Between ongoing demand shifts, immigration policy tweaks, and threats of tariffs, 2025 was a temperamental year for the Canadian construction sector to say the least. But 2026 may bring some stability, according to an annual report published earlier this month by construction consultancy firm BTY Group.
“Construction activity at the beginning of the year maintained the momentum seen at the tail end of 2024, but metrics shifted after tariffs were announced and implemented early in the year,” said BTY Group. “Population growth also slowed dramatically which widened existing demand gaps for residential construction, most notably in British Columbia and Ontario. Activity picked up from Q2 to Q3 however, as tariff impacts were better understood and cost escalation was mostly in line with general inflation.”
From a population perspective, 2025 saw a 0.9% growth year-over-year — roughly 389,000 people — that represents the smallest level of population growth since 2016. The reduction in immigration targets will alleviate demand-site pressure, said BTY Group, but there remains a need for affordable housing, modern infrastructure, new schools, hospitals, transit systems, and more.
British Columbia
“Despite a slow start, BC fared relatively well during a 2025 that was forecast to be moderate,” said BTY Group. “Housing starts picked up their pace in the latter part of Q2, and growth continues to sprawl outside of Vancouver with consistent levels of activity in areas such as Vancouver Island and the Okanagan region.”
Economically, BTY Group said tariffs resulted in pressure on local softwood lumber supplies, but the region as a whole faired well because around 50% of exports are with non-US trading partners. Consumers also shifted their spending, such as spending related to tourism, away from the United States and back within BC.
Construction costs for the commonly-seen low-rise wood-frame building up to six storeys is expected to range from $380 to $480 per sq. ft. in Vancouver, and between $320 and $420 in Surrey. For high-rise concrete towers over 16 storeys, those numbers range from $500 to $750 in Vancouver and $450 to $500 in Surrey.
Construction cost ranges for British Columbia. (BTY Group)
Ontario
Unfortunately, Ontario didn’t fare as well, and the “significant headwinds” seen in 2025 will likely continue in 2026, according to BTY Group, although key sectors such as manufacturing and aluminum production are expected to rebound as trade routes beyond the US are established.
“United States tariffs are a hindrance to the local manufacturing and metals sector, provincial unemployment is high, and a sluggish real estate market (particularly in Toronto) has slowed capital inflow into the sector. Heightened uncertainty constrains private investment in the province, and condominium construction will likely remain muted as investors sit on the sidelines.”
Demand for housing still exists, but is now primarily concentrated in missing middle-type housing, like townhouses and walk-up apartments. Construction costs for townhouses in the Greater Toronto Area are set to range from $220 to $375 per sq. ft, while costs for low-rise wood-frame buildings will range from $225 to $330 — both significantly lower than Vancouver.
Construction cost ranges for Ontario. (BTY Group)
2026
As a whole, construction costs stabilized over the course of 2025. Cost escalation has slowed down significantly in most provinces, in line with demand also dropping, and BTY Group says they expect cost escalation in 2026 to be mostly aligned with general inflation. Residential construction cost escalation is expected to be less than 2% in BC — the lowest in the country — and between 2% to 4% in Ontario.
“For most metropolitan areas, demand for housing is consistent and continues to accommodate the sharp increase in population that occurred in 2023/2024,” the report notes. “In markets such as Toronto and Vancouver however, a glut of condominiums, particularly smaller studio and one-bedroom units, have flooded the market.”
Construction cost escalation projections by region. (BTY Group)
“Investors and Developers have pivoted their efforts to affordable/non-market housing projects,” they added. “With broader incentives and wider access to capital, developers are shifting their focus — particularly as the Government of Canada opens up the Build Canada Homes (BCH) initiative.”
“Looking ahead, modest growth is projected across the provinces,” they concluded. “Canada likely avoids a significant recession in favour of a slow rebound from 2025’s sluggish performance. Real GDP growth is expected to stabilize in 2026 as individuals and businesses navigate continued uncertainty due to changing tariff pressures.”
For 2026, BTY Group is projecting real GDP growth of 1.5% (after growing 1.7% in 2025), an unemployment rate of 6.9%, and 250,000 housing starts, but emphasizes that there continues to be a “high degree of uncertainty around economic relationships with the United States.”
