In today’s Konfidis Insights, we profile a recent CBC article: Ontario needs 1.5 million new homes. But the province faces a generational labour shortage. Related thereto, we also highlight a recent Toronto Start article: New construction home sales hit lowest level in over 20 years In addition, we provide Konfidis insights, commentary, and data support related to these topics herein.
Ontario needs 1.5 million new homes. But the province faces a generational labour shortage, select article highlights:
If you ask anyone in Ontario's construction industry, they'll tell you they have a big problem: too much work and not enough workers. Ontario's government wants to build 1.5 million homes over the next decade, but says it will need 100,000 more workers to carry that out. "I think this is the greatest economic challenge facing Ontario," said Monte McNaughton, the province's labour minister, in an interview with CBC Toronto.
Data from RESCON shows 96,000 homes were started last year, well over 50,000 short of the annual targets needed for the province to fulfil its promise. It isn't just affecting the construction of new homes. Contractors are turning down work in every facet of the industry, including restoration, industrial, institutional and commercial, and renovations. "It's actually shocking. We turn down millions of dollars in work," said Mike Lawrance, president of M-Squared Contracting, a GTA-based firm specializing in home renovations.
One part of the problem, many experts say, is that Ontario has not been developing enough new skilled talent through the education pipeline to replace the now-retiring baby boomers. And even if we were, industry experts say we still need to welcome more foreign labourers skilled in construction trades to make up for the shortfall. Building is big business in Ontario — the construction industry employs around 600,000 workers and makes up just under eight per cent of Ontario's nearly $1-trillion GDP. But with the latest job vacancy rate around 6.6 per cent, tens of thousands of skilled construction jobs have nobody to fill them. "It's the most restrictive I've ever seen in my career," said Lawrance, referring to the province's labour market. He says his company has been advertising for two years with only "one new hire" to show for it.
Konfidis Insight: As detailed in the chart below from Statistics Canada, job vacancies have been significantly elevated since 2021. In the third quarter of 2022, job vacancy in the Construction of Building sector was 7.7% and 5.4% for all industries.
Lyall says not enough people are choosing a life in the trades, leaving employers desperately scrambling to hire. "They are lucrative and viable careers," said Lyall. And he isn't wrong. Recent Statistics Canada figures show average wages in the construction sector typically outperforming other industries.
Nevertheless, filling holes in the labour market will require getting more people into apprenticeships — two- to five-year programs that require mostly on-the-job training supplemented by school, leading to qualification in that skilled trade. But connecting eager newcomers to willing employers who will train them for half a decade is not as easy as it sounds. "The programs in place today are not the same as they used to be," said Lawrance. He says a big blow came when the Apprenticeship Training Tax Credit, a program intended to encourage hiring and retaining apprentices, ended in 2017. "If you look forward another five or 10 years, there's no way there are going to be the apprentices in the program available to fill the roles that the aging population is leaving right now." It's a problem that's been growing for a long time, according to Lyall, who says the pathways from school to careers in trades aren't there to the extent that they should be.
Even if Ontario revamped its education system to get more students into trades, the province would still need skilled foreign workers to meet the current demand for housing. Lawrance says he's often turned to the Temporary Foreign Worker program to hire from outside Canada — a program requiring government documentation showing a need for a foreign worker to fill the job. It's a very challenging process to get through as a small business, he says, with "a lot of red tape, time spent and other associated costs." Canada welcomed record numbers of new permanent residents in 2021 and 2022, but Lyall says not a high enough percentage of these workers are skilled in construction trades. It's a problem Ontario continues to grapple with, but even with changes coming to the education system that encourage youth to get into trades, the province is still looking for thousands of workers. "We need to act now, especially if we have these milestones we need to hit in the province of Ontario," said Michelis.
New construction home sales hit lowest level in over 20 years, select article highlights:
New construction home sales in the GTA plunged to a 23-year low in January with consumers still hesitating to buy amid higher borrowing costs. Sales of new construction houses and condos plunged 81% below January 2022 levels and 70% below the 10-year average, said Altus Group, which tracks new construction sales and prices in the GTA. The 381 condos that sold last month was the fewest sales for January in 14 years — down 84% from the 10-year average. The 186 single-family homes that sold in January, was 78% below the last decade’s average and 70% less than January 2022.
Konfidis Conclusion: A compelling background for SFR investment
With 500,000 newcomers expected to immigrate to Canada each year, and with the majority landing in Ontario, Ontario needs to build no less than 1.5 million homes over the next decade; but as detailed above, we face generational labour shortages with broken educational and skilled foreign workers systems in this country. The trend of reduced residential construction is in stark contrast to the accelerating demand for housing brought on by sustained immigration levels, especially when considering the market for single-family homes in Ontario’s secondary markets.
With this backdrop, Konfidis continues to see a very compelling landscape for single-family rental ownership in Ontario’s secondary markets as the long-term supply and demand fundamentals that support strong home price appreciation and inflation protection.