b'PRESIDENTS MESSAGEOUTLOOK 2023L orenzo Yogi Berras famous line thatthe story they tell is nevertheless compelling. the future aint what it used to beResidential was the hardest hit with twists words with amusing effect, and heconstruction costs up 21.5 per cent in the first did that often. How is it we always knewhalf of 2022 and that follows price escalation exactly what he meant?in 2021 of 18.1 per cent. No wonder projects were suspended in droves in the latter part of The truth is he was right. The future aint what2022. Non-res buildings were marginally less it used to be and the reason is complicated.affected, with costs rising 6.9 per cent in 2021 So let us focus on what we do know. 2022 sawand 13 per cent year over year in the first half growth in the Canadian construction industryof 2022, but put yourself in the head of a buyer slow significantly. That was inevitable in theof construction. The tool they use to make wake of a global pandemic but also in no smallinvestment decisions is called a proforma, measure as the result of soaring energy priceswhich aggregates a reasonable forecast for and supply chain disruption fuelled by globalrevenue against the probable aggregatewarming and the Russia-Ukraine conflict.project costs, and the hard cost of construction Statistics Canada tells us the industrys is typically the lions share of the project cost. value-added growth slowed to just over Rising interest rates add to the soft costs and 1.2 per cent in the first half of 2022 from yearthe combined effect is greater uncertaintyover year growth of 6.1 per cent in 2021. and diminished profitability. Again, no And the slowdown occurred despitesurprise that private sector developers and unprecedented government spendingthe risk-averse lenders who support them are and, more particularly, massive ongoingreluctant to pull the trigger on new projects, infrastructure spending, which as we all knownotwithstanding the pent-up demand for new has a monumental impact on the healthand renovated buildings.and wealth of our brothers and sisters in the construction industry. Now imagine you are the buyer of construction. We become investors every time we renovate What hurts us most and will inevitably set theour homes, so this isnt a stretch for most of stage for continued slow growth domestically,us. And we are acutely aware of what things in my view, is cost escalation. The impact ofcost when we frequent Home Depot to source the skilled labour shortage is a close second,material and equipment for our smaller of course, but we need investment before wescale projects. We can even relate to what need labour, and the order of magnitude forits like to borrow money and be accountable construction price escalation in the last 12to skeptics who refer to loan-to-value ratios months is 20 per cent. and debt-service-coverage when we ask for modest amounts of money to finance home I hate quoting Statistics Canada since theimprovements. Now that you have some numbers they report are always outdated, butcontext, who among us doesnt put major 6Quarter 42022 BUILDERSDIGEST'