Rising construction costs could leave properties underinsured

Several factors — including ongoing COVID-19-related inflationary effects, tariffs, the industrial carbon tax, and stricter building codes — have converged to push construction costs to new highs.  

When combined, those factors materially impact insured values, panellists tell a session at last week’s RIMS Canada Conference in Calgary. 

“I had a client that was slated to build a multi-use commercial retail strip mall,” said Devin Baker, manager of business development at Suncorp Valuations. “[It was] a large-scale 50,000 square foot property, and they got a quote from a reputable contractor to build this in Regina at $12.5 million in 2024.” 

The client decided to pause the project for a year. “They got a revised quote…[which] came in 2025 at $14.3 million for the exact same specifications,” says Baker. “The [main] driver that the construction contractor provided the client was, ‘Well, there’s been a year of inflation, there’s economic uncertainty, it’s harder for me to get my staff and I have to pay my staff more.’” 

It’s a real-world example of construction cost hardening, says Baker during the panel discussion. 

Yet, strategies exist for organizations to ensure appropriate insurance coverage amid ongoing cost uncertainty.  

Why prices are rising 

Pandemic effects 

COVID-19 caused extensive surge pricing, supply chain delays, and increased demand for construction materials. 

These pandemic effects never fully receded, explains Vic Persaud, manager of business development at Suncorp Valuations. 

“We saw construction materials spike in 2021 and 2022, almost up 20% to 40%,” he said. “We saw lumber peak at over $1,600 U.S. per 1,000 [feet of board] from almost $550 pre-pandemic, which was a significant increase. 

“Unfortunately, today, we have not seen a complete retraction in costs. We have seen year-over-year increases that are significantly less, but we haven’t gone to a state where costs have come down significantly.” 

Other adverse COVID-19 remnants include construction labour shortages, which vary depending on profession and province, but remain elevated.  

Builders, for example, report a near 20% shortage of carpenters, along with 22% for welders and 18% for plumbers. 

Tariff costs 

Ongoing tariffs are causing significantly increased construction materials costs. 

In March 2025, the U.S. implemented 25% tariffs on Canadian steel and aluminum, setting off an ongoing trade war. In June, the U.S. raised steel and aluminum tariffs to 50%, and set tariffs at 35% on Canadian softwood lumber. 

“Tariffs function as a cost multiplier,” says Persaud. “This six-month period here where we’ve seen these tariffs has contributed to an estimated 8% to 12% increase in total project costs, depending on the material mix.”  

For example, he says, “a hospital expansion requiring 8,000 tonnes of steel would see an additional $20 million [Canadian] under the 25% tariffs.” 

Industrial carbon tax 

While Prime Minister Mark Carney dropped the residential carbon tax earlier this year, the industrial carbon tax remains in effect.  

This carbon pricing regime, though, has a material impact on construction costs. 

“And what’s a manufacturer going to do when they incur a tax or a tariff or an increase in cost? They pass that along in terms of the costs of the material,” said Baker.  

In 2025, the impact on building costs is estimated to be around 3%, he said. By 2030, that cost will rise to 6%.  

The 2025 carbon price is $80/tonne of carbon dioxide. Construction which uses cement adds about 1-2% to the overall building costs, and steel and manufacturing materials adds roughly 0.5-1.5%, he said. 

Building codes 

The National Building Code of Canada, adapted by each province and territory to align with regional needs, requires all new construction projects to meet its minimum thresholds. 

The codes are getting stricter, for two reasons, says Baker. 

“One, Canada’s got a Net Zero goal by 2050. One of the government’s ways of incentivizing Net Zero is to make our construction of properties and new buildings greener — better insulated, use less utilities, and be just all around a greener type of property. The second focus is resiliency, We’re building our properties to either be seismically stronger, to be more flood resilient, to be more fire resilient, and in certain regions in Canada to be more earthquake resilient.” 

These upgrades, though important, are costly. 

“Overall, if we take some of the enhancements to the building codes, we add about 8% to 10% in terms of our construction costs,” Baker says. 

How to establish values 

With construction costs reaching record levels, getting accurate property valuations is critical for insureds. But there are a couple of ways to do it.  

When establishing value with a credible starting point (i.e., a prior valuation), Baker advises: “The first thing I would do is confirm the time. [Was it] pre-2019, before all these increases? Maybe your last valuation was 2023, or you built it 2023 — consider the time.

“A five-year-old valuation is a really old valuation in today’s market.” 

Factors like property type, location and asset class must be considered. Baker suggests using “qualified indexing to update your numbers” and working with an appraisal firm or internal research team, while also accounting for unique site conditions. 

If a credible starting point for valuation is needed, it’s “probably a really good time to get an appraisal,” said Baker.  

“The biggest mistake we see clients make is they take numbers, and they do a ton of research on how to adjust them,” he says. “If you don’t trust your starting point, don’t index — that’s not a smart move.”