
Why Are Canadian Construction Costs So High? (2018) - luu
https://pedestrianobservations.com/2018/07/03/why-are-canadian-construction-costs-so-high/
======
moltar
As I can see from living in Canada and travelling the world there can be
several reasons:

\- corruption, especially in QC

\- over-the-top safety requirements, regardless of project size. E.g. in
Toronto every road work sight has a police officer present who’s just standing
there bored out of their mind. In Montreal it’d be two persons on each side
holding a flag - a job in Europe replaced by a temporary semaphore.

\- lack of experience and expertise. Canada is a relatively young country with
very few major infra projects under its belt.

\- lack of funding due to low density. You just can’t build ambitious infra
projects for such sprawling city design. Every city, except Montreal to some
degree, suffers from urban sprawl and low density.

\- lack of care by citizens. Most Canadians aren’t well travelled outside of
Americas. They don’t know what good cities look and feel like. Even when they
go on vacations it’s generally cheaper destinations in southern parts like
Cuba, Mexico and Dominicans.

~~~
cperciva
_\- corruption, especially in QC_

If you think corruption is bad in Quebec, look at BC. One of the first things
our current government did was to pass a law requiring that all government-
funded construction must be performed by workers belonging to unions which
donated to the governing party's last election campaign. A short time later,
they changed the procurement rules from "lowest cost bid" to "best bid", with
the rules for determining "best" explicitly including how many jobs would be
created for members of the aforementioned donor unions.

~~~
chopin
Taking lowest cost bid isn't always optimal. In Germany it is required to take
the lowest cost bid which leads to all kinds of failed projects as the winning
bid can't hold its bid. As well, life-time of things built this way have
become awfully short.

~~~
sunstone
Imagine if you were forced to buy all your stuff from the dollar store. Pretty
obviously the results would be hit and miss, mostly miss.

~~~
bluGill
Imagine a twist on this: you have to buy from the dollar store, but they
dollar store has agreed on a level of quality. They may have a separate back
room with only the things you are allowed to buy because that is where items
that meet your quality standard are. (They may or may not allow others into
that room)

The reality is for big projects quality should always be part of the contract.
Use substandard quality materials and the whole contract is void.

~~~
frandroid
> the dollar store has agreed on a level of quality

The problem is that "agree on a level" and "lowest cost" are fundamentally
opposite goals which require constant outside monitoring.

------
hourislate
In Canada general construction costs like home renovation/building are not
that high.

As soon as the government gets involved in a public construction/renovation
project costs sky rocket. I can only attribute it to bureaucracy, corruption,
and indifference since the tax payers pockets are endless. Contractors all
have to be Unionized (good/bad?), it seems there is no urgency to do anything
quickly or in a cost effective manner.

When you look at the renovations on the subway taking place at Royal York
Station, it's comical. The project shouldn't take more than 3-6 months but it
seems they want to drag out the job so they can retire after it's complete in
20-30 years. Runnymede Station took about 5 years and I'm not sure they're
finished. Something like pulling up 200 sq/ft of tile can take a 1-2 months of
2-3 guys working 8 hours a day.

This is what happens when there is corruption with no oversight and the source
of payment is the tax payers pocket.

~~~
bumby
Alternate take:

Large civil projects are more complex than home renovation projects and are
thus less likely to be accurately assessed by our simple planning heuristics.
(see "the planning fallacy"). Each gap in the actual vs. planned outcome
requires change-orders that slow down schedules and cost more money.

[http://freakonomics.com/podcast/project-
management/](http://freakonomics.com/podcast/project-management/)

~~~
MisterTea
It's what happens when there are many contractors involved, each intertwined
in a complex relationship, each needing to schedule around each other and each
with half a dozen sub contractors under them with the same complex
requirements.

So 200 square ft of tile takes three months because the tilers are hired by
the tiling company who is hired by the contractor hired to finish the walls
who was hired by the main contractor who was hired by the construction
company. Along this long chain someone schedules tiling on the same day the
electricians are wiring up the lights. They reschedule and crew arrives only
to find the materials are missing, no one knows who ordered them or who to
talk to. Once they sort that out and get the materials delivered the project
is put on hold because someone stubbed their toe on a box of tiles and a stop
work order is issued. A safety inspector arrives with the cast of CSI miami to
figure out who to blame. Meanwhile, while everyone is busy blaming each other,
the tiling contractor steals the materials for another job and everything goes
right back to square one. Now multiply this story by the number of individual
items to be coordinated... All this while, the crew has to be paid for their
time even though they couldn't work. Absolute madness.

