Hindsight is always 20/20, and it's often easier to see what you should have done once events have already passed. But what if you could get some insight into future events that would allow you to prepare and make smarter decisions for your construction business?A few recent construction trends can highlight just how dramatically new construction events can impact a residential builder. In April, Canada saw a 45.9% historic drop in construction industry investment, which may have significantly reduced the amount of business your company is doing. Fortunately, the market has begun to bounce back from this spring panic with a 15.8% increase in housing starts in July over June. But how will these trends impact your company's strategy at a local level? Will these residential construction industry trends continue or fade?
To answer these questions, RenoRun has put together a comprehensive State of Residential Construction Report to help you identify emerging residential construction industry trends in Toronto. It includes a wide range of essential topics for residential contractors, including material costs, labour costs, building permits, real estate activity, builders’ sentiments, and even local insights about how builders are coping in a post-COVID-19 world. We'll highlight key findings in each of these areas below, but to get the full benefit of the report’s insights, download the complete report below.
Toronto Residential Construction Trends
Highlights: In Q2, material costs increased overall by 2.7%, while labor costs decreased on average for almost every trade, except carpenters, plumbers, and electricians.
Construction costs are a big part of what drives your company's bottom line. Overall, lumber and plywood products have seen the greatest cost increases this year in Toronto, rising over 8.8% and 7.4% respectively. The brief reduction in overall prices in June was followed by a strong rebound when construction began to pick up again in July. Given these trends, we anticipate that plywood and lumber costs will continue to climb, along with hardware and steel used in projects. As the residential construction market continues to trend back upwards from the brief dip it took in the springtime, builders can take advantage of these insights. If you have storage space, it may be a good time to stock up on items that you use regularly and buy material in bulk. Preparing for rising material costs--especially lumber and plywood, which are materials most often used in residential projects--will help Toronto contractors stay profitable.
Labour costs also saw a dip in Q2, which caught many contractors flat-footed since spring is typically when construction picks up again. But the restrictions put in place for COVID-19 and the public concerns related to the pandemic have slowed the market down drastically. The only exception to this trend is the steady income for framing carpenters, electricians and plumbers. However, this balanced out for most Toronto contractors with the increase in building material costs that occurred at the same time. Given this, we anticipate that residential construction activity will continue to grow as people continue spending significant amounts of time at home while waiting out the epidemic. Homeowners may be more inclined to ask for projects with economy-grade materials that help them stretch their budget due to decreased consumer confidence, while others are willing to splurge now that they're spending more time at home.
Highlights: Although new construction and renovation permits decreased in Q2 2020, the average permit value was nearly 33% higher for new construction and almost 10% higher for renovation.
Our Residential Construction Trends Report shows an unusual situation with Toronto building permits. Consumers are holding back on spending, but those who are willing to spend are undertaking larger, more expensive projects while they're stuck at home due to the pandemic. In Toronto, for example, Q2 saw a decrease in both new construction permits as well as renovation permits, averaging around a 6% decrease in new home permits and 37% decrease in renovation permits. However, the permits that were issued were for a significantly higher value in both--around 33% higher for new construction permits and 10% higher for renovation permits.
Why are we seeing this trend? Due to COVID-19, homeowners are spending more time at home than they have in decades and now realize their existing home (or the home they’re building) will need upgrades to remain functional in this environment. Families, for example, who have spent months stuck at home are realizing that the kitchen can't keep up with three meals a day, seven days a week without some serious changes. Given these sentiments, it's a great time for Toronto builders to reach out to current customers to see if they'd like to make any renovations that could add lucrative upsell profits to their business's bottom line.
Real Estate Activity
Highlight: Real estate activity initially dipped 42% in 2020, but then rebounded to 2019 levels.
Consumer confidence: Generally, real estate activity saw a sharp dip as the COVID-19 pandemic swept through Toronto and panic set in. However, as initial concerns faded, and we began to better cope with the health crisis, the market rebounded. Though all markets saw a sharp dip in the second half of Q1, semi-detached housing saw a less serious dip compared to other housing types. Q2 also still saw slowdowns compared to 2019, but the good news is the number of units sold late in Q2 began to rebound to the numbers seen prior to the pandemic.
