The Troubling Landscape of Canadian Construction: Approvals, Labor Shortages, and Affordability
The construction industry in Canada is navigating turbulent waters, beset by a confluence of challenges that are pushing timelines longer and making housing less affordable. With a cumbersome approvals process, diminishing skilled labor, and rising interest rates, the outlook appears bleak.
The Slow Approval Process: A Major Bottleneck
One of the most significant hindrances in the construction sector is the drawn-out approvals process imposed by municipal governments. According to Marlon Bray, Senior Director at Altus Group, the inefficiencies in these processes are not only frustrating for developers but also role players in escalating construction costs. In fact, Canada ranks a dismal 33rd out of 34 countries regarding the time required to obtain necessary construction permits, as indicated by the World Bank’s latest Doing Business report.
Cities like Toronto have seen approval times balloon from a weighted average of 21 months in 2020 to a staggering 32 months in 2022. In Markham and Hamilton, timelines have also stretched significantly, contributing to mounting frustrations and financial strains in the housing market.
A Shrinking Workforce: The Skills Gap
Adding further stress to the construction landscape is a burgeoning shortage of skilled laborers. Completion of projects now takes 25% to 30% longer than it did five to six years ago, a trend exacerbated by the current workforce’s lack of experience and skills. A forecast from BuildForce Canada predicts that approximately 245,100 skilled tradespeople in construction will retire over the next eight years, while only 237,800 new workers are expected to fill the gap, resulting in an anticipated deficit of over 61,400 skilled laborers by 2032.
Despite federal initiatives aimed at attracting skilled immigrants, the numbers remain low; only 455 permanent residents were admitted under the Federal Skilled Trades Program in 2022—an amount deemed “statistically irrelevant” by Richard Lyall, President of the Residential Construction Council of Ontario (RESCON). Without a substantial influx of qualified workers, the industry is poised for continued growth stagnation.
Rising Interest Rates and Their Impacts
As if the challenges weren’t enough, the 2023 spike in interest rates has further compounded issues in the housing market. Developers have pressed ‘pause’ on many new projects, leading to a 7% year-over-year decline in housing starts in major urban centers. Single-detached home starts have plummeted by 25%, and the sale of condos in major cities has also slowed significantly.
While this reduction in housing starts might temporarily relieve some pressure from labor shortages and high construction costs, the long-term implications are severe. With a growing housing crisis persisting in the backdrop, the decreasing number of new projects could spell disaster for future availability and affordability of homes.
Municipal Inconsistency and the Push for Reform
The inconsistency in how municipalities address hurdles to development adds another layer of concern. Progress in speeding up approvals varies from city to city, with many still mired in outdated processes and staffing shortages. Lyall suggests that to remedy this, a dual approach focusing on improving efficiency in the approvals process and reducing taxes—“housing is taxed basically as much as cigarettes,” he pointed out—could help reduce the purchase prices for new homebuyers by as much as 30%.
Lyall also emphasized a startling lack of accountability and transparency in the approvals process, complicating matters even further. Municipalities capable of modernizing their systems could offer a glimmer of hope; however, Ontario appears to be trailing considerably behind.
Looking Ahead: A Dismal Future without Change
The confluence of drawn-out approval timelines, a daunting labor shortage, and escalating interest rates paints a troubling picture for the future of the Canadian housing market. Bray cautions that the current trajectory resembles that of the Titanic approaching an iceberg—there’s a clear acknowledgment of the impending crisis, yet little action is taken to avoid it.
He foresees that demand for housing will surge once interest rates fall, leading to further complications in affordability. As construction costs soar, alongside the implementation of several major infrastructure projects in Ontario, the scenario transforms into what Bray deems "the worst-case scenario."
With little sign of imminent change, the outlook for prospective homebuyers remains disheartening. "I suspect the news is going to get a lot worse," Bray states. "At the pace we’re going, basically, everyone’s going to be living in tents."
In summary, the current state of the Canadian construction sector reflects a complex web of frustrations, from municipal inefficiencies to labor shortages and unfavorable economic conditions. Immediate, decisive action by government stakeholders and industry leaders is essential to reverse this concerning trend, or risk facing the iceberg head-on.
