Construction spending in Canada over the next year will be dominated by private-sector and non-residential work as cash-strapped governments cut back on institutional buildings and debt-heavy consumers shy away from buying new homes, according to the Conference Board of Canada.
"The winding down of government stimulus spending has resulted in lower spending on institutional structures, which will take some steam out of the [construction] industry. This trend is expected to continue into 2012," the board states in its recent Canadian Industrial Outlook. The reports notes that the federal and provincial governments have a combined deficit of $67.7 billion this year, with the provinces alone on the hook for $27.2 billion. Resultant cut backs have meant a 37 per cent drop in government-funded construction projects as of mid-2011 compared to a year earlier. Though it is not specifically mentioned, the completion of Vancouver Olympic venues would have spiked the 2010 institutional spending higher than normal.
However, the study sees private commercial and industrial construction taking up some of the slack. Through the first six months of this year, permit values were up 1.2 per cent for industrial buildings and 4.7 per cent in the commercial sector. "These two segments are recording healthy increases [and] are set for continued growth."
In the residential sector, the Conference Board notes that national housing starts fell 3.2 per cent in the first half of this year compared to 2010, though new home prices were up 1.9 per cent in the same period. Higher immigration may boost demand for new homes in 2012 and beyond, but high consumer debt could put house buying plans on hold.
This year, consumer debt in Canada hit $1.54 trillion. This means that, with an income-to-debt ratio of 147 per cent, the average Canadian holds $147 in debt for every $100 in after-tax income. "It is expected that consumers will be reluctant to take on extra debt to buy a new home or to finance renovations," the board cautions.
