Will the $120 billion in infrastructure spending help our construction industry?

120 billion in infrastructure

Canada’s construction industry: Towards a brighter future?

Canada’s construction industry has noted a weak performance in the past few years. However, with the $120 billion investment in public infrastructure announced by the new Liberal federal government in its first budget (Chapter 2 – Growth for the Middle Class)1 and the improvements in investor confidence, the sector’s future might appear a little brighter.

Will the $120 billion in infrastructure spending help our construction industry?

A few weeks ago, the most recent Canadian Construction Market Survey from the RICS2 informed us that more than 60% of Canadian construction professionals expect growth in the industry. In fact, they seem encouraged by the Liberal government’s first budget. Moreover, the Canadian Construction Association (CCA) also welcomed the budget, saying that it would accelerate the modernization of our infrastructure and increase the number of commercial projects.

These positive reactions are not only caused by the $120 billion investment announcement. Many other factors could encourage construction professionals to expect a growing market in the next five years such as:

  • Other government programs (AHI, NBCP) are available to the industry
  • Improvements in domestic manufacturing activities (construction of new buildings and factories)
  • Improving economic conditions (Canadian economy grew by 1.2% in 2015)
  • Decrease of the global construction risk index (from 33.37 in Q1 2015 to 32.91 in Q1 2016)
  • Improvements in consumer and investor confidence (Trimetric’s Construction in Canada – Key trends and Opportunities to 2020 report).

With the Affordable Housing Initiative (AHI) program contributing to increase the supply of off-reserve affordable housing3and the New Building Canada Plan (NBCP) supporting projects that enhance economic growth and job creation in the construction industry4, the federal government wants to ensure that the sector will be growing increasingly in the next coming years.

The growing population and urbanization could also significantly boost the construction industry. According to the United Nations Department of Economic and Social Affairs (UNDESA)5, Canada’s population is expected to reach 37.6 million in 2020 and 40.4 million in 2030. Therefore, with the government investments and efforts to provide affordable housing to lower classes through the Canada Mortgage and Housing Corporation (CMHC), residential construction is expected to become more significant in the industry.

However, the RICS survey (RICS Construction Market Survey 2016) also reflected that the market growth could be slowed down by a few factors such as:

  • A weak Canadian dollar as compared to US currency
  • Financial constraints and competition, especially regarding SMEs
  • Drop in activity in the energy, oil and gas sectors
  • Regulatory pressures (environment, safety, permits)
  • Still fragile economic conditions (even though the conditions are improving).

Overall, the construction industry’s output value in Canada is expected to rise from US$289 billion in 2015 to US$321 billion in 20206, according to the Construction Intelligence Center (CIC). The construction market growth could possibly be tempered by the factors mentioned above, however the government investment in public infrastructure will certainly assist the industry. The infrastructure will continue to be modernized and developed even with the current insecure economic environment. Construction projects such as university campuses, schools and courthouses are not directly impacted by the energy downturn. The major public investment will therefore contribute to counter the negative impacts of the fragile economic conditions.

                                                                                                                                                                                               

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