Explaining Falling Residential Construction Productivity in Canada: Implications for Housing Affordability

The productivity performance of Canada’s residential construction has been abysmal since the turn of the century. Output per hour in 2024 was 8 per cent lower than in 2000, reflecting an average annual decline of 0.4 per cent over the period. This report sheds light on this troubling development, with particular attention to the sharp 3.8 per cent average annual decline in labour productivity from 2019 to 2024, which has intensified cost pressure and further undermined housing price affordability in Canada. This report identifies several factors contributing to the construction sector’s poor productivity performance, including: technological stagnation marked by persistent reliance on manual building methods; an industry structure dominated by small firms that are slow to adopt innovations; and regulatory barriers, such as fragmented building codes, lengthy permitting processes, and restrictive zoning. Since 2019, “labour hoarding” (i.e., retaining workers despite reduced activity) was also a significant factor. This collapse in labour productivity after 2019 raised unit labour costs by nearly 8 per cent annually in residential construction, well above economy-wide cost pressures. We estimate this added $6–$7.7 billion to new housing costs, accounting for 15-20 per cent of the increase in new homes from 2019 to 2024, raising average homebuyer costs by $24,000-$31,000 in 2024. This report concludes that, without a dramatic improvement in residential construction productivity, Canada will not meet its ambitious housing supply targets. It recommends actionable strategies to boost residential construction productivity — including wider adoption of digital tools and off-site manufacturing, streamlined regulations, and stronger recruitment of skilled workers — which taken together, could lower home costs, boost supply, and ultimately restore housing affordability over the long run.