~~~
snagglegaggle
Seems like laws need to be drawn up to make this unprofitable. It should be
easy enough to get out of paying people standing around not behaving in a
"competent and workmanlike manner." Or even the entire company. If it doesn't
happen, why pay?

As you've described, what is going on is corruption due to lack of oversight.

~~~
bumby
Similar to the coordination problems among different trades, I think there's a
lot of interplay between competing interests that make something that seems
simple on the surface much more complex.

Take crane operations for instance. An organization may require union crane
operators as a means of oversight to help guarantee trained and certified
operators for a hazardous operation. However, this often has unintended
consequences as union crane operations may also require positions like a crane
oiler, which are largely obsolete in modern equipment.

I don't think that constitutes corruption because it's completely transparent
and above board, even if unwise.

~~~
snagglegaggle
Corruption is a moral issue that exists besides the law. If the payment
occurring produces no net benefit then I see no reason to consider it just.

These problems seem complex and may truly be, but if they lead to payment for
nonperformance then that needs to be addressed. I expect the market can figure
it out from there.

~~~
bumby
I don't think I agree on your definition of corruption. Corruption in the
legal sense is, by definition, illegal fraudulent activities, generally
defined as using a public office for private gain. The fact that an operation
is unproductive doesn't necessarily make it corrupt.

Even while I have libertarian leanings, I would be hesitant to "expect the
market can figure it out" largely because of asymmetries of information and
the tendencies of present bias in making decisions, especially those with a
profit incentive.

------
unreal37
Disappointingly, the answer from the article is "I don't know."

This article could be condensed to a table.

~~~
awesomekid1234
Unlike most articles with a question. This person is actually asking a
question.

------
larnmar
In any market, there’ll be a limited number of contractors capable of doing a
really big job like building a railway line (or constructing an aircraft
carrier, or a fighter jet, or whatever).

These contractors have a game theoretic choice to make: either they work hard
to compete on price, or they inflate their budgets and count on their
competitors to do so too, safe in the knowledge that there’s enoigh projects
going around that everyone can have a nice fat slice of pie.

Theoretically a new competitor could enter the market and eat everyone’s
lunch, but... all the institutional knowledge on how to build a train line or
aircraft carrier belongs to the big players and it’s too hard to enter.

The difference in construction costs between various different markets seems
to just be different game theoretic equilibria at work.

~~~
eru
Careful design of regulation can lower the barriers to entry, and thus make
colluding harder.

You are right about the scale of the big players making it hard for upstarts
to compete. One of the most straightforward ways to still get competition, is
to make it possible (or even easy!) for foreign companies to bid.

------
mynegation
In addition to the others reasons meantioned by others: NIMBYism, political
projects, and suboptimal planning. Toronto has a whole subway line going
through low density neighborhoods and it’s not like any densification plans
are happening there soon. On the other hand Liberty Village was given to hi-
rise developers because it was a wedge of industrial land squished between
railway and a highway. Now it is a bustling neighborhood but pretty
problematic to get in it out with the overloaded streetcar line bearing the
brunt.

It is not only about upfront costs, ongoing maintenance is important as well,
and one needs certain level of density for the infrastructure to be a bit
closer to self-sustainable

------
markus_zhang
If you want some fun, read the investigation reports about the corruption
surrounding construction business and politicians in Montreal, QC. Not sure
which year it was, could be 2015.

~~~
thbr99
Montreal has a never ending construction. A colleague of mine says the mafia
controls the construction business in Montreal. Seems like corruption is a tad
high in Québec than Rest of Canada

~~~
sysbin
This may be indeed true. Some say the construction is the fault of the city
being old but I’ve seen the same street being worked on throughout the summer
for two consecutive years. There is construction everywhere as well compared
to other cities I’ve visited.

~~~
charrondev
Montrealer here. Constant construction of everything is the norm.

The roadways are a nightmare of poor construction and tons of detours.

The thing that bugs me the most is that they can’t seem to get the hang of
painting lines properly on the roads. Lines painted last 2 months at most,
then are gone. I was driving this weekend on 3-4 land highways, that curve
around corners and have no lines painted.

Luckily our public transit is decent so I don’t normally have to drive.

~~~
kps
> _Lines painted last 2 months at most, then are gone._

This is due to federal environmental standards; the old oil paints that
actually worked are banned.

~~~
charrondev
I actually wasn’t aware of this. I was wondering why there wasn’t a better
alternative, but it seems there are environmentally friendly paints more
durable than what is in use in Montreal.

It’s just more expensive.

