Despite a significant drop in construction costs in Toronto, the city's dire housing market makes building unaffordable for many. This article explores the complex issues facing the construction industry in Toronto, including the impact of government policy, labor costs, and market trends.
The good news is construction costs have dropped significantly in recent years. However, the bad news is that many people are unable to build anything due to the severe housing market challenges in the Greater Toronto Area. This situation presents a complex dilemma: is it a glass half full or half empty? It is what it is, and we must adapt and hope for the best. If the math works out to build, it's a great opportunity; if not, it's a terrible time, perhaps the worst in recent history.
Looking ahead, 2025 will be a mixed bag for some, with great prospects for some and a bleak outlook for others. The year after, however, things are expected to improve considerably. Why? We can blame the government for their inadequate response to the housing crisis. The housing shortage is real and its consequences will be felt in 2027 and 2028. Math rarely lies, unlike politicians. The Toronto condo market was extremely challenging in 2024, with fewer than 5,000 sales. Purpose-built rentals also saw a sharp decline. As we enter 2025, housing starts are plummeting, and the outlook appears grim. This is good news for those concerned about construction costs. CHMC starts in Toronto in 2024 plunged 25% from the previous year, including a 22% drop in condos and a 35% drop in rentals. This trend is expected to worsen in 2025 for condos. The lag between sales and starts, and how CHMC measures it, means this year will be difficult for construction. Charts illustrating this issue demonstrate the disparity between sales and starts, with record completions juxtaposed against no sales, leading to a potential shortage of homes in the future. If no action is taken soon, the housing market will face a severe crisis.Concerning construction costs, the one consistent positive is the continued decline in hard costs in the private sector. The public sector, however, has a history of mismanagement and wasteful spending. Instead of focusing on the public sector, let's concentrate on the private real estate sector. Construction costs have plummeted over the last couple of years, with projects down by 15% to 25%. This consistent cost reduction coincides with a worsening housing market, transitioning from a fast-paced action movie in 2022 to a musical in 2023, and now into a slow and tedious black-and-white silent film. This year, potential exists for costs to continue falling, but the pace has slowed. There's a limit to how much you can squeeze from a stone. Breaking it might bring it down on you, so proceed with caution. Trades facing receivership are not a desirable situation, and trades must be cautious about the deals they accept. Layoffs are preferable to receivership, so it's essential to work with reliable clients and ensure payment.How do costs decrease? Labor remains a constant, materials are priced according to the market, and margins play a significant role. When the market is strong, margins increase. When the market is weak, and survival is key, margins become less important, and cash flow reigns supreme. Labor being constant, union agreements are up this year, which is a positive development. However, in the past, we'd be panicking about the impact on projects. This time, it's less of a concern, highlighting the unusual circumstances we face. If people want to strike, let them. The market can't get any worse, and there are no bargaining chips. We know the next two to three years will be challenging, and there might be a case for reducing labor rates, something that would have been unthinkable a couple of years ago. The cost of living is rising, but if demand drops significantly, a 5% increase on zero hours worked is meaningless. The real threats to costs are the exchange rate and potential tariffs. We also face two elections, including Ford's seemingly endless campaign against the inept Provincial Liberal Party, which made a disastrous choice for a leader. Then there's the federal election, with the current government trying to pretend they had no hand in the past nine years. Speaking of that…carbon tax? What carbon tax? That's sure to help… by removing it anyway
CONSTRUCTION COSTS HOUSING MARKET TORONTO CANADA REAL ESTATE ECONOMICS GOVERNMENT POLICY LABOR COSTS MARKET TRENDS
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