The Canadian Construction Association’s (CCA) fall 2025 Construction Quarterly Economic Insights report finds that although Canada's economy contracted in the second quarter of the year, the construction industry grew marginally.

The report shows that the overall economy shrank by 1.6 percent, during the second quarter of this year, driven by a loss of nearly 10 percent in net exports. The construction sector, on the other hand, added a modest 0.24 percent over the same period. Growth was led by residential building construction, which added 1.5 percent during the quarter, while engineering and other construction activities dropped for a second successive quarter. 

"Canada's construction industry continues to show remarkable resilience -- but that is not without its challenges," said CCA President Rodrigue Gilbert. "We're seeing growth in construction activity, fueled by the federal government's nation-building focus, but rising costs, workforce shortages, and trade uncertainty are making it harder for companies to plan, bid, and deliver projects that Canadians depend on.”

The report also flags potential risks to the sector going forward. For example, the value of building permits dropped 6.2 per cent in Q2, down 3.1 per cent year-over-year (YOY) – a fact that suggests a possible slowdown in project starts. Additionally, an over-supply of multi-unit residential properties in Vancouver and Toronto has softened confidence in both cities’ real-estate markets, and a pre-sale market rebound may take time before housing starts pick up.

The report also warns that construction costs continue to rise. The Building Construction Price Index is up by four per cent year-over-year in the second quarter, led by metal fabrications (+5.5 per cent), structural steel (+5.9 per cent), and concrete divisions (+3.1 per cent). Indeed, the index has risen by more than 50 per cent since 2017, more than twice the rate of Consumer Price Index inflation.

The Industrial Produce Price Index also rose 2.6 percent year-over-year. The price of primary non-ferrous metal products surged by 17.3 per cent, mainly due to rising inflationary costs of aluminum and copper. Meanwhile, energy product prices fell by 6.7 per cent. Lumber and other wood products are up by 4.6 per cent.

CCA also warns that new "Buy Canadian" procurement rules for federal projects, which are expected to take effect in November, could have mixed effects on project timelines and costs. Exactly how the policy will be applied is, at the moment, unclear. The federal government has suggested the policy could apply to not just federally owned projects, but also those receiving new federal funding.

The application of the policy could have significant implications not only for businesses involved in federal projects, but also for the industry at large. For business owners involved in federal procurement, procurement decisions may be constrained by domestic sourcing requirements, leading to higher costs, limited supplier options, or supply chain disruptions, especially in markets where Canadian production capacity is limited. For everyone else, these restrictions could indirectly drive up market prices of critical inputs, like structural steel and lumber.

CCA is advising government that consultation with downstream industries, including construction, is critical to ensuring that domestic sourcing policies strengthen rather than constrain Canada's ability to build.

"Building strong communities, trade corridors, and critical infrastructure remains a national priority and a priority for our industry, but protectionism adds friction to that mission," said Gilbert. "We need coordinated trade, procurement, and investment policies that make it easier to build, not harder."

Looking ahead, CCA anticipates that rate cuts from the Bank of Canada and the launch of Build Canada Homes could provide a modest lift to residential construction and housing-infrastructure before the end of this year. The lower interest rates are expected to support investment in construction, particularly in apartment housing starts – investment activity tends to react to rate cuts within three to six months. However, it adds, weaker pre-sales and regional disparities – especially in Ontario and British Columbia – signal that the road to sustained recovery remains uneven.

CCA says rising costs continue to be the top concern of businesses. Inflation is limiting the number of viable projects that can be developed and completed, and interest rate cuts alone may not be sufficient to turn market sentiment. The dip in permits in this market may persist longer than anticipated. It could take time for prices to adjust and project demand to recover. Apartment construction, although only one segment of the industry, tends to be the most volatile and is often where most variations are first felt.

CCA adds it will continue to monitor the effects of tariff regimes, input prices, and procurement reforms on member businesses and advocate for evidence-based policy solutions that support economic growth through construction.