Opta’s Q3 analysis reveals a sustained peak in reconstruction costs by 5.7% YOY across Canada in 2021, with high expenses most prevalent in Canada’s Eastern provinces. Lumber prices continue to affect rebuild costs, but to a lesser degree than in the first half of 2021.
The effects of high lumber prices have diminished compared to previous months, but generally at a wholesale level and not retail, with an even lower impact at the end-user level. An uptick in supplies has led to projects getting back on track across Canada. Still, mills may cut back slightly on supply to avoid a surplus and consider the Delta variant’s upcoming effects. Wages are generally not increasing across all trades with the exception of roofing/siding, electrical, and HVAC, which are driven by the demand for new housing.
Component costs have risen with an overall increase of 5.5% YOY from September 2020 to September 2021. Component costs overall have increased slower than in the first have of 2021, suggesting that supply is catching up with demand. The price of lumber is fluctuating intensely between $300 per 1,000 feet to more than $1,600 before falling again; this may have been due to excessive lumber production over a short period, causing demand to drop. DIY renovation purchases have dropped, and the number rally has priced out some buyers. The total value of building permits in Canada decreased 3.9% to $9.9 billion month over month in July, with the majority of the national decline reported in Alberta (-23.4%).
Skilled labour rates are going to be an issue in the future as construction backlog management, and subsequent growth (both commercial and residential) are inevitable. Further, labour shortages have been developing for some time. Alberta experienced its first full year of negative construction growth and is not expected to rebound as quickly as other provinces. British Columbia, Ontario, and Quebec are expected to recover quickly. Manitoba and Saskatchewan are expected to have slow growth over the next few years. New Brunswick and Nova Scotia are likely to experience skilled labour shortages. At the same time, PEI was the only province to experience a rise in construction employment.
A lot has changed. What’s the impact on your portfolio? Click here to read the full Q3 Reconstruction Cost Report