Much has been written and said about price increases in the past two years. 2020 saw the price lumber start to rise, peaking in spring 2021. As an example, a 2×4 piece of lumber increased from $3 each, to over $10. Since then, then price of lumber has come down, but the cost of other Construction materials and products is increasing.
Inflation is a hot topic recently, with figures of 5% to 7% across all parts of the economy. For those that are building and renovating, Construction Costs are increasing much more quickly.
Construction costs have been increasing faster than the rate of inflation for many years. Some of this is due to increases in labour and material costs, and some due to changes in building codes.
Consumer Price Index
To understand how construction costs are increasing faster than the general inflation rate, lets start by looking at the Consumer Price Index (CPI) over the past few years.
Consumer Price Index (CPI)
2017 – 1.60%
2018 – 2.30%
2019 – 1.90%
2020 – 0.70%
2021 – 4.70% (as at November)
(source: Statistics Canada)
Going back 3 to 5 years, inflation was increasing at about 2% per year. As covid impacted the economy in 2020, inflation dropped, primarily due to a drop in energy prices. In 2021, as we all know, everything is costing more, from food, to gas to housing.
Construction Cost Increases
Now lets look at the cost increases in residential construction:
2017 – 6.6%
2018 – 5.6%
2019 – 1.6%
2020 – 7.6%
2021 – 20.0% (3rd quarter)
In four of the past five years, the cost of construction has increased well above the rate of inflation. In the past year, the cost of construction has skyrocketed. Lumber prices increased, then decreased, and now are edging up again. Currently, lumber costs are about 100% more than two years ago. Garage doors have seen a huge increase, approximately 70% more than a year ago. The price of literally every part of the job has increased – windows, cabinets, countertops – the list goes on.
Over past 5 years, construction costs are up approximately 50%, according to StatsCan. So that $50,000 kitchen renovation we did in 2016 is going to cost $75,000 at the start of 2022.
Cost Per Square Foot
Everyone’s favorite question: how much does the project cost per square foot?
The RLB Construction Cost Report Q4 2021 suggests the lower end construction cost of new residential detached is $300 per square foot, and close to $600 per square foot for higher end construction.
(Note, RLB is in US dollars and we have converted to CAD at $0.80.)
Higher end construction can involve more expensive finishes, and it can also be as a result of more elaborate architectural design.
Custom construction is typically at the mid or higher end. Very few homeowners building a custom project will building at the lower end of the cost scale. And house additions are typically more costly per square foot, especially if they are smaller.
What’s Next?
Residential construction costs will continue to increase in 2022, and we expect another double digit increase in over the course of 2022.
Costs will probably increase 10% in the first half of the year, and then stabilize in the second half of 2022.