I don’t really understand how that can be the blocker in a city with strong
economic activity, high income taxes, high fuel taxes, and high property taxes
(>4% in our downtown core on non-residential properties).

~~~
zentiggr
Of course not. The company uses the substandard paint to ensure that there's a
future need thus future income. The fac t that the shorter lasting paint is
cheaper just gives the company a leverage point in the bidding.

Google 'mafia', 'phoebus cartel', and many other examples of skimming,
profiteering, and collusion to fix prices.

------
sytelus
This is the same case in US. The cost of construction has far outpaced
inflation by order of a couple of magnitudes while technology keeps getting
cheaper and labor prices are still stagnant for decades. Amazingly, it's
exactly reverse case in China where construction prices have fell through the
roof.

~~~
eru
> [...] and labor prices are still stagnant for decades.

Labour's share of GDP has roughly stayed constant. GDP per capita has
increased, both real and nominal.

~~~
Retric
It’s fallen significantly:
[https://www.bls.gov/opub/mlr/2017/article/estimating-the-
us-...](https://www.bls.gov/opub/mlr/2017/article/estimating-the-us-labor-
share.htm)

 _However, in the late 20th century—after many decades of relative
stability—the labor share began to decline in the United States and many other
economically advanced nations, and in the early 21st century it fell to
unprecedented lows._

PS: In terms of overall GDP a numbers (edit: not real data) 21% vs 17% may
seem more or less stable but that’s a 20% drop or roughly all inflation
adjusted per capita GDP growth over the last 20 years.

~~~
eru
Where does the 21% vs 17% come from? The graphs in that article seem to hover
around 56% to 66% for the labour share since 1947. What am I missing?

But looking at the graphs, there seems to have indeed been a big drop in the
labour share since the dot com boom.

If I remember right, the capital share has been stable. But the share going to
real estate has exploded.

And that's likely for the same underlying reasons construction costs have
skyrocketed. See [https://www.brookings.edu/bpea-articles/deciphering-the-
fall...](https://www.brookings.edu/bpea-articles/deciphering-the-fall-and-
rise-in-the-net-capital-share/) and
[https://ftalphaville.ft.com/2014/02/03/1759582/piketty-
and-t...](https://ftalphaville.ft.com/2014/02/03/1759582/piketty-and-the-case-
for-land-capital/)

~~~
Retric
Sorry, the context was missing. The 21% vs 17% was not meant to be
representative of overall numbers. I just recall someone minimizing the impact
by referring to some income bracket then comparing it to GDP. My point was
simply people overestimate how much per capita GDP is growing, so numbers that
look similar can represent large shifts.

Anyway, it’s 1AM so I am a little out of it.

------
georgeburdell
Still lower than the U.S. I went to a couple of cities in Canada in the past
year and there's construction everywhere, from skyscrapers to roads. My corner
of the Bay Area has a couple of 5-story apartment complexes going up.

~~~
adventured
> Still lower than the U.S. I went to a couple of cities in Canada in the past
> year and there's construction everywhere, from skyscrapers to roads

NYC has had skyscrapers going up left and right the past decade: Central Park,
111 West 57, One Vanderbilt, 432 Park, 30 Hudson, 3 World Trade, 53W53, 35
Hudson, One57, 1 Manhattan, 220 Central Park South, 15 Hudson, 125 Greewich,
425 Park, etc.

All of those are taller or nearly as tall as the tallest buildings in all of
Canada. In one US city. What does that prove?

[https://en.wikipedia.org/wiki/List_of_tallest_buildings_in_C...](https://en.wikipedia.org/wiki/List_of_tallest_buildings_in_Canada)

[https://en.wikipedia.org/wiki/List_of_tallest_buildings_in_N...](https://en.wikipedia.org/wiki/List_of_tallest_buildings_in_New_York_City)

~~~
altShiftDev
You name dropping one of the largest and most urbanized cities in the world
proves what?

~~~
smabie
NYC doesn’t even make it in the top 10 biggest cities in the world. In fact
NYC comes just behind Chengdu in 38th place. And in terms of density, NYC
isn’t even in the top 50.

~~~
magduf
>And in terms of density, NYC isn’t even in the top 50.

I don't believe that. If you look at Manhattan alone, you'll see something
very different. Unlike many other cities (particularly in the US, but also
other places), NYC is basically a collection of cities. Manhattan is dense,
but Staten Island is definitely not, so that drags down the average density.
It's not fair to compare that with many other places.

