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Not long ago, Canada had a shortage of skilled workers. Now, there is a surplus and not enough construction projects to supply them.
Published on July 24, 2024 • 4 minutes reading time
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A new home under construction in Calgary, Alta. Photo by Todd Korol/Bloomberg Files
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By Murtaza Haider and Stephen Moranis
Canada continues to struggle to meet its housing construction goals. Until recently, a shortage of skilled workers was considered the main obstacle to housing growth. But recent data shows a worrying trend: while the number of construction workers has reached an all-time high, construction activity has not increased, leading to a significant decline in productivity. The discrepancy between labor force growth and construction output is another challenge for a country struggling to meet its housing construction goals.
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Earlier this summer, the Canada Mortgage and Housing Corporation (CMHC) noted that despite having “a record 650,000 registered construction workers,” Canada had only built 240,267 homes in 2023. Taking the inflated construction worker count into account, Canada could build more than 400,000 homes each year.
Statistics Canada's online data on labour productivity and size go back to 1997. Since that year, the Canadian housing construction workforce has increased by 136 per cent, while housing starts have increased by only 63 per cent, suggesting that the increase in the labour force has not led to a corresponding increase in housing starts.
The CMHC report's left-censored data suggest that housing construction has increased, but only because the data series began in 1997. Had the series begun in 1987, the data would show that 246,000 new homes were built in Canada that year—more than in 2023. A comparative analysis of the size of the construction workforce and housing production from 1987 to the present might show that, despite substantial labor force growth, there has been no significant increase in annual housing production.
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The CMHC has created several scenarios for housing production that take into account an increase in productivity due to the increase in the construction workforce. If average labor productivity had been maintained from 1997 to 2023, there would have been 377,000 housing starts in 2023, a 57 percent increase over observed housing starts. Under a maximum labor productivity scenario over the same period, nearly 400,000 housing units would have been built in 2023—66 percent more than actual housing starts.
Until 2022, the prevailing view was that a shortage of skilled workers was the main obstacle to meeting Canada's housing goals. But recent data suggests that labour shortages are no longer solely to blame. The more pressing issue today is the decline in labour productivity in construction.
The CMHC report found that “from 1999 to 2004, the number of workers per construction start was much lower than today, suggesting that productivity was higher 20 to 25 years ago.” Identifying the causes of the decline in productivity in the construction sector is of paramount importance.
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The report highlights the fragmented structure of Canada's housing industry. A large number of very small firms are involved in building the majority of housing in Canada: 69 percent of construction activity was by firms with fewer than five employees. Interestingly, only one Canadian housing company employs more than 500 employees.
The atomized structure of Canadian construction companies is not a new discovery. Professor Michele Buzzelli of Western University systematically studied the sector in the late 1990s. His study, published in 2001 in Environment and Planning A, found that in 1960, over 94 percent of Canadian construction companies had fewer than 26 employees. Construction companies with more than 100 employees made up less than one percent of the industry.
By 1973, the structure of the construction industry had evolved so that the proportion of construction companies with more than 100 employees rose to 4.4 percent. The 1970s also marked the peak of housing construction in Canada, despite the population being only half its current size and relying on a much smaller workforce.
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This raises a critical question: How could Canada create more housing faster with fewer workers? To address the current housing crisis, it is important to understand the factors that boosted labour productivity in construction in the 1970s and identify the barriers to productivity today.
To achieve economies of scale in residential construction, Canadian construction companies may need to get bigger. This will require consolidations and mergers that allow larger companies to leverage their size to negotiate better contracts with suppliers and other companies in the construction supply chain.
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The Canadian government has set a goal of building 3.87 million new homes by 2031. This daunting task is made even more difficult by the fact that the expansion of the workforce has not helped. While NIMBYism, excessive construction fees and permitting delays are hampering housing supply, the construction industry must also look for solutions to increase productivity.
Murtaza Haider is associate dean for graduate programs and director of the Urban Analytics Institute at the Ted Rogers School of Management at Toronto Metropolitan University. Stephen Moranis is a real estate industry veteran. You can reach them through the Haider-Moranis Bulletin website, www.hmbulletin.com.
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