Building construction costs up in Q3, but increases are slowing
Building construction costs grew again in the third quarter of this year – but the rate of growth appears to be slowing.
Statistics Canada’s latest look at the trend shows that residential construction costs increased by 2.5% in the third quarter, while non-residential costs grew by 2.1% percent.
Both figures are notable slower than those recorded in the second quarter, when residential costs grew by 5.3% and non-residential costs were up 4.0%. The rate of growth for both residential and non-residential building construction costs has notably slowed when compared to the past year and a half.
Contractors surveyed suggested that part of the growth in building construction costs was due to skilled labour shortages and high labour costs. Despite a decline in number of vacancies for construction jobs from April to July, the industry’s job-vacancy rate remains high. This, in turn, has kept upward pressure on wages. Labour contract renegotiations also contributed to higher labour costs in the third quarter.
Additionally, higher material costs, amid a limited availability of materials and equipment, particularly concrete, steel, glass and piping, contributed to higher costs. Contractors also noted that fuel prices continue to add upward pressure on construction costs.
Residential increases slow
Growth in residential building construction costs decelerated during the third quarter, with 10 of the 11 census metropolitan areas (CMAs) covered by the survey recording smaller quarterly increases than the previous two quarters. This slowdown was largely driven by declining softwood lumber prices that have materialized amid a downswing in US housing construction.
Costs to construct residential buildings increased the most in Toronto (+4.2%) in the third quarter, followed by Vancouver (+1.9%) and St. John's (+1.7%). Construction costs for all the residential buildings in scope for the survey rose the most in Toronto, where costs for building low-rise apartments were the highest.
By building type, high-rise apartment building construction costs recorded the greatest increase (+3.0%) in the third quarter of 2022, led by Toronto (+3.9%), and followed by Vancouver and Calgary (each up by 2.0%).
Labour, material shortages push up non-residential costs
Non-residential building construction costs grew at a slower pace during the third quarter, following a peak in the previous quarter.
Cost increases in non-residential building construction remained largely driven by price growth in cement and concrete. Higher prices for cement, concrete and other materials are linked to continued demand for construction materials alongside supply challenges due to labour shortages, as well as temporary shutdowns at major plants early in the summer.
Non-residential building construction costs rose the most in Toronto (+2.6%), followed by St. John's (+2.3%). St. John's was the only CMA that recorded higher construction costs in the third quarter relative to the second quarter.
By building type, the largest increases to construction costs were measured in factories (+2.3%) and office buildings (+2.1%) in the 11-city composite.
Year-over-year growth in construction costs lower than previous highs
Building construction costs for residential construction in the 11-city composite rose 18.7% year over year in the third quarter, moderating from highs registered over the past year. Toronto (+25.9%) and Edmonton (+19.5%) recorded the highest growths and drove up the composite.
Non-residential construction building costs rose 12.5% year over year in the third quarter, also moderating from the previous quarters of 2022. Construction cost increases were the largest in Toronto (+15.6%), Montréal (+13.0%) and Ottawa (+12.6%).