Part of this shift may be due to renovation delays that occurred before putting homes on the market because of the restrictions instituted to quell the spread of COVID-19. As more effective methods for preventing the spread of COVID-19 in the industry are provided, such as virtual showings, and consumer confidence continues to increase in response, we can expect real estate activity to continue to rebound, improving residential construction industry trends as well. Finally, despite the slowdown and even though housing prices increased in Toronto (up to 8% on semi-detached houses since last year), it is still considered to be a seller's market.
Highlight: Contractors’ net profit margins increased almost 7% and overages decreased 16% between Q1 and Q2.
It's never easy being a contractor, but it’s become even more difficult with the onset of a pandemic. At the beginning of Q1, builders had a great deal of confidence in the market. And why wouldn't they? The construction industry was booming, even in the off-season. But as the pandemic spread to the country, a great deal of uncertainty entered the market in a range of areas, making it difficult to plan ahead. By the time Q2 arrived, contractors were seeing nearly a quarter fewer bookings than they had anticipated at the beginning of Q1, and it was more difficult to hire subcontractors as some companies closed down and workers began seeking out other forms of employment to keep their families fed. Moreover, the percentage of actual bids won decreased approximately 10% as many consumers cancelled projects due to an uncertain economic outlook and reduced consumer confidence.
However, despite these challenges, contractors in Toronto who stayed in the game saw nearly a 7% average increase in profit margins, making it easier for them to weather the storm. This could have been due at least partially to the decrease in labor costs noted above, the reduction in cost overages which dropped by almost half, or the sharp increase in cost per square foot of nearly $50 as homebound homeowners decided to go for those upgrades they couldn't justify before they were spending so much time at home. These trends suggest that contractors can expect residential spending to increase as consumer confidence continues to rebound and people are willing to invest in the real estate market.
Builders coping with COVID-19 impacts on the Industry
Highlights: The top three changes builders implemented to reduce COVID-19 risks and keep crews safe were (1) crew-size limits, (2) increased hygiene, and (3) materials delivery.
How has your business been doing during the COVID-19 outbreak? Many contractors have had to make serious changes to survive in these uncertain times. At RenoRun, we temporarily switched to delivering groceries to help keep everyone fed--not only general households, but also our drivers. What changes did your company make in order to keep your crew and your customers safe in the face of this health crisis? One of the most common changes builders in Toronto implemented was limiting the number of workers placed on a job site during construction to limit the daily potential exposure of both crew and customers. Limiting workers, in turn, slowed down the construction process on projects. Many contractors also began running larger numbers of smaller crews to keep revenue coming in, while other companies resorted to layoffs.
The three least used methods included government payroll loans to cover expenses, wage subsidies, and technology to manage crews remotely.
In short, trends largely precipitated by COVID-19, are reshaping the construction industry in Toronto. We see the impacts of COVID-19 cascading into other sections of the report previously covered: rising material costs and residential construction renovation demand. Firms should stay on top of these, in addition to prevention measures.
Learn About Construction Trends Before They Happen
Want to learn more about where construction industry trends are heading? Read the complete State of Residential Construction Report: Toronto Edition, which provides in-depth analysis of all the trends we’ve highlighted here plus many more insights that will help keep your company ahead of the latest construction trends. You’ll be able to respond faster to the latest changes in the industry, so you’ll be better positioned for success. Get the free report here to start developing a strategy to capitalize on these Toronto residential construction trends.
 RenoRun, 2020. The State of Residential Construction: Toronto Edition. [online] Quebec: RenoRun, p.3. Available at: <https://resources.renorun.ca/the-state-of-residential-construction/> [Accessed 11 September 2020].
 RenoRun, 2020. The State of Residential Construction: Toronto Edition, p.4.
 Ibid., p.5.
 Ibid., p.6.
 Ibid., 7.
Feature Image: Unsplash/Matthew Henry
Image 1 - 5: RenoRun's State of Residential Construction Report Toronto Edition