A landscape view of the Toronto downtown skyline from a building rooftop.

The North American construction industry continues to face higher costs, supply chain challenges and labour scarcity. Image by Craig Cook via Unsplash

A shortage of labour and growing costs to build could prompt some Toronto developers to hit pause on launching new residential projects.

In its North American quarterly construction cost report for Q2-2022, global construction and property consultant agency Rider Levett Bucknall (RLB) stated that ongoing industry challenges could halt launches in the city.

“In Toronto, residential developers are dealing with a labor scarcity and rising construction-materials costs, which will likely result in postponed project launches,” stated the quarterly report.

“Although home resales have slowed since the first interest rate hike, the new home or pre-construction market has remained active. This indicates that, while 2022 will be a colder year than 2021, it will still be a very solid year for the Toronto residential market,” it said.

Challenges related to labour shortages aren’t exclusive to Toronto.

The Q2-2022 report analyzes data for 12 U.S. cities in addition to Toronto and Calgary. Julian Anderson, president of North America at RLB and global board director, noted that workforce shortages are one piece of a wave of issues that the North American construction sector is facing.

For instance, the construction industry experienced an immediate loss of 1.1 million employees from February to April 2020 at the arrival of the COVID-19 pandemic. Employment data show that the shortage of workers in architectural, engineering and construction (AEC) industries is at a “critical point,” as inflation and diesel prices continue to climb amid supply chain challenges.

Construction job openings through the end of April totaled 494,000, a 40 per cent annual increase and well above the 455,000 workers that were hired that the month. Anderson explained that recent BLS data shows 36,000 new employees joined the construction workforce in May, but this was just seven per cent of the open positions.

Nearly three-quarters of companies have reported that projects took longer than anticipated in 2021, according to RLB.

“The proverbial ‘help wanted’ sign seem to be the sign of the times in our industry, with job openings at an all-time high and the unemployment rate at an all-time low in April,” said Anderson. “The workforce shortage is pervasive through every aspect of our industry right now.”

Comparative Cost Index rises in Calgary and Toronto

Ontario and Alberta’s largest city centres reported an annual increase to their Comparative Cost Index (CCI).

RLB’s CCI tracks the “true” bid cost of construction, which, in addition to labor and material costs, includes general contractor and sub-contractor overhead costs, fees and applicable sales/use taxes.

Toronto recorded a 14.4 per cent year-over-year increase to its CCI between April 2021 and April 2022, slightly higher than Calgary, which noted a 10.24 per cent hike to its CCI over the same time period.

Indicative construction costs for residential multi-family properties now range from $190 to $255 per square foot in Toronto, and $255 to $485 per square foot for single-family homes.

Costs in Calgary are slightly lower compared to Toronto, with expenses ranging from $170 to $230 per square foot for multi-family homes and between $250 to $370 square foot for single-family homes.

Non-residential construction in Calgary and Toronto’s remains active.

As part of a $1.4 billion provincial construction initiative that includes more than 300 projects over the next two years, the Alberta government has revealed a handful of these projects that will start over the summer, the RLB report stated. About $789.4 million in the Alberta budget has been set aside for work on roads and bridges.

Meanwhile in Toronto, non-residential investment is expected to contribute to the province’s expansion while the Ontario government plans to increase spending on public infrastructure by 11 per cent.

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