Even if inflation in Canada has slowed, the price of constructing a new house continues to soar. According to Stat Can, Q1 2023 saw a significant increase in the price of constructing a new house. Instead of slowing down, growth has been picking up steam and is already over five times the inflation objective. In Toronto, the “high rise crane capital of North America,” construction prices have increased by over 9 times the rate of inflation.
The price of constructing a home in Canada is rising rapidly
Despite the reduction in inflation, Canadian homebuilding costs continue to rise. First quarter 2023 construction costs increased by 1.8% from the previous quarter’s levels. Despite apparently slowing inflation, annual growth has increased to 11.1%.
Almost every category of expense has increased. Growth was highest in Conveying Equipment (+4.0%) and Masonry (+4.0%). The Woods, Plastics, and Composites category was the only one to see a decrease (-0.2%), and this was due only to a drop in timber prices. Despite a precipitous decline in recent years, current timber prices remain much above levels predicted by 2020.
Home construction costs in Toronto are rising at a rate that is 60% higher than the national average
Home construction expenses in the first quarter were relatively high throughout Canada, with Toronto being an exception (+3.2%). Compared to Stat Can’s urban index, it grew at a rate 23 percentage points quicker, well above even Halifax (+2.6%) and Vancouver (+2.3%). Only in Calgary (-0.2%) did prices fall throughout the quarter.
Toronto, the construction hub of North America, is expanding at a pace that is causing shortages in the industry. Annual growth exceeded 17.7 percent, about 60 percent greater than the national average, in the city with the most high-rise cranes.
Although inflation in Canada has slowed, construction costs, particularly in Toronto, continue to increase. In an extreme case of diseconomies of scale, the country’s rapid population growth has hampered its economic development.
Demand is higher than productive capacity, therefore rising costs cannot be offset by increasing production. As a result, the price per unit rises, as can be shown. It’s a risky move for a nation whose economy is 30 percent more reliant on the property market than the United States’ was in 2006.