The recent imposition of tariffs by the United States on Canadian and Mexican imports, along with Canada’s retaliatory measures, is set to significantly affect construction costs in both Canada and the US, if a resolution is not found. These tariffs will increase the price of essential building materials and building services equipment, while ongoing skilled labor shortages on both sides of the border—exacerbated by the Trump administration’s intensified deportation policies—will further strain the industry. The combined impact of these economic and labor pressures could lead to substantial cost increases and project delays, with some regions being affected more than others.
Impact of Tariffs on Construction Costs
Regional Effects in the United States
The U.S. has implemented a 25% tariff on key Canadian imports such as softwood lumber and gypsum board—materials that are vital for residential and commercial construction. Since over 70% of these materials used in the U.S. come from Canada, this policy will create cost pressures that will vary by region:
- Northeast and Midwest: These regions are heavily reliant on Canadian lumber and gypsum. The tariffs will lead to significant price increases, making construction more expensive. Builders may struggle to find alternative suppliers, leading to delays and increased costs for homebuyers and commercial developers.
- Southern U.S.: This region has an active lumber industry, which could mitigate some of the tariff effects. However, if other regions shift their purchasing to local suppliers to avoid tariffs, demand could spike, driving up prices even in areas with a strong domestic supply.
- Western U.S.: While Western states import some materials from Canada, they also have access to Pacific Northwest lumber supplies. This could provide a partial buffer, though costs will still rise due to broader national demand shifts.
Regional Effects in Canada
Canada has imposed retaliatory tariffs on U.S. goods, including construction materials and industrial machinery, which will impact costs differently across the country:
- Central and Eastern Canada (Ontario, Quebec, Maritimes): These provinces import a significant portion of their construction materials from the U.S., such as steel, cement, insulation and plumbing products. Tariffs will raise costs for builders and developers, making housing and infrastructure projects more expensive.
- Western Canada (British Columbia, Alberta, Saskatchewan and Manitoba): This region has abundant timber resources and is more self-sufficient in construction materials. However, they do import construction materials such as steel and cement products. Also, interprovincial demand for lumber products could increase as other regions look for domestic alternatives, potentially raising local costs.
Impact of Skilled Labor Shortages on Construction
U.S. Labor Challenges
The construction industry in the U.S. already suffers from a skilled labor shortage, and the Trump administration’s push to deport undocumented workers could worsen this problem. A significant portion of construction workers in the U.S. are undocumented workers, and their removal would create severe labor gaps, leading to:
- Southwest and Southeast: States such as Texas, Arizona, and Florida rely heavily on immigrant labor. Deportations could cause major disruptions, leading to project delays and wage inflation as competition for legal workers intensifies.
- Northeast, Midwest and Northwest: While less reliant on immigrant labor, these regions will still feel the effects of a national labor shortage. With fewer available workers, construction timelines could lengthen, further increasing costs.
Canada’s Construction Workforce Crisis
Canada’s construction sector faces its own labor shortages, largely due to increasing housing demands and an aging workforce. With approximately 700,000 skilled tradespeople set to retire by 2028, the industry is struggling to attract new workers. The impact will vary by region:
- Western Canada (BC, Alberta, Saskatchewan & Manitoba): These provinces are experiencing rapid growth, increasing the demand for skilled labor. The shortage could lead to higher wages and project delays, further driving up construction costs.
- Central Canada (Ontario, Quebec): While facing similar challenges, these provinces have more extensive training programs and immigration strategies that could mitigate some of the labor shortages.
- Eastern Canada (New Brunswick, Nova Scotia, Newfoundland and Labrador, PEI): These provinces also have construction labour shortages, due to many factors including booming residential construction markets, such as Moncton’s and migration of skilled workers to other provinces.
Projected Cost Increases Due to Tariffs and Labor Shortages
If the tariff issue is not resolved in short order and the projected economic and labor trends persist, construction costs could rise substantially across North America over the next couple of years:
- United States: Regions heavily dependent on Canadian materials and immigrant labor (Northeast, Midwest, Southwest regions) could see construction cost increases of 15-20%. Other regions may experience slightly lower 10-15% cost hikes.
- Canada: Central and Eastern Canada, which relies on U.S. imports and is facing labor shortages, could see cost increases of 10-15%. Western Canada may experience 5-10% increases due to higher interprovincial demand for labor and materials.
Conclusion
The dual impact of tariffs and skilled labor shortages is creating significant headwinds for the construction industries in both the U.S. and Canada. While some regions will be more affected than others, overall construction costs are expected to rise, leading to longer project timelines and increased housing and infrastructure expenses. Addressing these challenges will require strategic policy responses, including investment in the workforce training, immigration reforms to bolster labor supply, and efforts to stabilize trade relations to ensure affordable material sources.
The goal of any corporation is growth, whether achieved organically or inorganically. Globally, 30–50% of corporate growth is driven by inorganic methods such as mergers and acquisitions (“M&A”). This trend is particularly pronounced in high-technology, healthcare, and pharmaceutical industries due to high research and development (“R&D”) costs and the strategic appeal of acquiring existing intellectual property. For instance, Google (Alphabet) has experienced tremendous growth through over 200 acquisitions since its inception.
In North America, M&A activity slowed over the past two years due to high interest rates and uncertainty surrounding the U.S. presidential election. However, with interest rates now declining and the election concluded, M&A activity is projected to increase in 2025 and beyond. The table below illustrates the value of M&A activity in Canada and the U.S. over the past five years:
| VALUE OF MERGERS & ACQUISITIONS ACTIVITY |
| Year |
Canada (in billions of US$)
|
United States (in trillions of US$) |
| 2024 |
89 |
1.8 |
| 2023 |
81 |
1.6 |
| 2022 |
94 |
2.9 |
| 2021 |
150 |
2.9 |
| 2020 |
71 |
|
Business combinations, including M&As and partnerships, can accelerate growth more rapidly than organic strategies. However, they come with higher risks, such as integration challenges and substantial capital requirements. Moreover, significant due diligence is needed before acquisition and compliance requirements must be met, post-acquisition.
