What Layoffs in Construction could Mean to Real Estate Investing

Just this past week we learned that again, construction jobs in Canada have declined significantly. The report indicated that while 60,000 jobs were created in September, some 18,000 construction jobs were lost. What could this mean and what could be happening right now?

If we look at the past three months, we lost 45,000 construction jobs in July, gained 34,000 back in August only to lose more in September. The net lost construction jobs during one of the busiest periods for construction in Canada was 29,000 jobs.

We are seeing more and more developers stopping projects in mid-stream because of rising interest rates. Other projects aren’t starting because developers cannot get financing.

It will be interesting to see if the Federal Government’s forgiveness of the HST and the provinces that followed, will result in an uptick in construction.

For developers that can get financing this could be a golden time for building new units. It will take a great deal of courage given what is happening with interest rates and the economy. More available labor should eventually work itself through UIC and be ready for work. It may take a year or more for that to happen.

Towns and cities are not speeding up the approval process for permits. They also aren’t reducing the development charges to build. You will pay over $137,000 in fees to build a new home in Toronto. It takes years to get approvals in most areas. Despite the political promising, little is being done to improve the availability of housing in Canada. If you have real-estate this barrier to entry will only increase the value of your rental properties.

Right now, building material prices are falling and stores are fully stocked. Existing construction companies are returning calls and looking for work. If you own a building and need work done this may be a window of opportunity to get a fair price quote.

Building material companies may have softer profit and sales margins than previous years. Only great companies with a history of delivering profits regardless of the construction climate are on my radar. I’m looking at getting back into Goodfellow stock now that the price has dropped somewhat from the $15 when I sold it recently. An entry point of $13 makes some sense, but I would like $12 to get excited.

We know from our experience in previous economic downturns that trades in the construction industry are more willing to provide a fair price for fair work. That wasn’t the case only a few months ago. When we looked at doing a roof on a property a year ago the quotes went from $13,000 to $28,000. You will need to know the value of any work you get quoted back. The value isn’t what someone quotes you. It’s what that is worth. Calculate the cost of materials plus labor to get your number. Ask for all quotes to be broken down so that you can understand how they came up with their number.

With increasing interest rates and construction layoffs we may be getting back to a win-win relationship with contractors. A fair price and added value for you for getting the work completed. If you don’t get that, wait. It’s getting very ugly out there. But it’s been getting ugly for some time. Have you been paying attention?

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