Vince Lombardi, considered by many to be among the greatest coaches and leaders in American sports, once proclaimed, “It’s not whether you get knocked down, it’s whether you get up.” It appears the residential construction industry is now at one of those make-or-break moments.
We are facing the most severe housing market correction in a generation. In a word, the housing situation is grim. New housing and sales starts are catastrophic. Consumers aren’t buying because the cost of housing is too high and builders aren’t building because the cost of materials, labour and government-imposed taxes, fees and levies make housing unaffordable. Add in the uncertainty and volatility caused by the unpredictable on-again, off-again tariffs imposed by erratic US President Donald Trump and the situation becomes even more untenable.
With skyrocketing costs and taxes, single-family home prices are now generally more than 11 times the income of a middle-class family, compared to 20 years ago when it was less than six. New home sales in the Greater Toronto Area, for example, hit a record low in May. Developers sold just 345 new homes in the region that month, down 64% from last year and 87% below the 10-year average. The mind-boggling rate of the decline is incomprehensible. Alarmingly, of those sales, 137 were condo apartments. In May, condo sales were down 74% from last year and 93% below the 10-year average for the month.
For Ontario, there were a total of 12,700 housing units started in the first quarter of this year – a 20.2% drop from the quarter before. It’s the lowest level of starts since the fourth quarter of 2009. All this will have devastating consequences for the industry, which consists mainly of small and medium-sized contractors. They just don’t have the money to survive such a significant downturn.
In Ontario, the province has shed nearly 12,000 construction jobs over the last year and latest research figures indicate more could be on the chopping block. Peter Norman, economic strategist at Altus Group, says that based on the current state of preconstruction home sales, 105,000 to 170,000 jobs in the new construction sector across Canada are at risk of disappearing.
Industries like lumber, drywall, roofing and windows will be affected and have to cut back production and lay off workers. Services dependent on construction workers would see declines. Another added and worrisome wrinkle is the number of workers who may leave the industry and never return. The potential effect on our GDP is worrisome. In Ontario, the construction sector contributes seven to 8% of the province’s GDP. Any drop would significantly diminish the figure.
With the help of ChatGPT, I ran a few quick projections on how a decline in the industry would affect direct and indirect employment. The result of the exercise was nothing short of astounding. In Ontario, a 30% drop in industry activity would eliminate 121,500 jobs, a 50% drop would cost 202,500 jobs, and an 80% decline would result in the loss of 324,000 jobs. This means that framers, electricians, plumbers, site managers, engineers, suppliers and distributors would be out of a job, as well as others like realtors and appraisers and inspectors.
Without bold changes, this crisis will become a disaster. Left unchecked, the housing situation will only get worse. We must find ways to build more housing that people can afford. We cannot just throw up our hands and hope for the best. We must reduce the taxes, fees, levies and development charges that are crippling the industry and cut red tape which only delays and adds to housing costs. Taxes presently account for 36% of the cost of a new home. That’s up from 24% in 2012. Builders pay the fees when shovels go in the ground, but the costs are ultimately passed on to buyers.
It is high time we treat housing like a necessity – much like we do food. Presently, it is being taxed like alcohol and cigarettes. When the auto sector ran into trouble and needed help, governments were quick to act. They responded by treating the industry like a sacred cow. But housing is being ignored. Perhaps that is because auto makers have massive facilities that make for a good photo-op for our politicians.
In the GTHA, middle-income workers are leaving because housing is unaffordable. More than half a million residents left the region between 2014 and 2024 because of high housing costs, according to a report by CivicAction. The result is a staggering $7.5-billion annual loss in GDP.
Cutting taxes, fees, and levies on new housing are all within government control. The cost of inaction is unfathomable.
