The price of building new homes has spiked significantly since the beginning of the pandemic, report says
Elevated construction costs will likely be a major barrier to achieving the Canadian government’s home-building targets, according to RBC Economics.
On average, residential construction prices have increased by 51% since the beginning of the pandemic, a factor that has placed enormous pressure on new home prices. This has far outpaced the 13% increase in the consumer price index since Q1 2020.
Key drivers of growth were price spikes in crucial building materials like concrete (up by 55%) and structural steel (up by 53%). Mounting lumber prices in 2021 and early 2022 also pushed overall building prices up.
“This surge in raw material prices, together with a ballooning population, has also accelerated increases in the development fees and levies imposed by municipal governments,” RBC said in its 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.”
Coupled with a persistent shortage of skilled workers, the prospects of housing affordability appear grim at the moment.
“Development charges have also spiked alongside higher materials costs and increases in expected population growth,” RBC said.
Accelerating the pace of development might only end up aggravating these price woes, RBC warned.
“More housing starts are required to deliver a badly needed expansion in housing supply – but these will boost demand for materials, which will put upward pressure on costs once again,” RBC said. “Amid construction material supply constraints, governments will need to keep policy in line with the broader goal of improving housing affordability.”
