Let's Talk About Productivity, or lack there of: Lyall Report.
October 23, 2024
Much ado has been made lately about the productivity of Canada’s construction industry. While there is ample room for improvement, I do believe our industry is getting the short end of the stick.
Two recent reports have been critical of the industry’s productivity, leaving the impression that it is to blame for the housing shortage. Nothing could be further from the truth.
A Canada Mortgage and Housing Corporation (CMHC) report noted that even with a record-high 650,000 construction workers in 2023, Canada’s housing production of 240,267 units was below the potential of over 400,000 homes per year.
Further, the CMHC highlighted that although more human and financial resources have been committed to residential construction over the past several years, housing starts have not kept pace, and with current resources, we should be building 130,000 to 225,000 more homes each year. Another report by TD Economics highlighted that construction is the worst industry with labour productivity at a near 30-year low.
At first blush, it’s easy to blame the industry for the lack of production and the housing shortage. But there’s more to the story. Many factors that affect productivity are out of a builder’s control.
Let me explain.
Take, for example, the growing, outdated and dysfunctional regulatory system. It significantly slows down the process of building homes and stymies new development. The labyrinth of regulations adds layers of complexity and stalls the production of housing. In the City of Toronto, the five-year average timeline for a site plan decision is 912 days while the five-year average for combined Official Plan amendment/zoning bylaw applications is 729 days. The total length of an application can add a cost of between $43,000 and $90,000 per unit, per application submission, according to a recent report done by Altus Group.
Changes in the size and complexity of single-family homes also affect productivity. It is therefore unfair to compare the productivity numbers from three decades ago to today’s figures. Because of the complexity and addition of more safety and quality standards, it simply takes more people with different skill sets to build a house or condo than it did 30 years ago.
Matters outside a builder’s control, such as a slowdown in the industry caused by high interest rates or increases in material costs, also affect productivity. In slow times, builders will also keep workers on the job although there is less work rather than try to replace them when the market improves. This is not to say there is no room for improvement. The residential construction industry is undertaking initiatives such as modular building and using BIM and digital tools to improve productivity and deliver better products. The industry has adopted new technologies, tools and equipment like lasers and drones.
In Ontario, RESCON and others in the building community have supported efforts to digitize and streamline the development approvals processes. Different systems are used across Ontario and the process is fragmented and cumbersome, which delays the time it takes to get a project approved. Moving projects through the pipeline more quickly would benefit builders and buyers. So, when it comes to productivity, many factors must be taken into account. It is critical for governments to do their part to improve the productivity of the industry by speeding up the lengthy approval and building process, cutting red tape, and reducing the bloated taxes, fees and levies, so builders can get projects moving. In Ontario, for example, the tax burden on new housing presently accounts for 31 percent of the purchase price of a new home.
Perhaps Calgary and Edmonton should be the models for how cutting regulations and taxes on new homes can boost homebuilding. Through August, housing starts in Calgary were up by a third and in Edmonton they were up almost 50 percent. In Toronto, housing starts in 2024 are down by roughly 15 percent.
How did the Alberta cities do it?
Edmonton worked to get housing moving through the system faster, got rid of outdated regulations and brought in a new city-wide zoning bylaw that allows row houses or small apartments to be built in most residential areas where single-family homes now dominate, without the need for special approval. Calgary made it easier to build various types of homes in communities. The two cities now rank near the top for approval times and reasonably low taxes on new housing while Toronto ranks last in both categories. The takeaway from all this?
The productivity of the construction industry is weighed down by rules, regulations and taxes. Governments must accept this reality and do their part to speed up housing development.
