An economist with construction forecasting consultant Turner & Townsend says the conflict in the Middle East adds another layer of uncertainty to material costs in 2026.
Kris Hudson, Toronto-based economist and director at Turner & Townsend, recently addressed market cost conditions following up on the firm’s Q1 report Canada Market Intelligence.
That report, released in April, found input cost growth has begun to re‑emerge, driven by tariff constraints and supply chain disruptions.
Elevated oil prices remain a risk for the construction industry’s cost base in 2026, the report found, although such buffers as increased labour market slackness and plentiful existing inventories should help contain those pressures for now.
Hudson said increased oil prices not only directly affect energy costs and fuels used on projects but also have various knock-on effects.
The higher energy costs will affect operational costs onsite for machinery and equipment, and they will pass through in terms of logistics, impacting the supply chain, he said.
Look to market strength
But Hudson noted the strength or weakness of the market also plays a role as well in determining costs.
“If the market is softer and weaker, you might have undercutting in terms of pricing,” he explained. “The market within Ontario and the market across Canada isn’t as buoyant as it has been in the recent past. Therefore, for increases within material prices to stick, you do tend to need to have a corresponding sustained increase in demand, and then you get selective tendering, and people picking and choosing the work in which they would like to be involved in.”
Given the buffer in terms of the softer market, cost increases might not necessarily be passed all the way through, Hudson observed.
Turner & Townsend believes the slackness in the construction labour market is linked to a temporary softness in demand rather than structural changes in the employment pool. But there’s a delineation in terms of skilled versus unskilled labour, Hudson said.
“If you look to mechanical, electrical trades and some other trades areas that are in heightened demand, and will consistently be in that area of pressure, there will be cost burdens associated with that kind of talent pool, but it’s not equitable across all different projects and programs and all different skill sets,” he said.
In fact, Hudson ranks labour as the top possible hurdle for the Canada-wide construction sector as it prepares to ride a federal wave of project stimulus spending.
“We have been working in an uncertain and volatile environment for quite a long period of time, but industry has been really reactive to that, they’ve learned lots of good lessons to manage projects and programs with that challenging backdrop. If you look for materials, you can alter your procurement, you can look at your projects and do some variations and scope adjustments,” he said.
“But when it comes to people, in terms of hands-on tools and shovels in the ground, you can’t quickly change that, and the solutions are not necessarily…easy to implement.”
The report offered a 2.5 per cent bid-price inflation estimate for 2026. Looking beyond, 2027 and 2028 are likely to bring renewed escalation and increased capacity constraints as pipelines recover and backlogs fill out amid growing infrastructure demand.
Caution with education
In Ontario, the infrastructure and institutional and government sectors “remain the backbone of the provincial outlook, supported by major multi‑year commitments in transit, health care, long‑term care and schools,” the report stated.
But there was caution from an education perspective, with narrowed immigration policies culminating in lower international student numbers.
Investment in building construction (IBC) increased by 4.9 per cent in 2025. While construction GDP measures the industry’s value-add (labour and capital) to the economy, IBC statistics reflect the sector’s total expenditure, which gives a more rounded view of construction performance, the report explained.
Hudson said the Canadian construction industry has not experienced significant cost pressures due to the implementation and threats of new tariffs south of the border – but upcoming negotiations on the Canada-US-Mexico trade agreement are cause for concern.
“There’s still apprehension about the way in which the tariffs might evolve,” he said.
