Residential renovation costs in Canada are finally showing signs of stabilizing after the COVID-19 pandemic drove prices to new highs. Statistics Canada’s new Residential Renovation Price Index (RRPI) has revealed that although price growth remains uneven across the country, the national rate of renovation cost increases is gradually returning to pre-pandemic levels.
Renovation costs for residential projects are a significant portion of residential construction spending, accounting for over one-third of the total expenditures in the sector. To put this in perspective, according to a recent RE/MAX report, total expenditures on home renovations across the board rose from $52.6 billion in 2014 to nearly $60.1 billion in 2024. In the five-year period between 2019 and 2023 roughly $300 billion was spent – an 8 percent increase over the previous five-year period.
This chart shows the rise in total home renovation expenditures in Canada between 1980 and 2024, illustrating how home renovation expenditures reached nearly $65 billion in 2021, and have since dropped at a steady rate, thus indicating that the rise in home renovation costs is cooling down, a boon for the 25 percent of Canadians planning to renovate their homes in the next year.
As this segment of the industry grows, the RRPI provides insights into the changing costs in the Canadian renovation market.
Quarterly and Yearly Trends in Renovation Costs
In the second quarter of 2024, the RRPI reported a 0.7 percent increase in renovation prices across Canada, following a 0.8 percent rise in the first quarter.
Annually, this represents a 3.7 percent increase, down from the peak growth rates seen during the pandemic. This trend indicates a cooling from the post-COVID-19 highs, when the composite renovation price index rose 20.1 percent year-over-year in late 2021.
Across the provinces, British Columbia recorded the highest quarterly rise at 1.4 percent while Quebec saw the smallest increase at just 0.4 percent.
Get the Green Building Project Checklist
Use this handy checklist on your next project to keep track of all the ways you can make your home more energy-efficient and sustainable.
In terms of cities, Victoria and Vancouver showed the greatest price gains, both rising 1.4 percent. In contrast, Ottawa and Montreal recorded the most modest increases, with 0.3 percent and 0.2 percent, respectively.
Continuously Rising Renovation Costs in the West
Renovation costs are on a sharper upward trend in Western Canada than in the East. British Columbia saw a year-over-year increase of 5.8 percent, the highest in the country. In the middle, Ontario, renovation costs rose by 3.8 percent, mostly driven by strong price gains in Toronto.
In the Atlantic provinces, renovation prices rose more moderately, with New Brunswick, Nova Scotia, and Newfoundland and Labrador seeing growth well below the national average.
The pandemic caused great volatility in construction costs due to supply chain disruptions and a surge in demand, causing project times to lengthen and labour costs to rise significantly.
Labour shortages, particularly in British Columbia and Alberta, have further contributed to renovation price growth, with construction wage rates increasing by 8.4 percent in Calgary and Edmonton and by 5.5 percent in Vancouver, Victoria and Kelowna over the past year.
Other factors, such as increased costs for heating and air conditioning equipment, roofing, exterior additions and window and door renovations, have also been prominent contributors to rising expenses.
RRPI’s Long-Term View: Gradual Normalization
Statistics Canada’s data also provides a larger perspective on renovation costs from 2017 to 2023. Over this period, the national composite renovation index has grown by 66.5 percent, with Ontario experiencing the largest cumulative increase at a 91.8 percent rise.
The pandemic period alone saw extremely rapid growth, with costs rising 14.7 percent between Q2 2020 and Q2 2021. Prices remained high in subsequent quarters, peaking at a quarterly growth rate of 5.9 percent in early 2021.
As interest rates increased and renovation activity slowed, the national rate of renovation price growth began to align more closely with pre-pandemic figures, stabilizing by mid-2022.
The Bank of Canada’s latest monetary policy report anticipates further easing in inflation, contributing to an expected cooling of renovation costs as labour markets loosen and supply constraints ease.
Looking Ahead: Expected Cooling Down of Renovation Costs
According to the Bank of Canada’s October Monetary Policy Report, Canada’s economy is currently in a state of excess supply, leading to a rise in unemployment and easing pressure on labour markets.
This situation, combined with falling inflation expectations in the near future, suggests that Canadians will see a decrease in renovation price growth. The RRPI’s findings indicate that while Canada’s renovation costs are beginning to cool, regional differences remain, particularly between the east and west.
With labour shortages still impacting certain regions and construction wage growth persisting in areas like the Prairies and the West Coast, renovation costs are likely to remain volatile in the near future, although they are predicted to cool down in terms of increases.
Images from Depositphotos
Is this opportunity for real?