StatCan: homebuilders are less productive than 20 years ago

Key Takeaways:

• Labour productivity in residential building construction fell 37.3% from 2001 to 2023, while the broader business sector saw productivity rise over the same period.
• Small firms dominate residential construction employment and also drove most of the productivity decline, especially firms with fewer than 20 employees.
• Shifting employment toward larger firms has only slightly helped overall productivity, and the performance picture varies widely by region, with only a few provinces and CMAs posting gains.

The Whole Story:

Canada’s residential builders are producing less output per worker today than they did two decades ago, even as governments push for a major ramp-up in housing supply.

A new Statistics Canada–CMHC study says labour productivity in residential building construction “declined by a cumulative 37.3% from 2001 to 2023”—an average drop of 2.1% per year—based on real gross output per worker.

The authors say the sector is still overwhelmingly made up of small businesses, with firms employing fewer than 20 workers accounting for 66.1% of residential construction employment in 2023.

That matters because the study finds the biggest drag on productivity came from smaller shops. “The decline occurred across all firm-size categories, with smaller firms experiencing the largest decrease,” the report says, adding that firms with fewer than 20 employees “accounted for the dominant share of the decline.”

Using firm-level data from Statistics Canada’s National Accounts Longitudinal Microdata File, the study focuses narrowly on residential building construction (NAICS 236110) and excludes specialty trades and offsite manufacturing—choices the authors say make the measure more closely tied to new homebuilding, while also leaving out some parts of the residential ecosystem.

The productivity slide stands out against the broader economy. Over the same 2001–2023 period, the labour productivity index for the overall business sector rose 12.5%, while residential construction fell 37.3%, the report says.

One key driver: jobs grew faster than real output. The study says residential construction output increased “relatively less,” while employment rose “relatively more,” including “an especially large gain in jobs during the pandemic.”

By firm size, productivity declines were steepest among the smallest players, with compound annual growth rates of -2.3% for firms with fewer than five employees and -2.2% for firms with five to 19 employees, compared with -1.7% for firms with 20 to 49 employees, the report says.

A decomposition attributes 22.4 percentage points of the overall 37.3% productivity drop to firms with fewer than five employees, and another 16.1 points to firms with five to 19 employees.

The study also finds the industry is gradually shifting toward larger employers—but not enough to move the needle. The employment share of firms with fewer than 20 employees fell from 79.6% in 2001 to 66.1% in 2023, yet the shift “added only 2.1 percentage points” to productivity over the period because the advantage of larger firms is modest.

Regionally, most provinces saw productivity decline, but the report points to pockets of outperformance. “Only Prince Edward Island, Nova Scotia and New Brunswick achieved positive labour productivity growth,” it says.

Ontario, meanwhile, is singled out as the biggest contributor to the national decline, responsible for -24.7 percentage points of the -37.3-point drop—mostly because productivity fell within Ontario firms rather than because of shifting employment shares.

Looking at major urban areas, the report says that “out of the nine CMAs examined, only Halifax and Moncton have positive labour productivity growth,” with most other large centres seeing job growth outpace output growth.

The paper situates the findings in a policy moment defined by housing shortages. It notes CMHC has estimated Canada needs “a massive increase in housing starts” by 2035, and says Ottawa has created Build Canada Homes with a goal of improving productivity and boosting housing output.

The authors also flag churn as a defining feature of residential construction: entry and exit rates were higher than the business sector overall in every year from 2001 to 2023. That kind of turnover can support productivity if new firms bring better methods, the study notes, though high exits can also signal a difficult business environment.