Unprecedented Highs: Building a Home in Canada Reaches Record-breaking Costs

Source: Financial Post

Surging construction costs in Canada are putting immense pressure on home prices, exacerbating the already severe affordability crunch, according to the country’s largest lender. A gauge of residential construction prices has surged by 51% since the first quarter of 2020, far outpacing the 13% gain for the consumer price index, as reported by Royal Bank of Canada economists in a recent publication.

“The cost of building a home in Canada – or any structure for that matter – has never been higher,” the economists stated, highlighting the “dramatic jumps” in concrete and structural steel prices since the pandemic’s onset, along with soaring lumber prices in 2021 and early 2022.

These escalating construction costs are adding to the challenges of high home prices, rents, a surge in immigration-driven population, and shortages of workers and raw materials, all of which are contributing to the difficulties faced by homebuyers.

The increase in building costs has also led to a decline in new home construction in recent quarters, which poses a problem considering the accelerated population growth.

RBC economists noted that labour costs have soared amid high job vacancy rates in the building industry, with wage growth in construction exceeding 9.4% last year, more than double the pace of other industries. To tame inflation, the report suggested that increasing the supply of skilled workers through federal government programs designed to attract skilled immigrants might be a viable solution to ease labor shortages in the construction sector.

Extreme weather conditions have also impacted the availability of critical building materials, driving prices up. Heavy rains, floods, and wildfires have constrained lumber supply, while temporary shutdowns of cement plants in Ontario, BC, and Alberta have hindered production.

While some relief is expected in the near-term due to a lull in homebuilding and the resolution of production issues at cement plants, the report anticipates that significantly ramping up homebuilding over the medium to longer term will keep construction costs elevated.

In conclusion, the housing market in Canada faces considerable challenges due to surging construction costs, labor shortages, extreme weather impacts, and a rapidly growing population. Finding sustainable solutions to these issues is crucial for ensuring long-term housing affordability and stability in the country.

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