Despite record spending on infrastructure, lower interest rates and moderate inflation, times are tough in Ontario’s construction sector and they will remain that way into the foreseeable future says Toronto Construction Association CEO John Mollenhauer.
He estimates one-third of the TCA’s members are having difficulties, with business in their sectors sparse and many of them unprepared to change course to a winning strategy.
Mollenhauer delivered state-of-the-sector style comments a few days after hosting the TCA’s 158th Annual General Meeting and Best of the Best Awards event in Richmond Hill, Ont. on Feb. 24.
He suggested there are reasons for optimism despite the current economic headwinds and offered a survival plan for firms that are currently struggling.
The commitment to major projects by governments and relatively strong fundamentals “just haven’t made enough difference,” said the CEO.
“We may actually be in recession, depending on how the numbers are portrayed,” he said. “But whether we are growing or shrinking, we’re hovering around zero growth for the country. And despite all the spending it’s unlikely that we will get out of the woods anytime soon.”
Highrise headwinds
A primary reason for the current stagnation in the GTA is the under-performing high-density residential sector, Mollenhauer said – “I wouldn’t describe the highrise residential market as flat. I would describe it as collapsed.”
The federal government is committed to spending “like crazy” on housing, Mollenhauer said, but it has made the mistake of attempting to boost the affordable housing sector by controlling the strategy itself.
“We know from experience the government can’t compete with the private sector in terms of economy and value,” he said. “We can’t afford to build because our costs are up and if we do, if we were to finish projects, even if profits were diminished to next to nothing, we wouldn’t be at purchase prices that are low enough to be affordable for the average Canadian.”
In round numbers, Mollenhauer said, where highrise revenues were previously $1,400 a square foot, it’s now $1,000.
“How do you recover $400 a square foot? The short answer is, you don’t.”
Some municipalities in the GTA recognize the sense of urgency on housing and are expediting approvals or finding costs savings through reduced development charges, Mollenhauer said, but more has to be done.
“The rest haven’t done anything,” he said.
Many of the distressed TCA contractors have let themselves become under-capitalized and thus ill-prepared to ride out the tough times.
“They didn’t put a little away during the good times to have some staying power to survive difficult times.”
They are not mobile and fluid, Mollenhauer said.
A strategic contractor identifies weakness in the market quickly and “doesn’t stand by waiting for a recovery, but recognizes they have to go elsewhere looking for work.”
The strategy involves looking for work both in different sectors and different regions of the province, Mollenhauer said.
But that opens up whole new challenges, including working with unfamiliar partners and owners who might have different ideas about handling project risk.
No one wants to bear risk at the moment, he said, and the uncertainty is compounded by trade risks.
“Historically, we’ve shopped in the U.S. for something that was more affordable than here, and now we’ve got to look elsewhere, and that might cost more.”
Consider diversification
In one word, the strategy should be diversification, said Mollenhauer.
“Be ready and willing to go where the work is. Remain risk averse. Be careful. Proceed with caution. Don’t shoulder risk that can come back and bite you.”
Mollenhauer said he believes Canada will forge a new trade relationship with the U.S. and sign a reasonable trade deal.
In the meantime, the TCA is stepping up advocacy efforts on such issues as immigration, procurement, infrastructure spending, approval timelines and development costs.
Looking for support on those matters from such allies as the Canadian Construction Association and the Council of Ontario Construction Associations is more important than ever, he said.
TCA Best of the Best Winners
RICHMOND HILL, ONT. — The Toronto Construction Association recognized top contractors at its AGM and Best of the Best Awards ceremony in Richmond Hill Feb. 24.
Here are the winners:
- Sean P. McKenna YCL Award — Daniel Virgili, Virgili Group
- Distinguished Volunteer Award — Sandra Burnell, Revay and Associates Limited
- Project Achievement (Large) — PCL Constructors Canada, Limberlost Place
- Project Achievement (Medium) — BDA, Thorncliffe Park Community Hub
- Project Achievement (Small) — PCL, Kingsway College Senior School Phase II
- Trade Contractor Award — Ontario Cutting & Coring Limited
- Outstanding Safety Culture Award — BDA
- Innovation Award — Maxan Interior Systems
- Community Leader Award — Julie Zabizewski, Vestacon
- Green Building Culture Award — Steelcon Group of Companies
- Donald P. Giffin Construction Industry Achievement Award — Lou Bernardi, Structform Group of Companies
