Construction prices are on the rise.

The latest report into building construction prices issued by Statistics Canada—for the third quarter of this year—shows that residential construction prices rose 2.4 percent while the cost of non-residential buildings rose 0.4 percent.

The report examines construction prices in 11 of Canada’s major cities. All cities reported higher residential prices, with Moncton, Calgary and Edmonton all reporting quarterly increases of at least 3 percent. Non-residential price jumps were greatest in Ottawa (0.9 percent), Halifax (0.7 percent) and Toronto (0.5 percent).

Several factors are contributing to the rise in construction prices. The first is demand. Construction volume, measured by the total value of building permits, rose by 6.9 percent in the residential sector in September, and while sectoral investment rose by 8.2 percent in August to exceed pre-COVID levels.

Meanwhile, the industry also faces supply chain disruptions.

According to the Sawmills survey, even though total softwood and hardwood production was up on a year-over-year basis in June (+0.7 percent) and July (+1.5 percent), these increases did not offset the steep year-over-year declines observed in April (-33.5 percent) and May (-18.7 percent) due to mill shutdowns.

Lumber mill capacity issues were also compounded by such logistics problems as truck driver shortages, decreased rail car availability, and a strike at the Port of Montréal that led to disruptions in regular port operations and, which later trickled to other Canadian ports, creating further rail car imbalance across the country. Pressure treated lumber and oriented strand board were cited as the types of lumber products with the lowest available supply. The shortages for these products could continue well into the fourth quarter.

General contractors in the non-residential sector across Canada continued to face higher lumber prices and insurance rates and lower productivity due to COVID-19 physical distancing and hygiene requirements. As market uncertainty continues, general contractors report bidding on fewer projects, reducing margins and constraining price increases.

Construction costs increase year over year

Residential building construction costs rose 4.0 percent year over year in the third quarter, following a 2.1 percent increase in the second quarter.

Construction costs for residential buildings rose the most in Moncton (+5.3 percent), Ottawa (+5.0 percent) and Montréal (+4.6 percent) on a year-over-year basis.

Non-residential building costs (+1.4 percent) continued to rise during the 12-month period ending in the third quarter. The costs of factory buildings in Montréal and school buildings in both Montréal and Ottawa contributed the most to the increase in non-residential building construction costs.

Year over year, non-residential building construction costs rose the most in Montréal (+3.4 percent) and Ottawa (+2.9 percent) in the third quarter.