Consumer Optimism Drives Construction Prices

Shifts in homebuyers' preferences to accommodate working from home combined with historically low interest rates and increased optimism for the reopening of the economy as the vaccine rollout begins are factors that should continue to drive demand for housing and put upward pressure on residential building construction prices, says Statistics Canada. However, it predicts lumber prices will continue rising for most of 2021, which will increase the construction costs of new homes. Home builders could struggle to take advantage of the demand for new housing as they scramble to obtain the lumber they need amid tight supplies. Nationally, residential building construction rose at a faster pace in 2020 (3.8 per cent versus 2.9 per cent) compared with a year earlier, while non-residential construction costs rose at a much slower pace (1.6 per cent versus 3.5 per cent). Residential construction costs increased the most in Ottawa, ON (5.8 per cent), Moncton, NB (4.5 per cent), and St. John's, NL (+4.3 per cent), in 2020. Non-residential construction costs increased the most in Montréal, QC (3.4 per cent), and Ottawa (3 per cent) and Toronto, ON (2.6 per cent). Saskatoon, SK, was the lone census metropolitan areas covered by the survey to show no price movement in 2020. As well, slowdowns in shipments of construction materials, along with physical distancing measures, curtailed or temporarily halted building construction activity in the first quarter of 2020. And although construction resumed in the second quarter, productivity on worksites declined as employees abided by increased health and safety protocols. Supply chains continued to be disrupted throughout 2020, and lumber shortages drove construction prices higher in the wake of increased demand for new housing and renovation projects.