Canadian inflation might be cooling, but the costs of building a home is surging higher. Statistics Canada (Stat Can) data shows home building costs jumped higher in Q1 2023. Rather than slowing down, growth is accelerating—running over 5x the inflation target. It’s even worse in Toronto, where the high rise crane capital of North America has seen building costs rise nearly 9x target inflation.
Canadian Home Building Costs Are Accelerating
Canadian homebuilding costs are surging higher, despite the supposed inflation relief. Building costs climbed 1.8% in Q1 2023, following a 1.1% increase in the previous quarter. Annual growth is now up 11.1%, despite supposedly decelerating inflation.
Costs are up almost across the board. Conveying Equipment (+4.0%) and Masonry (+4.0%) led the quarter for growth. Only one category, Woods, Plastics, and Composites (-0.2%) saw a decline, and it was attributed entirely to falling lumber prices. Even with lumber prices cratering over the past few years, it’s still significantly higher than 2020-levels.
Toronto Home Building Costs Are Rising 60% Faster Than Average
First quarter home building costs were high across Canada, but Toronto (+3.2%) is a special case. At 23% faster than Stat Can’s urban index, it was significantly higher than Halifax (+2.6%), and Vancouer (+2.3%), the next cities on the list. Calgary (-0.2%) was the lone exception that saw costs decline in the quarter.
North America’s construction capital, Toronto, is building at a rate creating its own scarcity. With more high rise cranes than any other city, annual growth hit 17.7% higher—a rate nearly 60% higher than the national average.
Canada’s inflation might be cooling, but the cost of building, especially in Toronto, is soaring. The country’s attempt to grow its economy with rapid population expansion has resulted in a prime example of diseconomies of scale.
Rather than costs falling as output rises, demand is beyond productive capacity. This drives the cost of each unit higher, and as we can see—a lot higher. It’s a bold strategy for a country with an economy 30% more dependent on housing than the US in 2006.