~~~
smabie
So do you not believe that or is it not fair?

~~~
magduf
Any "top 50" list of cities by density is inherently biased: How do you
demarcate where the city's borders lie? Do you count surrounding
municipalities? The whole thing is going to be comparing apples and oranges,
because different cities are organized differently. It just isn't something
you can easily distill down into a list like that.

------
jondishotsky
This is why (for U.S. at least)
[https://www.facebook.com/watch/?v=784223122033567](https://www.facebook.com/watch/?v=784223122033567)

------
nasalgoat
I'm currently in the process of building a laneway suite building on my
existing Toronto lot, which is typical of the city - 25 feet wide by 160 feet
long. There's a driveway and a laneway at the back.

I spent two years and $25,000 to just get to the point of having building
permits. The most egregious part was that I had to pay the city around $3,000
to cut down a tree on my own property, because due to a city bylaw, I did not
own the tree, the city did, and I had to pay them for their "loss".

The bureaucratic nonsense and nickel and a dimeing people to death with
multiple fees and taxes, added with the premium cost of materials, makes
building far more expensive than it needs to be.

------
acd
Here is a theory.

Builders chargé maximum what they can.

Home prizes has increased rapidly in Canada, some say possibly to a bubble
level.

Banks create new debt out of nothing through fractional reserve banking.
Central banks support negative interest rates.

A conseque of low interest rates is that many can afford to borrow to high
real estate prices.

The high real estate prices drive up building costs, since builders can charge
higher prices. Ie want a piece of the cake.

~~~
cylinder
Builders are actually in an extremely competitive marketplace, with a race to
the bottom culture on costs. They also bear a huge amount of risk, usually
committing to fixed fee contracts. The profits go to those who hold the money
/ land - the developer.

~~~
xyzzy_plugh
Except when the developer is also the builder, which is becoming more and more
commonplace.

And fixed fee contracts? What planet? I don't know of anyone who has built
anything in the last decade or two that hasn't gone over budget. If you're
buying materials through the developer they're taking a margin.

~~~
bluGill
Developers are taking their margin on materials, but houses are easy to bid to
an exact price. Many developers are building houses before there is a buyer.
As soon as the hole is in the ground it goes to the real estate market, at any
time you can buy it, and they will make changes per request - they assume you
will choose paint color (any color is the same price), if you want to add a
fireplace that will cost you. Often these houses are finished without before
they are bought and go on the market at market price.

Of course the point is no builder would take the above risk unless he could
estimate his costs with enough accuracy to ensure that he makes a profit on
the deal.

Edit: Note that builders build enough houses to have processes and procedures
to estimate them. If you build anything to a standard such that it is like
everything else that is vastly cheaper than if you build something unique.
There is a lot of ways to make a house custom within the standard, but if you
want a round tower that will cost because builders don't know how to make
round (but settle for octagon and suddenly you are back to standard)

------
LegitShady
Design, land, environmental permitting and remediation, noise and dust
remediation, aboriginal/metis consultation, utility components on LRT/subway
projects can span years and costs millions of dollars per utility and a given
kilometer may have 100. and then you have to actually build whatever it is.

Just doesn't seem like an analysis with enough detail.

~~~
blaser-waffle
Yeah, surprised no one mentioned environmental permits and aboriginal consults
-- those were the two items that were/are holding up the big pipeline projects
in Canada.

~~~
LegitShady
I do t think the person who wrote the article or the average hm user know much
about environmental permitting or indigenous consultation. Or building much
either.

------
dang
Recent and related:
[https://news.ycombinator.com/item?id=21589204](https://news.ycombinator.com/item?id=21589204)

------
aussiegreenie
Firstly, the cost of construction ___EVERYWHERE_ __is going up. In America,
every major construction is TWICE the cost per mile than it is in Europe.
Australia is 50% higher again.

eg Sydney purchased surplus trams from Spain. To create a tramline from
Randwick to the city (25min bus trip) has already cost USD 2,100 Million (AUD
3,100 Million) and is years late. Spain did the whole line for USD 115
million.

~~~
RowanH
Wait till you cross the ditch to New Zealand, our materials costs are through
the roof...

------
djmips
I'm going to guess that Canadian construction is inefficient because they just
take their time. It feels like there isn't the drive to get things done
quickly and consequently cheaper. The work is good but just takes longer.

------
rb808
I think the main issue is why American costs are so low. It still amazes me
how you can buy a big beautiful house in the sun belt for a few hundred
thousand. If Canada is more expensive its probably sensible.

I realize I'm being downvoted but you have to realize that most of the
developed world has a great standard of living but a new build 4 bedroom house
on a 1/4 acre of land is completely unaffordable for most people.

~~~
timerol
This article is about public transit construction costs, so your comment is
fairly off topic. In the realm of public transit, American costs are absurdly
expensive

~~~
rb808
Yeah I hate people that never read the Posted Article. I didn't this time.

