Construction prices record slower rise in Q4, but record rises in ’21 overall
Rising material prices and shortages of skilled workers combined again to increase building construction costs in the fourth quarter of 2021.
Statistics Canada reports that residential building construction costs rose 3.8 percent in the fourth quarter of 2021, while non-residential costs were up 2.7 percent over the same period. Both were driven by continued increases in the prices of key inputs.
The prices of wood, plastics and composites continued to be the greatest contributors to housing prices. A slowdown in the growth of softwood lumber prices was offset by stronger price growth for other important inputs, including finishes such as drywall and paint, windows and doors, as well as thermal and moisture protection elements.
Increases in the costs to construct non-residential buildings, meanwhile, were mostly driven by a rise in prices for metal fabrication products and concrete elements (including steel reinforcement). Contractors mainly attributed the higher costs to rising labour costs resulting from skilled labour shortages and rises in the price of steel products, which was impacted by supply constraints.
Moderating price growth across most major urban centres
Of the 11 major urban centres examined by Statistics Canada, eight saw moderating growth in residential building construction prices during the fourth quarter. Some recorded their lowest quarterly increases seen in 2021.
Costs to construct residential buildings increased the most in Montreal, followed by Toronto and Vancouver. In the fourth quarter, the cost to build low-rise apartments grew the most out of all of the buildings in scope for the survey in both Montréal and Vancouver, while single-detached houses led the growth in Toronto.
Non-residential building construction costs rose the most in Ottawa, Toronto and Edmonton. However, for both Ottawa and Toronto, the quarterly growth decelerated compared with the previous quarter.
Year-over-year cost growth surpasses previous highs
Building construction costs for residential construction in the 11-city composite rose 21.7 percent year over year in the fourth quarter, surpassing the previous high registered in the third quarter. The largest increases were in Calgary, Toronto, Edmonton and Ottawa.
Non-residential construction building costs rose 11.2 percent year over year in the fourth quarter which was the largest increase since the third quarter of 2008. Construction costs increases were the largest in Ottawa, Toronto and Edmonton, with both Ottawa and Toronto recording new year-over-year highs in the fourth quarter.
Shortages in labour and building material persist in 2021
Statistics Canada reports that the COVID-19 pandemic continued to have an impact on the construction sector in 2021. Contractors once again cited that increases in labour costs and in building material prices were still pushing up their costs. This led to record yearly price increases for both residential and non-residential building construction costs.
The number of building permits and permit values were up for both the residential and non-residential sector in 2021 compared with 2020, further confirming the growth of the demand for labour and building materials. The increase in value of the building permits issued was also a factor driving the demand for heavily used construction materials, such as lumber and steel products. These materials have been impacted by supply chain issues throughout 2021 as a result of the pandemic, causing price increases.
Job vacancy rates in the Canadian construction industry increased at a faster rate in the second half of 2021 compared with the first half, showing a rise in the need for skilled labour during a time of growing demand. This put upward pressure on costs Canadian builders had to pay for labour.
Cost increases in residential building construction surpasses previous highs
In 2021, the 11-city composite for residential building construction costs rose 18.1 percent, which represents its largest annual increase since its inception in 2017.
Yearly construction costs for residential buildings rose the most for townhouses and single-detached houses (both up 22.5 percent) from 2020 to 2021.
The composite for non-residential construction cost increased 6.9 percent in 2021. This was the highest yearly increase since 2008. Factories and bus depots with maintenance and repair facilities saw their construction costs rise the most on an annual basis.
Non-residential construction costs increased the most in Ottawa and Toronto, with Ottawa registering the largest annual growth since the beginning of the index in 1981.