Canada’s construction sector grew to $170 billion in GDP in the third quarter, up 1.3 per cent from the previous quarter and faster than the wider economy, but the Canadian Construction Association warns tariffs are raising building costs and a shortfall of 108,300 workers looms by 2034.
Growth that outpaced the wider economy
The Canadian Construction Association’s winter 2026 economic insights report puts construction GDP at $170 billion in the third quarter. That is an increase of 1.3 per cent from the previous quarter, compared with 0.5 per cent growth for all industries, and the largest quarter-to-quarter gain the sector had recorded in three and a half years.
It was also the sixth quarterly increase in a row. Year over year, construction GDP grew 2.6 per cent, while the all-industries average grew 1.1 per cent. The association says growth was driven mainly by engineering and other construction activities.
The broader economy steadied in the same quarter, growing at an annualized rate of 2.6 per cent and passing $2.5 trillion, with interest rates expected to stay at 2.25 per cent through much of 2026. Construction was outperforming it, not simply riding a general boom.
A warning sits in the same report, however. Building permits fell a further 5.1 per cent in the third quarter to $32.5 billion, down 9.9 per cent year over year, with Ontario down 15 per cent from the previous quarter. Early fourth-quarter activity suggested a possible rebound, but permits are a forward indicator: fewer today can mean less work ahead.
Costs are still climbing, led by steel
Higher costs remain the sector’s most immediate pressure. The Building Construction Price Index, which tracks the cost of building a typical structure in 15 of Canada’s largest markets, rose 4.2 per cent year over year in the third quarter.
The increase was led by metal fabrications, structural steel and plumbing. Factory construction, which uses a high share of steel, saw the sharpest rise at 5.7 per cent. Office building costs rose 3.2 per cent. London, Ontario, and Quebec City were among the regions hit particularly hard.
The report describes higher construction costs and supply chain disruptions as a major ongoing risk, despite the productivity gains reflected in the GDP figures. Contractors, it warns, should plan for continued price volatility, especially in factory construction and in higher-inflation regions.
Tariffs are hitting both directions of the border
The trade dispute with the United States is a direct cause of part of that cost pressure, according to the report. It found that 16.4 per cent of construction businesses reported major negative effects from Canadian tariffs on goods bought from American suppliers, while 13.6 per cent reported major disruptions from American tariffs on Canadian goods.
The report says those findings highlight the industry’s exposure to cross-border supply chains, particularly for materials that are difficult to produce domestically from scratch. Only 6.5 per cent of firms reported major positive effects from the elimination of interprovincial trade barriers, and 9.6 per cent said trade disruptions had forced them to change suppliers.
The association expects those pressures to persist into 2026. A federal global tariff of 25 per cent on steel derivative products took effect on Dec. 26, tariff remissions were scheduled to expire on Jan. 31, and Buy Canadian procurement requirements add a further layer firms must plan around.
Federal spending is the counterweight. The report notes that Budget 2025 commits $280 billion over five years in capital investments, with roughly one-fifth tied to construction-related activity, built around attracting private investment, Buy Canadian procurement and support for unionized labour.
A workforce gap that money alone will not close
The longer-term constraint is people. Citing BuildForce Canada estimates, the report says Canada could face a shortfall of 108,300 construction workers by 2034, driven largely by retirements and an ageing workforce. The Canadian Home Builders’ Association has estimated that 22 per cent of residential construction workers will retire over the next decade.
Association president Rodrigue Gilbert said the opportunities ahead are significant, but so are the risks. Federal investment will drive growth, he said, while rising costs and workforce constraints will continue to limit the industry’s ability to deliver on Canada’s construction agenda, including housing and infrastructure.
That is the tension in the winter report. Output is rising, demand is supported by public investment, and the sector is growing faster than the economy as a whole. Yet the inputs it depends on — steel, other traded materials and experienced workers — are becoming more expensive or harder to find. Growth in the third quarter shows what the sector can do now. The permit, cost and labour figures describe what could limit it next.
