Not long ago, Canada had a shortage of skilled trades. Now it has a surplus and not enough construction projects to sustain them
By Murtaza Haider and Stephen Moranis
Earlier in the summer, the Canada Mortgage and Housing Corporation (CMHC) noted that despite “a record high 650,000 construction workers” registered in 2023, Canada produced only 240,267 houses. If one accounts for the inflated size of the construction labour force, Canada could build more than 400,000 homes each year.
The CMHC report’s left-censored data suggests housing construction has been increasing, but only because the data series began in 1997. Had the series started in 1987, data would reveal that Canada built 246,000 new homes that year — more than were constructed in 2023. A comparative analysis of the construction labour force size and housing production from 1987 to the present might demonstrate that, despite substantial growth in the labour force, there has been no significant increase in annual housing output.
The CMHC has generated several scenarios for housing production, factoring in increased productivity thanks to the rise in construction labourers. If average labour productivity from 1997 to 2023 had been maintained, 2023 would have seen 377,000 housing starts, representing a 57 per cent increase over the observed starts. Under a scenario of maximum labour productivity during the same period, nearly 400,000 homes would have been produced in 2023 — 66 per cent more than the actual housing starts.
The report highlights the fragmented structure of the residential construction industry in Canada. A large number of very small firms are busy building most of the housing in Canada: 69 per cent of construction activity involved firms with fewer than five employees. Interestingly, only one residential construction firm in Canada has more than 500 employees on its payroll.
The atomized structure of Canadian construction firms is hardly a new finding. Professor Michele Buzzelli at Western University systematically studied the sector in the late 1990s. His research, published in Environment and Planning A in 2001, revealed that, in 1960, more than 94 per cent of Canadian builders had fewer than 26 employees. Building companies with more than 100 employees comprised less than one per cent of the industry.
By 1973, the structure of the construction industry had evolved such that the share of builders with more than 100 employees grew to 4.4 per cent. The 1970s also marked the peak of housing construction in Canada, despite the population being half of what it is today and relying on a much smaller labour force.
This raises a critical question: how could Canada construct more housing faster with a smaller workforce? Understanding the factors that drove construction labour productivity in the 1970s and identifying the impediments to productivity today is essential for addressing the current housing crisis.
The size of Canadian construction firms may need to increase to realize economies of scale in housing. This necessitates consolidation and mergers, enabling bigger firms to leverage their size to negotiate better deals with suppliers and other entities in the construction supply chain.
The Canadian government aims to build 3.87 million new homes by 2031. This daunting task is compounded by the fact that expanding the labour force hasn’t helped. While nimbyism, excessive development charges, and approval delays hinder housing supply, the construction industry must also introspectively find solutions for boosting productivity.