Canada’s residential construction price index has soared 51 per cent since the start of the pandemic, putting new pressure on home prices amid a severe housing affordability crisis, says a new report by RBC Economics.
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The report also said:
- A shortage of workers (particularly in the skilled trades), a stagnant supply of raw materials and increased input costs have all contributed to price growth;
- Development charges have also spiked alongside higher materials costs and increases in expected population growth; and
- More housing starts are required to deliver a badly needed expansion in housing supply. But these will boost demand for materials, which will put upward pressure on costs once again.
Longer-range problems will continue to challenge efforts to expand Canada’s housing stock. Amid construction material supply constraints, governments will need to keep policy in line with the broader goal of improving housing affordability, it said.
“The cost of building a home in Canada—or any structure for that matter—has never been higher. Up 51 per cent since the start of the pandemic (Q1 2020), the country’s residential construction price index has well outpaced CPI (+13 per cent). Driving the increase are dramatic jumps in prices for key building materials like concrete and structural steel, up 55 per cent and 53 per cent respectively since the first quarter of 2020. Soaring lumber prices in 2021 and early 2022 also drove up costs but have since retreated,” said the report.
“This surge in raw material prices, together with a ballooning population, has also accelerated increases in the development fees and levies imposed by municipal governments. These fast-growing fees—which increased as much as 30 per cent annually last year for single or semi-detached units—are indexed to Statistics Canada’s Construction Cost Index. Given they are intended to fund the growth component of municipal capital projects, high levels of expected population growth, alongside inflation, have contributed to the rapid acceleration of these fees.
“Low interest rates and a rising population sent the development industry into a frenzy during the pandemic. But the fierce competition for raw materials wasn’t met with a rise in production. In fact, production of these critical goods declined between Q1 2020 and Q1 2023—with lumber production falling 11 per cent and production of lime, a critical input for cement, dropping 20 per cent. While several environmental challenges (including heavy rain, flooding, and wildfires) constrained lumber supply, temporary shutdowns of cement plants in Ontario, B.C. and Alberta have hampered production of cement.
“But these aren’t the only challenges aggravating the construction industry. Higher input costs (such as fuel and transportation) have disrupted production, while robust demand and a shortage of workers have created serious imbalances in the jobs market. Labour costs have soared as high vacancy rates in construction exceed overall rates. High vacancy rates in construction jobs have exceeded overall vacancy rates since at least Q4 2020—and sent labour costs soaring. Wages in the sector grew 9.4 per cent in 2022, nearly double the pace of other industries.”
Mario Toneguzzi
(Mario Toneguzzi is Managing Editor of Canada’s Podcast. He has more than 40 years of experience as a daily newspaper writer, columnist, and editor. He was named in 2021 as one of the Top 10 Business Journalists in the World by PR News – the only Canadian to make the list)
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