The Role of Valuation Professionals
Valuation professionals, including business valuators and tangible asset appraisers, play a critical role throughout M&A transactions. Their expertise supports the acquirer in both pre-acquisition and post-acquisition processes.
Pre-Acquisition Due Diligence
During this stage, valuation professionals can provide:
- Business Enterprise Valuation (BEV):
- Independent valuation of the target company to ensure accurate, unbiased assessments for purchase negotiations and future planning.
- Tangible Asset Valuations:
- Preliminary verification and valuation of property and assets slated for acquisition.
- In horizontal acquisitions involving multiple facilities, accurate valuations on a per-facility basis can guide decisions about which facilities to retain, sell, or liquidate.
Post-Acquisition: Financial Reporting
Valuation professionals are essential for ensuring compliance with financial reporting standards, which differ slightly between the U.S. and Canada:
United States: Under ASC 805: Business Combinations (U.S. GAAP) acquired assets and liabilities must be measured at fair value on the acquisition date. This process, known as purchase price allocation (PPA), includes:
-
- Identifying tangible and intangible assets.
- Assessing liabilities, including contingent liabilities.
- Calculating goodwill as the residual value after allocating the purchase price to the fair value of net identifiable assets.
Canada: Under IFRS 3: Business Combinations, fair value measurement and goodwill calculation requirements align closely with ASC 805.
Post-Acquisition: Tax Reporting
Valuation professionals also help meet tax reporting compliance requirements, including asset revaluation, depreciation, and assessing potential tax liabilities resulting from the transaction.
Valuation at Fair Value
Fair value measurement is central to both financial and tax reporting in M&A transactions. It involves:
- Identifying and Valuing Assets and Liabilities:
- Tangible assets: Property, plant, and equipment.
- Intangible assets: Trademarks, patents, customer relationships, contracts.
- Financial assets and liabilities: Investments, debt.
- Valuation Methodologies:
- Market approach: Comparison to similar transactions or market data.
- Income approach: Discounted cash flows or other income-based methods.
- Cost approach: Replacement or reproduction cost.
Additional Services Provided by Valuation Professionals
Professional valuators can also offer additional services, such as:
- Fixed Asset Systems Integration:
- Recording acquired fixed assets to align with the acquiring company’s systems (e.g., SAP).
- Asset Management Support:
- Recording production equipment technical details to support the implementation of asset management plans.
- Insurance Appraisal:
- Providing valuations for adequate insurance coverage.
Why Engage Qualified Valuation Professionals?
The complexity of valuation requirements, such as purchase price allocation, necessitates the engagement of experienced, independent valuation professionals. A well-reputed valuation firm can deliver services that:
- Meet Regulatory Standards: Ensure compliance with financial and tax reporting standards.
- Demonstrate Relevant Expertise: Have industry-specific experience and a proven track record.
- Provide Comprehensive Solutions: Offer a “one-stop” service to eliminate inefficiencies, duplication, and gaps.
Mergers and acquisitions are high-risk, high-reward strategies for corporations seeking growth and diversification. A key component for success is engaging qualified valuation professionals who can provide accurate, compliant, and timely services. Their expertise not only supports informed decision-making but also ensures regulatory compliance, contributing to a smooth and successful transaction.
Suncorp Valuations is excited to be an exhibitor at the 2024 RIMS Canada Conference, taking place from October 6-9 at the Vancouver Convention Centre. Join risk professionals from around the world to gain valuable insights and techniques for enhancing risk management practices.
Come visit us at booth #134 where Tom Gardiner, Devin Baker, Vic Persaud, Shamair Turner, Robyn Vey, and Lora Manor will be delighted to answer any questions you have related to appraisals, risk management, or many other services we offer. Plus, take part in fun games and get a chance to win earbuds and gift cards!
We’re honored to be part of this incredible event and can’t wait to connect with you. See you in Vancouver!
As a proud Gold Sponsor for the past three years, Suncorp Valuations is thrilled to attend the 2024 ASA International Appraisal Conference in Portland, Oregon.
Our President and CEO, Tom Gardiner, ASA MRICS, along with Gregg Davenport, ASA, Manager of Professional Services, and Steve Hewitt, ASA, Manager of Professional Services, will be present.
We invite you to join Gregg and Steve on September 16th from 2:35 PM to 3:35 PM for their presentation on “Insurance Appraisals – Making Sure You’re Covered.”
We eagerly anticipate reconnecting with our friends, colleagues, and fellow valuation professionals from around the globe at this prestigious event!
Do you need a guest speaker or presenter? Here are just a few of the companies that we presented to.
Suncorp Valuations can speak at various events on all matters related to tangible assets valuations and risk management, from insurance related topics such as construction cost trends to market value trends in specific markets to risk mitigation strategies.
If your organization is looking for guest speakers on valuation and/or risk management, please reach out and we will see what we can do to assist. Many of our presentations have been accredited for on-going education credits.
Suncorp Valuations is excited to be an exhibitor at the RISKWORLD 2024 event taking place in San Diego from May 5-8.
Come visit our President & CEO, Tom Gardiner, and Business Development Managers, Rick Dettmann and Devin Baker at booth #1352. We will have an awesome draw prize, including Costco Gift cards.
We very much look forward to seeing you all, in person, at this spectacular event!
If you haven’t registered for the event yet, there’s still time. Visit here for more details.
