Canada Faces Surplus of Skilled Tradespeople but Insufficient Construction Activity

Canada is facing a new challenge in meeting its housing construction targets. While the country once struggled with a shortage of skilled trades, it now has an all-time high number of construction workers but insufficient construction projects to sustain them. This discrepancy has led to a significant drop in productivity.

Recent data from the Canada Mortgage and Housing Corporation (CMHC) highlights this issue. In 2023, Canada had a record high of 650,000 construction workers but produced only 240,267 houses. If productivity matched the inflated size of the workforce, Canada could build over 400,000 homes annually. Since 1997, the construction labor force has grown by 136%, while housing starts increased by only 63%.

CMHC’s analysis reveals that if labor productivity had been maintained at past levels, 2023 would have seen 377,000 to 400,000 housing starts. The decline in productivity, rather than labor shortages, is now the primary barrier to meeting housing construction targets.

The fragmented structure of Canada’s residential construction industry contributes to this problem. Most housing construction is carried out by very small firms, with 69% of activity involving companies with fewer than five employees. Only one residential construction firm in Canada has more than 500 employees.

Historically, the construction industry in Canada was more productive. Research indicates that in the 1970s, with a much smaller workforce, Canada constructed more housing. This was attributed to larger firms that could achieve economies of scale. Increasing the size of construction firms through consolidation and mergers could be a solution to improve productivity.

The Canadian government aims to build 3.87 million new homes by 2031. This goal is complicated by the current productivity issues. While external factors like nimbyism, development charges, and approval delays hinder housing supply, the construction industry must also address internal productivity challenges to meet housing needs.