Construction costs of new residential homes are up 51% since COVID: RBC report

According to a new report from the Royal Bank of Canada (RBC), the cost of building a new home has risen 51 percent since the start of the COVID-19 pandemic, driving prices up amid what is already a severe housing crisis. is.

The June 27 report by RBC economists Robert Hogue and Rachel Battaglia says that the rise in Canada’s housing price index has put “new pressure on house prices”.

“Construction costs have skyrocketed,” said the report, which said that the cost of building a house in Canada, up 51 percent since the first quarter of 2020, is at an all-time high. Meanwhile, fast-growing population growth and ambitious immigration targets are driving increased demand for housing across the country.

Many factors are attributed to housing pressures, including a shortage of skilled trade workers, a stagnant supply of raw materials and higher input costs. They all contribute to price growth, according to the report.

Meanwhile, development costs have also risen, with fees and charges set by municipal governments rising as much as 30 percent last year in some regions for single- or semi-detached units, the report said. The fees are indexed according to Statistics Canada Construction cost index.

“Since they are intended to fund the growth component of municipal capital projects, high levels of projected population growth, in addition to inflation, have contributed to the rapid acceleration of these fees,” RBC said.

The report indicated that concrete, a major building material, has experienced a dramatic price increase, up 55 percent since Q12020. Structural steel is also up 53 percent. Timber prices had surged in 2021 and early 2022, but have fallen again, the report said.

Extreme weather and temporary closures during COVID have contributed to raw material shortages. “Low interest rates and a rising population sent the development industry into a frenzy during the pandemic,” the report said.

“But the fierce competition for raw materials was not answered by an increase in production. In fact, production of these critical goods fell between Q1 2020 and Q1 2023, with timber production falling by 11% and production of lime, a critical input for cement, by 20%.

In addition, severe weather, including heavy rains, flooding and wildfires, has affected timber supplies and caused temporary closures of cement plants in Ontario, BC and Alberta, further impacting supply.

Challenges of higher fuel and transportation costs, increased demand and labor shortages were also cited in the report as impacting the construction industry.

The report said problems will continue to plague builders in the long run. RBC predicts that costs will remain high and that demand for cement for higher-density buildings, such as residential towers, will squeeze supply and drive prices higher. The government has made efforts to address the labor shortage, the report said, by providing faster certification for new entrants into skilled trades and by trying to attract more workers to the construction industry.

“Amid constraints in the supply of building materials, governments will need to keep policies consistent with the broader goal of improving housing affordability,” the report said.