The conversation surrounding the construction climate in Toronto and the GTA isn’t a simple one, with the hot-topic of tariffs only one part of an ever-evolving situation.
“The message I think is…that it’s infinitely more complicated than just being about tariffs and interest rates,” says John Mollenhauer, president and CEO of the Toronto Construction Association (TCA), adding he advises the industry to “be careful not to be undercapitalized. Be careful to put a little bit away when you can.
“We aren’t, as an industry, an exporter for the most part, so if there’s a tariff in the U.S. on goods sourced outside the U.S., specifically in Canada, then that has relatively little impact on an industry that doesn’t really export,” he adds. “But, because retaliatory counter measures are necessary, and they are necessary…it’s those that have the impact. So, things we source in the U.S. that we bring to Canada will now cost more. We don’t know exactly know how much more.”
Mollenhauer provided an overview of the Toronto and area construction economy to the Daily Commercial News following the TCA’s recent AGM and awards event, which featured Niall Finnegan, a partner at Finnegan Marshall as the keynote speaker.
He said while recent news of steel and aluminum tariffs is definitely cause for concern, “there’s a long list of things that are more vulnerable than other things and even that changes daily. The impact, however, to cost on, for example, a highrise condo, which is 59 per cent of our market, or was until the condo market collapsed…the impact is in the order of three per cent.
“On smaller projects, depending on what kind of project it is, what size it is and how it’s spec’d, the impact could be more. It could be eight or 10 per cent.”
But, he said, what’s important to consider is the many moving parts of the industry and what is impacting developers, especially since the condo market collapsed several years ago.
“What was $1,400 a (square foot), in terms of revenue generation, is now $1,000 a (square) foot. How does the industry recover from a decline of $400 a square foot on the revenue generation side of the proforma?” he explains. “There are some things that are happening that help. For example, interest rates have come down. It reduces debt service costs. It reduces the costs for suppliers.”
The impact of land prices is also playing a role, with some changes afoot.
“If I can’t sell a new condo for $1,400, then how does that impact land prices? Obviously, that has to come down and that’s already happening.”
Development charges continue to be a hurdle with only a handful of municipalities lowering them in consideration of the current economic climate. It is also a year of labour negotiations, which will likely mean rates will go up at a time when rates need to come down for employers.
“That’s the reality,” he says.
Coupled with a housing crisis and likely federal election, Mollenhauer was quick to point out it’s extremely difficult to find any certainty with so many disrupters.
Mollenhauer anticipates the economy may start to recover at the end of the first quarter or start of the second quarter of 2026, but he doesn’t see much recovery in 2025.
“The picture that you need to paint for the next 12 or 18 months isn’t a particularly happy one. Everybody would love to be told that it’s all fine and it will recover soon. I think the recovery may take longer,” he states. “We’re trying to guess what the impacts of all these disrupters could be and even if we could figure them out individually…there are so many disrupters at the moment that are all happening concurrently.
“We’re not going to have 242 tower cranes because (Donald) Trump changes his mind and decides tariffs aren’t necessary or because interest rates come down a little. I think the message is, if you want to survive in 2025 tread carefully.”
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