Lumber shortages, housing demand drive Q4 construction prices to new record
Residential construction prices rose by their highest-ever level in the fourth quarter of last year—a fact spurred by high demand for housing and short supplies of lumber across the country.
Statistics Canada’s latest look at building construction price indexes—for the fourth quarter of 2020—shows an increase in construction prices of 2.9 percent for residential construction. This represents the highest quarterly gain ever recorded, and an increase over the third quarter rise of 2.5 percent.
The fourth quarter of any year is usually the time at which cost increases in the residential construction market in particular start to slow. A reduction in winter construction activity usually gives sawmills the chance to restock their yards in preparation for the coming year.
However, shutdowns of sawmills last spring because of COVID-19 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 percent) and softwood lumber (+78.8 percent) 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 percent in the fourth quarter of 2020.
The largest quarterly price increases in the residential sector were for townhouses (+4.1 percent) and single-detached houses (+3.8 percent). High-rise apartment construction costs rose only 0.6 percent—likely because of the fact that these buildings require less wood to build.
For 2020 as a whole, residential building construction costs have risen 6.6 percent—four times the pace of non-residential construction (+1.5 percent).
The non-residential sector recorded a price increase of 0.4 percent in the fourth quarter. That figure was down slightly from the 0.5 percent increase recorded in the third quarter of the year. Price increases ranged from 0.3 percent for shopping centres and bus depots with maintenance and repair facilities to 0.5 percent for warehouses and factories.
Statistics Canada suggests that the slower price growth in non-residential buildings was partially due to lower lumber inputs and partially to business uncertainty and a reintroduction of tighter physical distancing measures in certain regions of the country during the recent resurgence of COVID-19 cases.
For 2020 as a whole, residential construction costs increased the most in Ottawa (+5.8 percent), Moncton (+4.5 percent) and St. John's (+4.3 percent), while non-residential construction costs increased the most in Montréal (+3.4 percent), Ottawa (+3.0 percent) and Toronto (+2.6 percent).