Construction costs in Toronto continue soaring

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By Judy Lamelza

Special to Ontario Construction News staff

Toronto’s construction sector has seen a dramatic increase in costs, ranking second in the world in terms of the surge in building expenses. This trend is highlighted in a new global ranking by Australian price comparison service Compare the Market, which used data from construction tenders.

The data, gathered from construction tenders, indicates a 40.5% increase in Toronto’s building costs from January 2020 to August 2023. This surge is part of a broader global pattern, with cities like Singapore also experiencing substantial cost hikes. Analysts attribute these rising costs primarily to the supply chain disruptions brought on by the COVID-19 pandemic, which has posed significant barriers to new construction projects across the globe.

An article in Storeys states that in Toronto, these challenges are compounded by factors unique to the city. Building costs have been on an upward trajectory since 2018, a trend linked to various factors, including heightened borrowing costs and a shortage of labor. Additionally, the city’s approach to construction bidding, which restricts open bidding to a select few constructors, has contributed to keeping construction prices elevated.

Nationwide concern: Canada’s construction cost surge

  • Canada-wide issue: The rising cost of raw materials, development fees, labor, and other building-related expenses is a nationwide concern.
  • Residential Construction Price Index (Single family and multi-family homes): Canada’s index has climbed 51% since Q1 2020, driven by substantial increases in concrete, structural steel, and lumber prices.

The surge in raw material prices, coupled with Canada’s growing population, has also led to increased development fees and levies imposed by municipal governments. Fees, which saw as much as a 30% annual increase in 2022 for certain housing types, are indexed to Statistics Canada’s Construction Cost Index. They are intended to fund the growth component of municipal capital projects, and the expected population growth, along with inflation, has played a significant role in the rapid acceleration of these fees.

“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. Such fees have surged as much as 30% annually in 2022 for single or semidetached units.”

Looking ahead: Escalating costs and housing supply challenges

As Canada intensifies its efforts to boost homebuilding to meet updated supply targets, there is an expectation that these types of costs will continue to escalate. Focusing on higher-density development, especially in very tall structures, is likely to push up demand for materials like cement, potentially straining production capacity limits.

The launch of the express entry process for skilled trades newcomers is seen as a potential solution to grow the construction labor force and bring down hiring costs. However, whether this program, along with other provincial initiatives designed to attract people into the construction trades, will effectively curb costs remains to be seen.

The construction sector in Toronto and across Canada is navigating a period of unprecedented cost increases. This environment poses significant challenges but also opens opportunities for innovation and adaptation within the industry.

Construction companies and professionals are now tasked with finding new ways to maintain efficiency and project viability amid these financial pressures.

Despite these challenges, the current landscape offers a unique opportunity for the construction sector to evolve. Embracing new technologies, sustainable building methods, and innovative management techniques will be crucial for companies looking to stay competitive and successful in this high-cost environment.

As Toronto, Calgary, and other Canadian cities grapple with these financial pressures, the industry’s resilience and ingenuity will be key factors in navigating this complex and evolving landscape.

Judy Lamelza wrote this article for the Databid.com eletter.

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