More data from Canada’s national statistics agency shows home builder costs are soaring. The Statistics Canada (Stat Can) residential construction cost index surged higher in Q1 2021. Since the issue is largely material related, the impact is across Canada. Cities like Toronto, with recent building booms, are seeing costs jump the most though.
Canadian Home Building Costs Increase Over 11%
Canada’s 11-city composite index shows residential real estate construction costs climbed much higher. Residential construction costs increased 5.62% in Q1 2021, up 11.70% from the previous quarter. They’re up 11.70% from a year ago, and a whopping 25% higher than they were in 2017. CPI only increased 7.47% during that same stretch from 2017.
Canadian Home Building Costs Are Rising QuicklyThe annual percent change in the index cost of residential real estate construction. Source: StatCan; Better Dwelling.
Many factors are driving these costs, but StatCan points to two big ones for the recent surge. Lumber, and commodity prices in general, are the first. Just lumber alone has begun to add tens of thousands more in costs. Interest rates are the other big one, stimulating new home consumption. Oddly demand is stimulated at the same time production is being artificially limited. A sloppy mismatch, that’s intensified the situation.
Toronto Home Building Costs Increased Over 7%
The home building boom in Toronto pushed construction costs even higher than average. Residential construction costs are up 7.22% in just the latest quarter. Costs have increased over 15.05% over the past year, and are up 27.7% more than 2017. Toronto’s rise in residential costs over the past year is second only to Calgary.
Vancouver Home Building Costs Increased Over 5%
Vancouver’s steep climb in construction costs has seen a sharp rise recently as well. Residential construction costs climbed 3.06% in the quarter, and are now up 5.84% from last year. Costs have increased by 21.4% since 2017. Still much faster than inflation, but lower than the national average, surprisingly.
Low interest rates may ironically have affected the ability to create more supply. Few development projects have launched recently, with Toronto being a notable example. This is partially due to the high cost of materials. The current building in progress was sold at least a couple years ago. At the time, it would have been impossible to price in the surging cost of material and labor.
If developers sell units now, they would need to make a lot of uncertain guesses as to builder costs. Some analysts have forecast material costs will fall later into the year. If that were the case, buyers of pre-sales would be paying a lot more than they would if they waited a few months.
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