Derrick Pener
Sun
Last year’s recession dried up enough plans to build new buildings and erased enough construction jobs to take a substantial bite out of the cost to build new buildings. And that cost saving will last through 2010, according to a new survey.
For almost five years, double-digit annual inflation in construction costs were the norm, but those days are gone.
From a peak in 2008, construction costs fell in 2009 from around five to six per cent at the low point to more than 20 per cent, depending on building type, the survey, conducted by quantity surveyors BTY Group in conjunction with the Independent Contractors and Business Association of B.C., found.
With a smaller pool of available projects, more companies are competing for each job, said Philip Hochstein, president of the contractors association. Also, with less work, contractors have laid off their least-experienced and less-productive workers, and don’t need to pay experienced tradespeople the huge incentives that were required during the boom period.
“It’s the productivity improvement that has reduced the labour costs, more than reduction in wages,” Hochstein said.
Hochstein added that the strong Canadian dollar, combined with lower commodity prices, gives contractors better purchasing power for buying materials, which also helps to reduce costs.
However, with a new infusion of infrastructure projects, activity in the market will again put pressure on pricing around 2011, said Joe Rekab, a principal at the BTY Group.
“If we look at the developments planned for, say the Gateway project, that is going to take a lot of the front-end trades involvement,” Rekab said. “Then if you look at some of the vertical infrastructure, some of the health care projects that are going to come up like the Surrey hospital and BCIT, those are significant contracts.”
Rekab expects enough of the construction sector to once again be occupied to reintroduce inflation at the rate of about two to three per cent per year, which he said has been historically typical for the industry.
Keith Sashaw, Vancouver Regional Construction Association president, said that despite thousands of layoffs during the downturn, B.C.’s construction sector also has the demographics of its workforce working against it. The average age of skilled tradespeople is around 55, so the industry still faces the prospect of being depleted by retirements in the coming decade.
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