A slowdown is coming to Canada’s construction industry, thanks to the cooling housing market, says a new report from the Conference Board of Canada, and the result of that could be a significant spike in unemployment.
The Conference Board predicts a “soft landing” for Canada’s housing market, but warns that the construction industry will see a grim 2013.
“The residential market … will no longer be able to fuel Canada’s post-recession growth,” Michael Burt, director of industrial economic trends for the Conference Board, said in a statement. “Next year is expected to be particularly lacklustre, as housing starts and industry profits are both forecast to decline.”
A slowdown in construction activity would inevitably lead to higher unemployment. With consistent growth in home prices for the past decade, and a condo construction boom in recent years, concentrated primarily in Toronto, Canada’s economy now relies on construction jobs more than it has in at least the past three decades.
According to an analysis at Bloomberg, construction jobs amounted to more than 7.4 per cent of all employment in Canada in April of this year, compared to 4.2 per cent in the U.S. Even at the peak of its housing boom, U.S. construction employment never exceeded 6 per cent of all jobs.
That makes Canada’s economy particularly vulnerable to a slowdown in the housing market.
In a report released last month, Scotiabank warned that “balance sheets heavily skewed to real estate leave Canadians vulnerable to an adverse shock, including a sharp rise in unemployment and/or a sharp drop in home prices.” The bank predicted the housing slump would last a decade.
And with the Conference Board reporting that condo construction will likely be hit hardest, Toronto could bear the brunt of the construction slowdown.
The city is seeing more high-rise construction than any other metropolitan area in North America, New York City included, and no fewer than 193,000 jobs in the area rely on construction, according to data from industry group BILD.
According to Emporis.com, which tracks construction activity, there are 184 high-rises under construction in Toronto, compared to 25 in Vancouver.
And at the same time as supply is exploding, demand is collapsing. Sales of new homes in Toronto dropped 70 per cent from August, 2011 to August of this year, according to data from RealNet.
(Vancouver’s housing market is also experiencing a sharp decline in sales and prices, but developers there pulled back somewhat on condo construction after the 2008 financial crisis.)
A recent Capital Economics report, which predicted a 25-per-cent house price drop for Canada, estimated the construction slowdown would eliminate 115,000 jobs across the country.
Many economists argue that a slowdown in the U.S.’s housing market caused the balance sheet problems that led to the financial crisis of 2008, but market analysts say Canada is unlikely to repeat that scenario because Canadian banks are not exposed to declines in house prices the way U.S. banks were in 2008.