The cost of homebuilding in Canada has soared since the start of the COVID-19 pandemic, a new RBC report shows, just as the country is attempting to aggressively scale up housing supply amid a growing population.
Residential construction costs have risen 51 per cent since the first quarter of 2020, according to the report released Tuesday from RBC economists Robert Hogue and Rachel Battaglia.
The authors note that’s vastly outpacing the overall consumer price index, which rose 13 per cent over the same period. Building materials such as concrete and structural steel have risen 55 per cent and 53 per cent in price, respectively, over that time.
It’s not just a material concern, according to the report — costs for transportation and fuel are also up, while a shortage of labour is driving wage costs in the sector higher than other industries.
Development charges levied by municipalities are also adding to the burden, rising as much as 30 per cent last year for single and semi-detached units, the report notes.
Construction in Canada is set for a slowdown, economists predict, as higher interest rates weigh on demand for new homes and contribute to the cost of building. RBC expects a 10 per cent dip in housing starts in 2023 will soften demand for materials, modestly easing pressures in the sector.
But governments in Canada are setting aggressive targets for increasing housing stock in the country to accommodate expected population growth tied to immigration. Canada set a record for newcomers in the first quarter of 2023, boosting economic output but adding to competition for the country’s limited inventory of homes.
The federal government released new immigration targets in the fall that will see Canada welcome 500,000 immigrants per year by 2025.
“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,” the report says.
The authors say ballooning costs for construction will challenge efforts to build more homes over the next decade. Canada threatens to hit capacity limits for materials like cement, the report says, while the supply of lumber is expected to be impacted by forecasts for more frequent forest fires.
The report argues Canadian governments will have to grapple with the material and labour shortages in the construction industry by keeping “policy in line with the broader goal of improving housing affordability” but does not offer specific suggestions.
— with files from the Canadian Press
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