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Demand for concrete, labour in Canada to continue rising according to JLL construction outlook

April 10, 2023, CHICAGO, IL – Professional services firm JLL have expanded their annual construction outlook to encompass Canada for the first time, with a consistent conclusion in their recently released 2023 report being a continued rise in the cost of labour and materials.

While the latter half of 2022 saw a prolonged decline in material pricing, the report showed that input cost growth in Canada is set to slightly outpace the U.S. in 2023. Canada’s relative infrastructure vulnerabilities, such as fewer highways and more congested ports, are cited as major contributors to this.

Concrete is the only material covered by the report that saw zero decline in demand over the course of 2022, and is set to continue its upward trajectory in price. JLL cite damage to Turkey’s national production and export capacity following the earthquake from earlier this year as a major factor regarding this increase in costs.

The damage to over 100,000 structures caused by the earthquake is a significant blow to Turkey’s position as a major exporter of cement and clinker. While traditionally accounting for 40 per cent of U.S. imports, or 11 per cent of total usage of these resources, this diminished export capacity may lead to increased adoption of lower clinker cement mixes.

The outlook for the Canadian market is largely defined by the struggle between rising material costs and a worsening labour shortage.

“In 2022, the combination of price escalations for several raw materials, construction industry labour shortages, and the rising cost of capital dealt a triple blow to the Canadian construction industry, just as the sector was brimming with post-pandemic exuberance,” reads the report.

Though numerous government programs and incentives have been aimed at balancing these issues, many of them are focused on residential development. These policies have made an impact, with the report showing the “single dwelling” and “multiple dwelling” sectors as having experienced the largest amount of permit growth by far.

The high volume of permits still remains vulnerable to the trend of construction delays.. The report references a study from Urbanation, an analytics firm that tracks the Toronto residential market, which estimated that more than 10,000 units expected to be completed in 2022 were delayed. Provincial legislation doubling the maximum fine to developers for unjust cancellation has been introduced to help abate this issue.

A rise in job vacancies relative to other industries continues to be an issue for the Canadian construction sector. The report references data from Statistics Canada which estimates job vacancies to be at 4.2 per cent across the economy and 4.9 per cent for construction trades, which sit above the 10-year averages of 3.6 per cent and 4.1 per cent, respectively.

As workers leave or age out of the industry, the demand for projects continues to expand beyond the scope of the current labour supply. This is causing a ripple effect, with builders offering incentives such as higher wages to workers who are often less experienced, which in turn leads to slower construction at higher costs; a trend the report anticipates to continue throughout 2023.

The increase in wages to accommodate the higher labour demand is reflected in data that shows full-time salaries to be up 5.4 per cent over the past year, compared with average wage increases of 4.9 per cent across all goods-producing industries and 4 per cent in all service-producing industries. These numbers are somewhat balanced by a 6.8 per cent annual increase in inflation that outpaces this wage growth.

Despite its anomalies when compared to other industries across Canada, the report does see the future of the industry to be subject to the health of the economy at large: “A deeper recession will make construction riskier and will therefore lead to falling supply,” the report states, while, “if a recession does not materialize or is less severe than expected, we may expect more ground breakings.”