Construction profit on pace with home prices

As home prices rise, so have the profits of Canada's residential construction industry, according to a report by the Conference Board of Canada released Wednesday.

Profit margins in the construction industry reached almost five per cent in 2006, significantly higher than the 15-year average of 2.4 per cent, the board said in its report entitled Canada's Residential Construction Industry.

Profits for the year across the country were $4.3 billion, a profit margin of 4.7 per cent. And while profits are expected to peak at $4.5 billion in 2007, the margin will begin tapering down to a predicted 2.8 per cent in 2011.

"Strong growth in new home prices allowed profits to reach record levels last year and continues to boost profits in 2007," board economist Valerie Poulin said in a news release.

But a growing inventory of new homes, rising labour and material costs, and a more balanced market for resale homes will put downward pressure on the profit margin, the report said.

"With price growth and demand for new construction both moderating, profits are expected to fall from their 2007 peak, but will still remain high by historical standards," Poulin said.

The main driver of growth in the industry over the next two years will be renovations, as housing starts decline, the report said.

Peter Simpson, CEO of the Greater Vancouver Home Builders' Association said builders have had many lean years.

"So when it comes to heady economic times, if they're making five-per-cent profit that's not outlandish," Simpson said.

"Profit is not a dirty word. Five per cent on a home, when you look at the profit in other industries, I don't think this is out of line at all," he said.

(prepared by Fiona Anderson/Vancouver Sun)