenges, aiming to eventually reduce or eliminate these tariffs. nahb.org
A successful resolution of the softwood lumber dispute, while not imminent, would relieve one source of cost pressure and could lead to lower lumber prices for builders. Domestically, federal and provincial governments might implement measures to soften the blow of tariffs. This could include subsidies or tax incentives for homebuilders (to offset material costs), or strategic stockpiling/import diversification of lumber to stabilize supply. Thus far, the Canadian government’s stance has been to decry U.S. duties as “unwarranted and unfair” and highlight how they “amount to a tax on U.S. consumers” and exacerbate housing unaffordability
While this rhetoric doesn’t directly lower costs, it underscores political pressure to resolve the issue. If tariffs persist, we may see increased collaboration between government and industry to boost domestic lumber production efficiency or to find alternative suppliers (though Canada’s lumber industry is itself a major global source, limiting alternatives).
On the housing policy side, Ontario’s government is pushing initiatives to increase supply , for example, the More Homes, Built Faster Act and assigning targets to municipalities for new construction. However, as of 2023 the province is not on track to meet its annual build targets, partly due to economic headwinds.
Policymakers could respond by reducing development charges, fast-tracking approvals, or supporting workforce development in construction to bring down other costs, thereby offsetting the tariff-induced increases somewhat. Additionally, high immigration levels (a federal policy) are boosting housing demand in Ontario each year, which can amplify price impacts by adding more buyers into an undersupplied, high-cost market. In summary, factors like interest rates and government actions will heavily influence whether lumber tariffs lead to notable home price increases or just a suppressed level of construction. A favorable shift (rate cuts, tariff resolution, or subsidies) could blunt the effect on prices, while adverse shifts (rate cuts with no tariff relief, or even broader tariffs on other materials) could intensify price growth beyond current projections.
Historical Trends and Case Studies
History provides several case studies on how lumber tariffs have affected housing markets, offering insight into potential outcomes for Ontario. The Canada–U.S. softwood lumber dispute has been ongoing since the 1980s,
with periodic tariffs and quota agreements punctuating the market. During the early 2000s, the U.S. imposed duties around 27% on Canadian lumber. Homebuilders in the U.S. at that time warned of higher construction costs, though a housing boom driven by cheap credit largely overshadowed the material cost issue. Still, the tariffs were estimated to add around $1,000–$2,000 to the cost of an average home in the early 2000s, according to industry groups – a smaller figure in absolute terms than recent episodes, but significant relative to prices then.
A more recent case came in 2017–2018, when the U.S. enacted ~20% tariffs after a trade agreement lapsed. Lumber prices quickly climbed; by mid-2018, framing lumber prices were nearly 40% higher than a year prior NAHB’s analysis at the time found the cost impact per new home was about +$9,000. This period illustrated that tariffs can indeed inflate home prices in a measurable way, and it spurred calls to resolve the dispute. In fact, the U.S. and Canada did reach an interim understanding to lower tariffs in late 2020 (reducing them to around 8-9%). However, any relief was short-lived, global lumber demand exploded in 2021.
The 2020–2021 lumber price explosion serves as a dramatic case study. While this was not caused only by tariffs (pandemic disruptions and a renovation boom were major drivers), it was a scenario of extreme lumber scarcity and cost. Lumber futures soared to all-time highs (~CAD $1,600 per thousand board feet), roughly 3–4 times the normal price. As noted earlier, this added on the order of $30,000 to Canadian home build costs and about $35,000 (USD) to American home prices. nahb.org
The fallout was felt in Ontario: homebuilders had to delay contracts, some buyers faced escalation clauses or cancellation of pre-sale agreements, and renovation costs skyrocketed. Although tariffs were just one contributing factor (mills couldn’t keep up with demand regardless), the episode underscored how quickly lumber costs can swing and push house prices upward. Many expect that future tariff hikes, if combined with strong demand, could recreate some of these conditions, albeit to a lesser extent if supply chains are better prepared.
