The cost to build a new residential home has skyrocketed 51 percent since the start of the COVID-19 pandemic, causing higher prices during what is already a severe housing crisis, according to a new report by the Royal Bank of Canada (RBC).
The June 27 report by RBC economists Robert Hogue and Rachel Battaglia said the increase in Canada’s residential construction price index has put “new pressure on home prices.”
“Construction costs have gone through the roof,” said the report, stating that the cost of building a home in Canada, up 51 percent since quarter one of 2020, has never been higher. Meanwhile, booming population growth and ambitious immigration targets are increasing demand for housing across the country.
Many factors are attributed to the pressure on housing, including a shortage of skilled trade workers, a stagnant supply of raw materials, and increased input costs. All are contributing to price growth, according to the report.
“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,” said RBC.
The report indicated that concrete, a key building material, has seen a dramatic jump in price, up 55 percent since Q12020. Structural steel is also up 53 percent. Lumber prices had soared in 2021 and early 2022, but have come back down, the report noted.
Extreme weather and temporary shutdowns during COVID have contributed to a shortage of raw material supplies. “Low interest rates and a rising population sent the development industry into a frenzy during the pandemic,” said the report.
“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% and production of lime, a critical input for cement, dropping 20%.”
On top of this, severe weather including heavy rain, flooding, and wildfires has affected lumber supply and caused temporary shutdowns of cement plants in Ontario, B.C., and Alberta, further impacting supply.
Challenges of higher costs for fuel and transportation, more demand, and a labour shortage were also cited by the report as affecting the construction industry.
The report said that issues will continue to plague builders long-term. RBC predicts costs will remain elevated, and demand for cement for higher-density buildings like apartment towers will strain supply and raise prices further. The government has made efforts to address work shortages, the report noted, by providing quicker certification for newcomers in skilled trades and trying to attract more workers to the construction industry.
“Amid construction material supply constraints, governments will need to keep policy in line with the broader goal of improving housing affordability,” said the report.
