Understanding Cost Pressures in Canadian Housing Development
Explore what's driving prices up.
Published on October 17th, 2024
Homeownership remains a fundamental aspiration for many Canadians. However, rising construction and development costs in several markets are making it increasingly difficult to meet housing demand, pushing the dream of owning a home further out of reach. To find meaningful solutions, it's crucial to first understand the factors contributing to these costs. From escalating material prices to restrictive zoning laws and hefty development fees, a complex web of challenges is driving up the cost of building homes across the country.
Understanding the Surge in Construction Costs
The costs associated with building a home have soared in recent years. Since the start of the pandemic, Canada’s residential construction price index has increased by 51%. This increase far outpaces the 13% rise in the consumer price index, making it clear that homebuilding is becoming prohibitively expensive. Let’s break down some of the key contributors:
Material Costs: The surge in construction costs is largely fueled by the rising prices of essential building materials. Since early 2020, concrete prices have risen by 55%, and structural steel prices by 53%. Although lumber prices have recently stabilized after unprecedented peaks in 2021 and early 2022, overall material costs remain high due to ongoing supply chain issues and environmental disruptions. These conditions have constrained supply and escalated costs, making it more expensive to bring new homes to market.
Labour Shortages: The construction industry is grappling with a severe shortage of skilled labour. According to RBC Economist Robert Hogue, Canada could need more than 500,000 additional construction workers on average to build all the homes required between now and 2030. Compounding this challenge is the fact that approximately 20% of the current construction workforce is expected to retire within the next decade. This looming shortage is driving up wages and further straining the industry’s capacity to meet housing demand.
Zoning Restrictions: Zoning laws, determined by municipalities and provincial governments, often restrict the density of new developments, encouraging suburban sprawl rather than vertical growth. This not only limits the number of homes that can be built in urban areas but also necessitates expensive infrastructure development—such as roads, sewers, schools, and hospitals—when expanding outward. The result is higher long-term costs and less efficient use of available land, which puts additional pressure on housing affordability.
Development Charges and Red Tape: High development fees imposed by municipalities are another significant factor driving up the cost of housing. These fees are meant to fund infrastructure projects to support population growth, but they often end up either stalling new construction or being passed on to homebuyers. For example, development charges in Toronto recently increased by 20.7%, raising the development cost for a typical studio or one-bedroom unit to $44,774. In Vancouver, the Rezoning Enquiry Fee increased by 200% for the review of drawings and provision of comments. In the Township of Langley, BC, developers must soon pay city hall $58,592 for each townhome they build; that’s three times the charge that developers across the Fraser Valley in Pitt Meadows pay for a similar townhouse.
The layers of red tape involved in navigating these regulations can also delay projects and add to overall costs, discouraging developers from taking on new ventures. For example, a recent study found that it takes an average of 18 months to secure housing permits in Vancouver. During this time, financing fees, insurance, and taxes, among other costs, further drain affordability.
“This challenging and high-cost environment is one reason that some of B.C.’s biggest developers have been more active in recent years in the United States than they have been at home,” shares Ross McCredie, CEO of Sutton Group.
Rethinking Housing Development in Canada
As we face the intersection of rising construction costs, labor shortages, and regulatory hurdles, it’s clear that addressing Canada's housing crisis requires a coordinated and innovative effort. Addressing the cost barriers will require governments, developers, and the construction industry to work together, streamline processes, and explore new solutions like sustainable building materials and modern construction technologies. By embracing change and prioritizing long-term affordability, we can make meaningful strides in ensuring homeownership remains within reach for future generations of Canadians.
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Sources
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