Labor shortage + high material costs + high demand = more pressure on house prices

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This snapshot highlights the lingering impact of the post-pandemic surge in residential construction on employment and the job vacancy rate in the industry. It also examines the stock of completed and unoccupied housing which, over the past 18 months, has fallen to its lowest level in seven years.

Evidence of a nationwide decline in available housing stock and signs of a growing shortage of skilled labor, as well as an unprecedented rise in the price of lumber and other sawmill products, helped push the new home price index up + 12.9% y / y, a 15-year high. The big question, of course, is: will new home prices go down anytime soon?

Hiring surge sends construction vacancies to record highs

After the first wave of COVID-19 in early 2020, construction employment increased mainly due to an increase in demand for housing reflected by record sales of new and existing homes. This triggered a rapid acceleration in new residential construction and renovation. Since April of last year, construction employment in Canada, + 20.4%, has grown more than the advance for the industry as a whole, + 16.4%.

The escalating demand for construction workers is reflected in two other measures. First, average weekly earnings in the industry have increased by + 9.5% over the past 12 months, significantly more than the increase of + 1.1% for the industry as a whole. Second, according to Statistics Canada, the number of construction jobs rose from 39,425 in the last quarter of 2020 to a record 46,370 in the first quarter of 2021. The unprecedented number of job vacancies shows how much demand for construction workers in most trades has exceeded supply . Trades with particularly large year-over-year increases in vacancies include masonry and plastering; electric; carpenters and cabinet makers; and construction aid.

Across the country, construction employment gains are, unsurprisingly, in line with cumulative increases in total construction spending. At the top of the list of job creations is Quebec, where a + 40% increase since the start of the year in the volume of construction spending has increased hiring in the industry by + 21%, while by increasing average weekly earnings by + 28%. and increase by + 50% the number of vacant jobs in the construction industry over the last four quarters.

In British Columbia, fueled largely by a + 40% year-to-date increase in housing starts, construction employment has increased + 6.8% year-to-date. The job vacancy rate in construction in British Columbia fell from 5.3% to 6.5%, the best in the country, and offered hourly wages were up + 8.1%.

Other provinces showing signs of a shortage of construction workers include Ontario, with 13,400 (+ 20% year-on-year) vacancies; Alberta with 6,200 (+ 20% y / y); Manitoba, 1,500 (+ 116% y / y); Nova Scotia, 1,100 (+ 285% y / y); and New Brunswick, 905 (+ 166% y / y).

Strong demand + labor and material shortages send signal

The year-to-date increase in housing starts, the decrease in the number of completed and unoccupied units since the end of 2019 and the aforementioned sharp rise in new housing prices indicate that the supply of new homes is failing. to meet demand. In addition, shortages of building materials, particularly lumber, veneer and plywood, have pushed up residential construction costs in Canada’s eleven largest census metropolitan areas by + 12% of a year. year over year.

Looking ahead, although lumber futures have fallen sharply from the peak of US $ 1,686 per 1,000 board feet reached in early May, the built-in effect of their + 105% increase since the start of the year will continue to put upward pressure on new home prices well into the second half of this year. In addition, rising labor costs resulting from the shortage of construction workers will likely put additional upward pressure on construction costs in the coming quarters.

If the government leaves the Canadian Emergency Response Benefit (CEP) The program expires at the end of September, as he announced, the aforementioned increase in offered wages could attract more people (mainly younger ones) to work in construction, helping to reduce the high rate of job vacancies in the industry. ‘industry.

In this context of rising construction costs and tight supply, housing demand is expected to remain strong as the Bank of Canada is in no rush to raise interest rates, consumer confidence is almost in orbit and net international migration is accelerating rapidly. Unsurprisingly, the combination of strong demand and limited supply suggests that the upward pressure on house prices will persist until 2022.

John Clinkard has over 35 years of experience as an economist in international, national and regional research and analysis with leading financial institutions and media in Canada.

Construction jobs, residential material prices
and price of new homes – Canada

Data source: Statistics Canada.
Graphic: ConstructConnect – CanaData.

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