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January 30, 2006 - BACKGROUNDER
Double digit construction inflation predicted to continue
- From 2000 to 2005, cumulative construction cost inflation was approximately 45%. From 2006 to 2010, it is estimated the trend will continue at an average of 10% annually.
- After lagging during the nineties, construction GDP growth is now well ahead of the overall economy. In 2004, construction GDP growth was 8.6% compared to 4.0% for the overall economy.
- BC construction employment has soared from approximately 110,000 in 1990 to over 160,000 today. Combined with record low unemployment and a busy industry across Canada, labour shortages are now a reality.
- Construction wages have been falling in real (inflation adjusted) dollars since the mid eighties, but recent Building Trade settlements of over 25% over five years have signaled an upward trend in real wages. Combined with increasing demand for labour, upward pressure on wages is likely to continue.
- All major construction materials (lumber, iron and steel, cement and concrete, fuel) have been rising consistently and most are projected to continue to rise due to world commodity trends.
- Trade escalation varied considerably from approximately 4% (landscaping) to over 20% (concrete formwork and roofing) from 2004 to 2005. Material and labour costs drove the increases.
- Labour productivity (GDP per hour worked) in construction has fallen by almost 30%, while the overall economy has seen an increase of 42%. This can be explained largely by the relatively small impact technology has had on construction productivity and the high ratio of new entrants into the construction labour force.
- While the house price index rose 17.6% from 2000 to 2005, land prices rose only 5.4%. Generally land prices are not as volatile or interest rate sensitive as house prices, so projected interest rates hikes will likely not impact construction costs for land, materials or labour in the short run.
- Construction profit margins plummeted from 4.7% in 1988 to – 0.2 % in 1993. Profitability is slowly returning to the industry with margins nearing 4% in 2003.
- Construction costs per square foot for residential high rises rose from $202 to $230 (14%) from 2004 to 2005.
- Construction costs per square foot rose 44% for residential care facilities and 31% for hospitals from 2000 to 2005.
| ICBA is the voice of BC's construction industry. For further information, or if you have any questions or comments regarding this article, please contact ICBA. |
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