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Building construction price indexes, Q4 2020 – Lumber still an issue

February 8, 2021 | By Anthony Capkun

February 8, 2021 – Prices for residential building construction increased at a faster pace in Q4 2020 (+2.9%) than in Q3 (+2.5%). In the fact, gain in the fourth quarter was the largest on record, reports Statscan.

Conversely, the growth in prices for non-residential building construction slowed in Q4 (+0.4%) compared with Q3 (+0.5%).

Construction prices for residential buildings were up in Q4 in all of the census metropolitan areas (CMAs) covered by Statscan’s survey. Non-residential construction prices increased at a slower pace in every CMA except Moncton, where they were flat.

Year over year, residential building construction costs (+6.6%) rose at 4X the pace of non-residential construction (+1.5%) in the fourth quarter, mainly because of the high demand for housing and a shortage of lumber across the country.


Lumber shortages still impacting residential construction prices

A combination of tight supply and high demand for lumber continued from the third quarter into the fourth, driving up the cost of residential building construction.

Typically, the seasonal nature of the construction sector results in less activity in the winter months and provides sawmills with the opportunity to restock their log yards in preparation for the coming year. However, shutdowns of sawmills last spring because of Covid—as well as unseasonably mild weather in British Columbia—made it more difficult to harvest logs.

The resulting tight supply drove up prices for lumber and other wood (+44.0%) and softwood lumber (+78.8%) in December 2020 compared with December 2019.

The demand for residential construction in the United States and Canada also remained high, with the total value of building permits increasing 9.5% in Q4 2020.

Costs increase for all residential building types

Nationally, construction costs rose for all residential building types covered by Stascan’s survey in the fourth quarter.

The largest quarterly price increases were for townhouses (+4.1%) and single-detached houses (+3.8%). Due in part to the smaller usage of lumber in high-rise apartment construction compared with all other residential building types, the cost for this building type rose at the slowest pace, edging up 0.6% in the fourth quarter.

While construction costs for residential buildings were up in every CMA covered by the survey, St. John’s (+5.5%) and Ottawa (+4.7%) recorded the largest gains.

Non-residential construction price growth is minor

The growth of the cost of non-residential building construction slowed in the fourth quarter, with price increases ranging from 0.3% for shopping centres and bus depots with maintenance and repair facilities, to 0.5% for warehouses and factories.

The largest increases in construction costs for non-residential buildings were in Halifax (+1.1%) and Ottawa (+0.9%), as well as in Montreal and St. John’s (both up 0.6%).

The slower price growth in non-residential buildings was partially attributable to lower construction costs in this building type, which requires less lumber, as well as to business uncertainty and a reintroduction of tighter physical distancing measures in certain regions of the country during the recent resurgence of Covid cases.

The year 2020 in review

Nationally, residential building construction rose at a faster pace in 2020 (+3.8% versus 2.9%) compared with a year earlier, while non-residential construction costs rose at a much slower pace (+1.6% versus 3.5%).

Residential construction costs increased the most in Ottawa (+5.8%), Moncton (+4.5%) and St. John’s (+4.3%) in 2020.

Non-residential construction costs increased the most in Montreal (+3.4%), Ottawa (+3.0%) and Toronto (+2.6%), while Saskatoon was the lone CMA covered by the survey to show no price movement in 2020.

Construction costs for residential buildings rose the most for townhouses (+4.4%) and single-detached houses (+4.1%) from 2019 to 2020, while construction costs for high-rise apartment buildings (+2.3%) increased the least.

Slowdowns in shipments of construction materials, along with physical distancing measures, curtailed or temporarily halted building construction activity in the first quarter of 2020.

Although construction resumed in the second quarter in all CMAs covered by the survey, productivity on worksites declined as employees abided by increased health & safety protocols.

Supply chains continued to be disrupted throughout 2020, and lumber shortages drove construction prices higher in the wake of increased demand for new housing and renovation projects.

Outlook for 2021

Shifts in homebuyers’ preferences to accommodate working from home—combined with historically low interest rates and increased optimism for the reopening of the economy as the vaccine rollout begins—are factors that should continue to drive demand for housing and put upward pressure on residential building construction prices.

Lumber prices are predicted to continue rising for most of 2021, which will increase the construction costs of new homes. Homebuilders could struggle to take advantage of the demand for new housing as they scramble to obtain the lumber they need amid tight supplies.

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