Canadian real estate is amongst the most expensive in the world, but it’s not due to materials or labor. RLB, a global consultancy for builders, released its annual North American construction guide for 2022. Major cities in Canada topped the list when it came to building cost growth. It’s not unexpected when Toronto is the least affordable city in North America. Unexpectedly, Toronto is amongst the cheapest major markets to build a home.
Canadian Construction Costs Are The Fastest Growing of Major North American Cities
Canadian cities have some of the fastest rising building costs in North America. Toronto’s annual growth (13.25%) and Calgary (10.28%) take the first and second spot on the list, respectively. RLB attributed this to the quantity and size of construction happening in Canada.
On one hand, Canada’s massive infrastructure binge will boost GDP higher. On the other, the government is now competing for the same resources as home builders. Competing with the private sector appears to be a common theme these days.
North American Building Construction Cost Annual Growth
The annual rate of growth for hard construction costs for major real estate markets in Canada and The United States.
Source: RLB; Better Dwelling.
Canada Has The Cheapest Building Costs For A Condo Apartment
For those that don’t know, hard costs are the expense for building the actual home. It includes materials, equipment, and labor. These are generally easy to estimate costs, that don’t typically vary by much. In Canada, these are much lower than they are in the US.
Toronto, one of two Canadian cities to make the list, can build housing for dirt cheap. The average low estimate for multi-family hard costs is US$134 (CA$180) per square foot. It’s the cheapest you can build multi-family housing for any major city in North America. The high end of the estimate is still just US$183 (CA$245) per square foot, the second cheapest on their list.
North American Multi-Family Building Construction Costs
The estimated hard costs for the low and high range per square foot when building high-rise housing in major North American markets.
Source: RLB; Better Dwelling.
In Calgary, the only other major Canadian city to make their list, costs are similar to Toronto. At the low end of the estimate it’s US$149 (CA$200) per square foot, the second cheapest city in the index. At the high end, it comes in at US$168 (CA$225) per square foot — the most affordable on the list. Calgary and Toronto are even below costs in Phoenix and Denver.
Building A Low Rise Home In Canada Is Much Cheaper Than The US
Single-family hard costs are a little more expensive in Canada, but still cheap-ish. Toronto is the third cheapest on the list at the low end, with a cost of US$179 (CA$240) per square foot. At the high end, the city is the fourth cheapest on the list at US$347 (CA$465) per square foot. It’s a higher cost than multi-family housing, but still relatively cheap. Bet you didn’t think it would be cheaper to physically construct a home in Toronto than Las Vegas.
Calgary is a little more expensive than Toronto, but still relatively cheap. Well, cheap for 2022. At the low end, hard costs were US$183 (CA$245) per square foot and US$269 (CA$360) at the high end. Still, housing in Canada is more expensive than densely populated US cities with higher wages. What gives?
Soft Costs and Profit Still Need To Be Added To Home Prices
Profit is the most obvious reason, and it comes up a lot. Let’s be honest, real estate developers aren’t a social service. They didn’t collect change from their couch to get their names on the sides of hospitals and schools. Still, this is far from the only cost — and some are much bigger.
Soft costs are also a substantial expense. These are variable and difficult to estimate. Things like architecture, legal, and planning expenses fall into this category. Government charges are a steep one worth diving into, though.
High Government Fees and Low Property Taxes Drive New Housing Costs Higher In Canada
Toronto has some of the steepest fees for building new homes in the city. In 2018, fees ranged from $165,000 per unit for high-rise condos and $206,000 for single-family housing. Remember, that’s not the cost of the house — but just fees and taxes.
A more recent estimate of taxes and fees shows it’s reaching nose bleed levels. A one-bedroom buyer in Toronto is estimated to pay $186,000 in taxes and fees alone. The recent adoption of “inclusionary zoning” is also estimated to add $61,000 per unit on top of that. It’s the cost of a whole house in some American cities, just in taxes and fees.
Fees like this are applied in the worst way possible, inflating the cost of all supply. Since existing homes are a substitute to a buyer, the fees are reflected in existing home prices. It might cost $1,000,000 to build a new home with $200k in fees, but existing owners of a similar place will want $1,000,000. The city collects the fees once, but all buyers continually pay them. It is likely impossible to build affordable market-rate housing this way.
Canadian cities like Toronto and Vancouver adopted high building fees to offset low property taxes. Both cities rank amongst the lowest property tax rates in North America. In Vancouver, homeowners can even get a rebate on top of the low rate. As a result, new home builders need to pay for much of the new infrastructure built. Meanwhile, existing homeowners share the value creation and improved property values. More bluntly put, existing homeowners stick buyers with the bill to inflate their equity.