Shovels in the ground: Stimulus sparks new building

Ottawa's infrastructure money is lighting a fire under parts of Canada's construction industry.

The value of non-residential building permits jumped 42 per cent in October to $2.7-billion, a level not seen since September, 2008, Statistics Canada reported yesterday.

While building permit numbers often shift sharply from month to month, there is no doubt some of the growth reflects stimulus spending by governments that's finally leading to projects and construction activity, particularly in the education sector, said Michael Atkinson, president of the Canadian Construction Association.

He said funds from Ottawa's Knowledge Infrastructure Program – $2-billion targeted for the refurbishment and expansion of universities and colleges – is clearly boosting activity in so-called "institutional" construction. That category of building permits, which includes schools, hospitals, churches and government buildings, jumped 51 per cent in October.

But beyond the direct infusion of government money, there is generally a feeling of "guarded optimism" among builders that the private sector is willing to start spending money on expanding their physical assets again, Mr. Atkinson said.

Dramatic growth in non-residential permits in Saskatchewan and Alberta –159 and 148 per cent increases, respectively – clearly reflects a resurgence in the mining of potash and metals, along with the oil and gas sector, he said.

Michael Fougere, president of the Saskatchewan Construction Association, said the construction sector in the province is booming, mainly as a result of spending by the private sector.

New canola-crushing plants, a heavy oil refinery and potash mine expansions are showing up in the dramatically higher figures, he said.

Mr. Atkinson noted, however, that some other provinces, such as New Brunswick and Prince Edward Island, have seen the value of their building permits drop.

That decrease suggests that economic progress is not spreading evenly across Canada.

"It really depends on what part of the country you're in."

He also expressed concern about how dependent the construction industry in some provinces has become on spending by Ottawa, the provinces, or municipal governments.

In some parts of the country where private sector work is at a standstill, "if it wasn't for [government money], there'd be no construction going on at all."

Another worry is what will happen when the stimulus money runs out, to both the construction industry and the state of Canada's infrastructure.

"We're concerned that if governments focus completely on the fiscal bottom line … all the good work we've done to address the infrastructure deficit will be undone real quick," said Mr. Atkinson of the Canadian Construction Association.

Robert Kavcic, an economist with BMO Nesbitt Burns, also cautions that non-residential building permit figures are "super-volatile" and the numbers for any individual month should not be given undue weight.

With more stimulus money likely to reach the market in the coming months, there could be other spikes that might not be sustainable, he said.

Mr. Kavcic pointed out that the value of permits issued in the commercial subgroup – which includes office buildings, hotels, restaurants and recreation centres – increased 15 per cent in October, but still is far below the level of every month in 2008 except December.

Weakness in the past few months is exaggerating the percentage increases.

Still, improved borrowing conditions should push the private sector to do more building of shopping centres, offices and factories in the coming months, said Grant Bishop, an economist at Toronto-Dominion Bank.

That should support the construction sector, beyond the boost that comes from government stimulus, he said.

(prepared by Richard Blackwell/Globe & Mail)