Canada’s Slowdown in Construction Activity: Masking Bigger Pain Points for Future Real Estate Development
As Canada grapples with a slowdown in construction activity, a deeper examination reveals larger systemic issues that threaten the nation’s real estate development landscape. The construction industry faces not only the immediate impact of reduced activity but also a confluence of hurdles that could thwart recovery efforts and exacerbate the ongoing housing crisis.
The Current Landscape
Currently, Canadian construction is contending with sluggish government approval processes, a critical shortage of construction labour, and a higher interest rate environment. While all developers feel the effects of these challenges, the repercussions differ based on the nature of the project and the geographical region involved.
One significant issue is the prolonged delays in securing essential construction permits and government approvals. For developers of condominiums, while they may possess the necessary approvals, the high interest rates have resulted in declining pre-sales, stalling further progress on their projects. The national statistics underscore this unsettling trend. According to the Canada Mortgage and Housing Corporation (CMHC), national housing starts declined by 7% in 2023, reflecting a concerning drop from 240,590 units in 2022 to 223,513 units. This was predominantly driven by a 25% decline in single-detached housing starts, a crucial segment in Canada’s housing landscape.
The Approval Process: A Bottleneck
Perhaps the most damaging of the hurdles is the sluggish approval process for construction projects—a systemic issue that has been brewing for years. Major urban centers like Toronto and Vancouver report lead times that can stretch into years, leaving developers frustrated and increasingly hesitant to initiate new projects.
Delays in obtaining necessary approvals not only impede the timeline but also impose significant financial burdens. Developers are often unable to adapt quickly to fluctuations in market demand due to these extended timelines, which eventually translates into higher housing costs as inventory becomes limited. Recent studies by the World Bank reveal that Canada scores poorly compared to other OECD countries regarding the time required to secure construction permits, sitting just above the Slovak Republic in terms of approval efficiency.
A study commissioned by the Canadian Home Builders Association found Toronto to suffer the most severe delays—average approval times ballooning from 21 months in 2020 to 32 months in 2022, mainly attributed to staffing shortages and outdated procedural methods. Conversely, cities like Saskatoon, Regina, Calgary, and Winnipeg have managed more favorable timelines of under six months.
Decreased Productivity: A New Challenge
Once projects overcome the administrative hurdles and enter the construction phase, they face yet another obstacle: declining productivity. Altus Group’s investigation has shown that project timelines now extend 25% to 30% longer than similar efforts from five to six years ago. This stagnation is partially attributed to the ongoing shortages of skilled labour, exacerbated by an aging workforce. Many incoming workers lack the necessary skills, making supervision more critical, yet less effective.
In the short term, a slowdown in construction activity is expected to reduce some pressure on labour shortages, but experts warn that this may have an unintended consequence. Skilled labourers may leave the residential construction industry for more stable job opportunities, further complicating recruitment when demand inevitably rebounds. Projections from BuildForce Canada indicate that 245,100 construction workers are expected to retire by 2032, representing nearly 20% of the current workforce. Even optimistic forecasts suggest a potential deficit of 61,400 workers by that time.
Development Outlook: Navigating Uncertain Waters
The outlook for developers across Canada remains mixed. In Toronto, the prevalent sentiment is to “survive until 2025,” as the city grapples with an over-reliance on condominiums and rising costs associated with sluggish activity. Other regions, including Calgary and Halifax, are experiencing a more buoyant construction market, but they are not immune to the challenges posed by interest rates and labour shortages.
There is hope in the form of adaptiveness and resilience among developers who have learned to navigate complex local government systems. However, cities like Toronto, Markham, and Hamilton still confront long turnaround times that might compel development to shift to more accommodating regions.
Secondary cities, such as Surrey, London, Kitchener, and Waterloo, stand poised to gain prominence as developers seek alternative locales that facilitate better housing solutions. Innovations in transit, such as Kitchener’s successful Light Rail Transit (LRT) initiative, indicate that these cities are preparing to attract investment by improving infrastructure in tandem with housing projects.
Conclusion: A Critical Juncture Ahead
The next decade will be crucial for the future of construction and real estate development in Canada. As interest rates decrease, the importance of streamlining the approval process will intensify. Policymakers must adopt a cohesive approach to address the myriad issues plaguing development processes. Without a strategic pivot to mitigate these challenges, Canada risks navigating uncharted waters fraught with escalating housing crises and socio-economic inequalities.
In many ways, the current situation mirrors a ship approaching an iceberg—aware of the impending crisis but seemingly unable or unwilling to chart a new course. If proactive measures are not taken to alleviate the profound inefficiencies in the construction and approval processes, the consequences could be disastrous for the nation’s housing supply and affordability.
