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Enhancing housing affordability in Canada and the role productivity plays: CMHC

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A recent article from Canada Mortgage and Housing Corporation (CMHC)’s deputy chief economist, Kevin Hughes, discusses the unanimous call for a substantial boost in housing supply to combat affordability concerns in Canada and that this conversation has now pivoted towards the strategies and avenues to realize the goal.

It points out a crucial pathway demanding attention is the enhancement of productivity within the residential construction sector, particularly focusing on labour productivity.

Source: CMHC

 

When it comes to housing, industry experts emphasize that the scope economists use to identify productivity gains extends beyond the construction phase.

Hughes’ article — the first in a series about productivity — explores both broad, well-known productivity challenges and the nuanced issues inherent in the housing supply chain to pinpoint areas ready for productivity improvements. Here are some of the key points it raises.

 

Productivity growth goes beyond simple economics

 

Hughes points out that in traditional economics, getting more with the same resources or achieving the same output with fewer resources yields increased income and value. However, the distribution of these benefits among stakeholders is multifaceted, meaning a complex understanding rooted in industry-specific expertise is required.

 

Labour force productivity: A pervasive challenge

 

The whole country currently grapples with labour productivity constraints exacerbated by the retirement of baby boomers and widespread shortages of skilled labour.

About 25 per cent of the construction sector’s labour force is anticipated to retire within the next decade, which poses a huge problem. Plus, labour scarcities have led to fewer enrollments in trade training programs — a significant issue for the residential construction sector, which relies heavily on diverse skilled labour.

 

Housing and its unique productivity issues

 

Housing presents distinct challenges to productivity improvements, stemming from its diverse characteristics and intricate production processes. The variability in housing features means the advantages of mass production can’t be realized, while the reliance on a complex production chain introduces delays beyond the builder’s control.

Comparing residential construction to other, more productive sectors, for example, mining, shows stark differences. Mining firms often access ample capital and leverage economies of scale, international markets and continuous production cycles — which are largely absent in residential construction.

 

Our fragmented residential construction landscape

 

Unlike most North American industries that witnessed consolidation over the past century, Canada’s residential construction sector remains fragmented. This fragmentation, particularly evident in regions and segments dominated by single-detached housing (where some companies build a single house annually), impedes investments in research and training, recruitment and project management efficiency.

A recent study attributes heightened productivity in residential construction to firms engaged in more multi-unit projects, suggesting that such entities are better positioned to harness emerging technologies.

 

Supply productivity is the holistic perspective

 

Enhancing productivity in housing supply transcends the construction phase and encompasses critical pre-construction stages such as concept design, feasibility studies and permitting processes. So, it’s more relevant to consider “supply” productivity when evaluating the efficiency of the entire process.

 

The public sector’s role in driving productivity

 

Governments at various levels have considerable influence in improving productivity through direct investments, fiscal incentives and policy. Innovations at the local level — like the City of Kelowna’s collaboration with Microsoft on an AI chatbot for construction permits — underscore the potential for public-private partnerships to drive transformative change.

 

A call for big steps forward

 

Hughes asserts that fixing the country’s housing crisis with productivity requires us to consider the broader issues in all industries and specific issues to housing supply. This means that steps to the solution must address market and industry-related realities and needs.

 

Read the full article here.

 


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