The Escalating Construction Costs and Their Impact on Home Prices in Canada

Surging construction costs in Canada have created a mounting challenge for homebuyers, exacerbating the already severe affordability crunch in the country. According to a report by Royal Bank of Canada (RBC) economists, the cost of residential construction has soared by 51% since the first quarter of 2020, outpacing the 13% gain in the consumer price index. This substantial increase in building costs, which includes dramatic spikes in concrete, structural steel, and lumber prices, is adding to the existing difficulties in Canada’s housing market. This blog post will explore the implications of rising construction costs on home prices, focusing on the Canadian context and incorporating examples from Prince Edward Island (PEI).

The Growing Affordability Crisis

Canada is grappling with high home prices and rents, along with an influx of immigrants driving population growth. The escalating construction costs only worsen the affordability crisis. The heightened expenses associated with building homes have contributed to a decline in new home construction during the past two quarters, even as the demand for housing remains high due to population growth. As a result, potential homebuyers face even greater challenges in finding affordable housing options.

Labor Cost Inflation and Skilled Worker Shortages

Labor costs have skyrocketed, primarily due to high job vacancy rates within the building industry. RBC economists note that wage growth in construction was 9.4% last year, more than double the rate in other industries. The shortage of skilled workers further exacerbates the situation, driving up labor costs and constraining the pace of construction. To tackle this issue, RBC economists recommend increasing the supply of skilled workers by leveraging federal government programs designed to attract skilled immigrants. By addressing labor shortages, inflationary pressures could be tempered, providing some relief to construction costs.

Impact of Extreme Weather Events

Extreme weather events have also contributed to the surge in construction costs by disrupting the availability of critical building materials. Heavy rains, flooding, and wildfires have affected lumber supply, while temporary shutdowns of cement plants in Ontario, British Columbia, and Alberta have hindered production. These factors have created supply chain disruptions, driving up prices for essential construction materials. While some of these challenges may be temporary, the long-term consequences could be substantial if climate change continues to impact weather patterns. Mitigating the effects of extreme weather events on construction costs will be crucial in maintaining affordability.

Short-Term Relief, Long-Term Concerns

In the near term, a lull in homebuilding and the resolution of production issues at cement plants may alleviate some of the pressures on construction costs. The RBC economists predict a 10% decrease in housing starts across Canada this year, which should temporarily soften the demand for materials. However, these short-term measures may not address the underlying issues in the long run. The economists caution that significantly ramping up homebuilding over the medium to longer term will likely keep construction costs elevated. This emphasizes the need for comprehensive strategies to address labor shortages, improve supply chains, and promote sustainable construction practices.

Examples from Prince Edward Island

Prince Edward Island (PEI), known for its stunning landscapes and vibrant communities, is not immune to the challenges posed by rising construction costs. As demand for housing increases on the island, the elevated costs make it harder for individuals and families to find affordable homes. PEI’s construction industry is also grappling with shortages of skilled workers and the impacts of extreme weather events, which further exacerbate the situation. To maintain the balance between growth and affordability, stakeholders in PEI, including the provincial government, industry associations, and community leaders, must work together to develop localized solutions that address the unique challenges faced by the province.


The surging construction costs in Canada, including Prince Edward Island,