By late 2022, lumber tariffs were dialed back to 8.59% in the U.S., and lumber prices settled to more normal levels (though still higher than pre-pandemic). NAHB noted that the price swings since 2020 had “added $14,300 to the price of a typical new home” as of mid-2022. This shows that even after the peak passed, a lasting cost increase remained baked into home prices. Every historical instance suggests that tariffs tend to raise volatility and costs, and unless they’re removed, those costs become part of the “new normal” for home prices. That said, when tariffs have been reduced (as in 2020 and 2022), lumber prices saw some relief – demonstrating that policy changes can quickly feed through to material costs and, by extension, home prices.
Case Study Summary: In past tariff implementations, consumers ultimately paid more for homes. Whether it was $9,000 extra per house in 2018 due to 20% duties
or $30,000 extra during the 2021 shortage
ontarioconstructionnews.com builderonline.com, the pattern is that tariffs raise building costs and those costs translate into higher housing prices or reduced affordability. Ontario’s experience will likely mirror these trends: if future lumber tariffs persist or increase, expect building costs to stay elevated and put upward pressure on home prices compared to a no-tariff scenario. Historical precedent also shows the importance of a stable trade environment, when tariffs were cut in half in 2022, it was seen as a step toward easing price pressures.
Therefore, any future resolution of lumber disputes could help moderate Ontario house prices, while failure to resolve them could contribute to continued price escalation.
Conclusion and Projections
Conclusion and Projections
The recent announcement by President Donald Trump to impose an additional 25% tariff on Canadian softwood lumber imports is poised to exert significant upward pressure on home prices in Ontario. This new tariff would be in addition to the existing 14.5% duty, bringing the total tariff rate to nearly 40%. Such a substantial increase in tariffs is expected to escalate lumber costs, subsequently raising construction expenses for new homes.
Short-term (next 1–2 years): With the cumulative tariff rate approaching 40%, Ontario builders are likely to face heightened lumber costs. This escalation could add approximately 3–5% to new home prices in the province during this period, translating to an increase of $24,000–$40,000 on an $800,000 home. Elevated construction costs may deter housing starts, exacerbating the existing supply shortage. If interest rates remain high, housing demand could be tempered, leading to modest overall home price increases in Ontario, potentially in the low single-digit percentages annually.
Medium-term (3–5 years): Should these elevated lumber tariffs persist and interest rates decline, Ontario might experience renewed upward pressure on home prices. Improved affordability from lower mortgage rates, coupled with constrained housing supply due to high construction costs, could result in home price growth outpacing income increases, potentially exceeding 5% per year for several years. This scenario would further strain housing affordability, potentially prompting government interventions to address the issue.
Policy considerations: The escalation of tariffs underscores the need for renewed negotiations between Canada and the United States to resolve the softwood lumber dispute. A successful resolution could alleviate lumber cost pressures, benefiting both builders and homebuyers. In the interim, domestic policy measures, such as subsidies or incentives for alternative building materials, could help mitigate the impact of increased lumber costs on the housing market.
In summary, the newly proposed tariffs are expected to exacerbate existing challenges in Ontario's housing market by increasing construction costs and limiting new housing supply. This development is likely to place additional upward pressure on home prices, further affecting affordability for prospective homebuyers in the province.
In conclusion, while many variables influence Ontario’s housing market, lumber tariffs are a significant supply-side factor that cannot be ignored. They function as a “hidden tax” on home construction nationalmortgageprofessional.com, and inevitably consumers “end up paying for the tariffs in the form of higher home prices.” nahb.org. If upcoming years bring continued or increased lumber tariffs, Ontarians should be prepared for upward pressure on home prices, reduced affordability, and potential delays in much-needed housing development. Policymakers will need to address these challenges through both trade negotiations and domestic housing strategies to prevent lumber tariffs from pricing the next generation of homebuyers out of the market.
Sources: Recent analyses of lumber tariffs and housing by industry experts and economists
treefrogcreative.ca; statements from Canadian Home Builders’ Association and RBC on construction cost impacts
ontarioconstructionnews.com; supply chain reports during the 2021 lumber shortage
blog.databid.com; NAHB and CMHC data on how tariffs and interest rates affect housing starts and prices
cmhc-schl.gc.ca; historical case studies of the softwood lumber dispute and its effect on homebuilding builderonline.com
nahb.org. These sources collectively indicate the strong correlation between lumber tariff policies, construction economics, and housing market outcomes in Ontario.
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