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Canada’s construction industry faces severe labour shortage, warns economist

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Canada’s construction industry is facing a severe labour shortage that threatens to exacerbate the already pressing housing shortage and affordability crisis, warns a recent report by Benjamin Tal, an economist with CIBC Economics. 

The report highlights the urgent need for fresh thinking, actionable policies and coordinated efforts between the government and private sector to tackle this multidimensional problem. With estimates suggesting the need for millions of additional housing units, the gap between demand and supply is growing daily without meaningful action.

 

Estimating the housing shortage: A multidimensional problem

 

Guesstimating the exact size of Canada’s housing shortage has become a national sport, with various estimates using different methodologies and assumptions. The Canada Mortgage and Housing Corporation (CMHC) suggests that an additional 3.5 million housing units will be needed by 2030 to restore affordability, while the province of Ontario calls for a doubling of the annual pace of housing construction to 150,000 units. Tal explains these figures “grossly undercount” housing demand from students and non-permanent residents, making the real gap even larger.

 

Labour shortage crisis: Urgent need for skilled trades workers

 

One critical issue contributing to the housing shortage is the shortage of skilled trades workers in the construction industry. Currently, there are just under 1.6 million construction workers in Canada, representing almost 8.0 per cent of total employment. However, this falls short of the demand, with more than 80,000 vacancies and a record-high vacancy rate above the national average. 

Specialty trades contractors account for more than half of the demand for workers. Average wages in construction have been rising faster than in the overall economy, reflecting the industry’s labour shortage.

The shortage of skilled trades workers has a detrimental impact on the industry’s productivity, as the allocation of labour becomes suboptimal and leads to longer project completion times and increased construction costs, ultimately driving up unit prices. Furthermore, the industry’s reliance on untrained labour poses safety concerns. Productivity growth in construction has significantly lagged behind the national average, further exacerbating the affordability crisis.

 

 

 

Demographic challenges: Aging workforce and retirements

 

Adding to the urgency of the labour shortage crisis, the construction sector in Canada is also grappling with an aging workforce. The share of construction workers aged 55 and over has reached a record high. With the average retirement age in construction lower than in other sectors, the demographic issue becomes more pronounced. 

The report estimates that around 300,000 construction workers will retire in the coming decade, exacerbating the existing shortage. By 2033, the labour shortage in skilled trades alone is projected to grow by an additional 60,000 positions.

 

 

 

Limited sources of labour

 

To address the labour shortage, Tal says the construction industry must tap into various sources. Domestic training institutions, new immigrants, and foreign workers are potential solutions. However, the number of registered apprentices and trade qualifiers in Canada has declined by 15 per cent over the past decade. Although the representation of women in the field has increased, they still constitute only 7.0 per cent of apprentices and trade qualifiers.

Tal calculated the share of new immigrants in more than 60 construction-related occupations using detailed information from the IRCC and discovered that not only is the share of new immigrants in construction alarmingly low (2.0 per cent), but it has been trending downward in the last decade. 

The report highlights the need to increase the contribution of new immigrants to alleviate the severe shortage. While the share of foreign workers in construction currently stands at 11 per cent, that trend is also moving in the wrong direction.

 

Addressing the crisis: Recruitment strategies and policy changes needed

 

Tal writes that tackling the labour shortage crisis in Canada’s construction industry requires proactive recruitment strategies and policy changes, and building on the positive trend seen among women entering skilled trades is crucial. Efforts to reverse the decline in apprenticeships must be prioritized. The report commends initiatives like the tax refund program for skilled trades in Nova Scotia but emphasizes that much more needs to be done.

The recent inclusion of skilled trades occupations in the express entry program is a welcome development. However, Tal believes changes to the immigration points system are necessary to attract and retain new immigrants in the construction industry. 

The economist strongly believes increasing the share of new immigrants participating in the labour market will be crucial in addressing the severe shortage of construction labour in Canada.

Read the detailed report from Benjamin Tal and CIBC Economics.


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