While approval data shows the Canadian construction industry remains relatively strong, the industry is looking at modest activity in both 2012 and 2013 according to the Conference Board of Canada.
The prediction is based on an ongoing reduction in government spending on building-related infrastructure, which the research firm says will lead to a drop in construction on non-residential projects.
Austerity measures have led to a clampdown on government spending on upgrades to existing public buildings. In addition, a still-challenging economy means that private sector construction will also remain moderate at best, meaning that neither public nor private building will be plentiful enough to drive the industry.
There is a slightly rosier long-term outlook in the residential construction sector. After declining for three straight years, residential construction is expected to trend back upward. With approximately 193,500 housing starts in 2011, that number is expected to hover at around 190,000 in 2012 and 2013 before climbing to 200,000 in 2014.
The Conference Board of Canada cited slow job growth, high levels of household debt and low consumer expectations as factors in the industry moderation. Residential construction is also expected to suffer from a backlog of available units following the condo boom seen in recent years as unsold homes in multi-unit properties remain available throughout much of the country.
Maxim Armstrong, a senior economist with the board, says the slowing market is no cause for alarm. While the signs are certainly not positive, they do not show evidence of a housing bubble burst.
“The industry is coming in for a soft landing,” he says.
The board’s outlook takes the entire country into account, meaning that the construction sector will be stronger in some markets than others. That, too, should temper concern as, he says, “the overall housing market in Canada remains solid.”
The surplus in condominiums and similar multi-unit dwellings should lead to that segment of the housing market losing ground to construction of single-family homes and smaller attached and semi-detached properties.
Despite the board’s seemingly pessimistic findings, there are positive indicators. While building numbers are projected to fall, Canada was in an unusually strong position heading into 2012, with figures at or near four-and-a-half-year highs.
Furthermore, while profits have dropped in the construction industry for three years running, they are expected to climb by more than 21 per cent in 2012 to $3.4 billion due to moderate growth in costs.
