Transit, major infrastructure projects could keep construction on track in slowing economy

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A look at the start of the new passageway under the Lakeshore West GO Train tracks where the LRT will pass under and enter Port Credit Station. (Metrolinx photo)

By Michael Lewis

Special to Ontario Construction News

Transit and other infrastructure mega projects will help keep Canada’s construction industry on track for modest growth in 2023 – despite a pullback in residential activity on elevated borrowing and material costs in a slowing economy.

That’s the conclusion of forecasters including Ireland-based Research and Markets who say the industry will register annual average growth of 2.2 per cent from 2023 to 2026 after posting more than 6 per cent growth in 2021 and an expected 4 per cent in 2022.

That’s as residential contractors across all segments face headwinds from higher project funding costs on interest rate hikes that have yet to rein in inflation. Elevated energy costs, disruptions in the supply of key construction materials and widespread labour shortages have added to the residential sector challenges.

Ontario in November revised projections downward for housing starts across the province and provincial GDP is now expected to rise just 0.5 per cent in 2023 before rebounding slightly, though the province does not anticipate a recession.

The Bank of Canada in its October Monetary Policy Report said it sees national GDP growth declining to just under 1 per cent in 2023 adding that it will need to keep interest rates above four per cent in 2023 to bring irate inflation back to two per cent in 2024.

The central bank’s benchmark overnight rate currently stands at a nearly 15-year high of 4.25 per cent after the latest 50 basis point hike in December.

Central bank rate hikes have bumped up mortgage and project funding costs to slow house buying and construction, with the latest Statistics Canada data showing a sharp drop in housing permits and building intentions. The agency’s latest data shows the total value of building permits in Canada declined 1.4 per cent in October from September to $10 billion after an even steeper drop the month before as losses in the residential sector more than offset non residential gains.

The value of residential permits declined 6.4 per cent, to $6.5 billion nationally in October. Similarly, the number of new residential units decreased 4.6 per cent, mainly due to single-family dwellings (-9.3 per cent) which fell for the fifth consecutive month.

Construction intentions in the commercial component, however, sharply increased with Ontario posting the largest gain.

The value of building permits in the industrial component jumped also largely due to Ontario, which reported a $114 million permit for a water/sewer project in Erin.

Industry-led organization BuildForce Canada says it expects declines in the rate of housing construction over the next five years and expects residential employment growth will moderate. Employment in the non-residential sector is projected to show strong growth, however, as major projects drive demands higher to a near-term peak between 2024 and 2026.

The Research and Markets report says the scope and scale of public project spending underway or projected will sustain public sector contractors and keep the overall industry’s growth story intact. That’s on the strength of longer-term civil investment plans including Ottawa’s commitment to spend $180 billion over several years on infrastructure ranging from public transit to ports, broadband networks, clean energy systems, building retrofitting, irrigation projects, electric buses and charging infrastructure.

One of the two drill rigs within the rail corridor at Union Station (Metrolinx Photo)

In Ontario, projects planned over the next few quarters are dominated by major transit builds notably the GO Expansion, a more than $21 billion rehabilitation and renewal of Metrolinx’s GTHA railway transit corridor with completion projected for 2025, the Metrolinx subway extension in Toronto and the Ontario government agency’s massive Hurontario LRT project in Mississauga.

On top of these transit infrastructure projects construction activities across Canada over the next four to eight quarters also include refurbishment at the Darlington Nuclear Generating Station in Ontario and an estimated $14 billion worth of construction of the Site C Clean Energy Project which will create a third dam and a new hydroelectric generating station on the Peace River in northeast B.C.

Ontario has also committed to expanding and repairing highways and bridges to spur economic growth and has announced capital building programs including new-builds and renovation projects for schools and childcare spaces.

“Infrastructure is going to drive the economy,” said Doug Correa, construction services leader at professional services firm Aon Canada.

“I think there’s a huge opportunity in all segments of the construction sector.”

Immigration propelled growth of cities in Canada is helping to drive the need for civil infrastructure, added Chris Gower, chief operating officer of Edmonton headquartered PCL Construction.

“I don’t think that’s going to change. And I think there’s more money being funded in those areas than in the past few years,” he said citing more health care infrastructure projects including hospitals with some involving very large private-public partnerships. He also noted a surge in the number of planned $1 billion plus infrastructure projects.

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