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Despite record spending on infrastructure, lower interest rates and moderate inflation, times are tough in Ontario\u2019s construction sector and they will remain that way into the foreseeable future says Toronto Construction Association CEO John Mollenhauer.<\/p>\n
He estimates one-third of the TCA\u2019s members are having difficulties, with business in their sectors sparse and many of them unprepared to change course to a winning strategy.<\/p>\n
Mollenhauer delivered state-of-the-sector style comments a few days after hosting the TCA\u2019s 158th Annual General Meeting and Best of the Best Awards event in Richmond Hill, Ont. on Feb. 24.<\/p>\n
He suggested there are reasons for optimism despite the current economic headwinds and offered a survival plan for firms that are currently struggling.<\/p>\n
The commitment to major projects by governments and relatively strong fundamentals \u201cjust haven\u2019t made enough difference,\u201d said the CEO.<\/p>\n
\u201cWe may actually be in recession, depending on how the numbers are portrayed,\u201d he said. \u201cBut whether we are growing or shrinking, we\u2019re hovering around zero growth for the country. And despite all the spending it\u2019s unlikely that we will get out of the woods anytime soon.\u201d<\/p>\n
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A primary reason for the current stagnation in the GTA is the under-performing high-density residential sector, Mollenhauer said \u2013 \u201cI wouldn\u2019t describe the highrise residential market as flat. I would describe it as collapsed.\u201d<\/p>\n
The federal government is committed to spending \u201clike crazy\u201d on housing, Mollenhauer said, but it has made the mistake of attempting to boost the affordable housing sector by controlling the strategy itself.<\/p>\n
\u201cWe know from experience the government can\u2019t compete with the private sector in terms of economy and value,\u201d he said. \u201cWe can\u2019t 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\u2019t be at purchase prices that are low enough to be affordable for the average Canadian.\u201d<\/p>\n
In round numbers, Mollenhauer said, where highrise revenues were previously $1,400 a square foot, it\u2019s now $1,000.<\/p>\n
\u201cHow do you recover $400 a square foot? The short answer is, you don\u2019t.\u201d<\/p>\n
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.<\/p>\n
\u201cThe rest haven\u2019t done anything,\u201d he said.<\/p>\n
Many of the distressed TCA contractors have let themselves become under-capitalized and thus ill-prepared to ride out the tough times.<\/p>\n
\u201cThey didn\u2019t put a little away during the good times to have some staying power to survive difficult times.\u201d<\/p>\n
They are not mobile and fluid, Mollenhauer said.<\/p>\n
A strategic contractor identifies weakness in the market quickly and \u201cdoesn\u2019t stand by waiting for a recovery, but recognizes they have to go elsewhere looking for work.\u201d<\/p>\n
The strategy involves looking for work both in different sectors and different regions of the province, Mollenhauer said.<\/p>\n
But that opens up whole new challenges, including working with unfamiliar partners and owners who might have different ideas about handling project risk.<\/p>\n
No one wants to bear risk at the moment, he said, and the uncertainty is compounded by trade risks.<\/p>\n
\u201cHistorically, we\u2019ve shopped in the U.S. for something that was more affordable than here, and now we\u2019ve got to look elsewhere, and that might cost more.\u201d<\/p>\n
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In one word, the strategy should be diversification, said Mollenhauer.<\/p>\n
\u201cBe ready and willing to go where the work is. Remain risk averse. Be careful. Proceed with caution. Don\u2019t shoulder risk that can come back and bite you.\u201d<\/p>\n
Mollenhauer said he believes Canada will forge a new trade relationship with the U.S. and sign a reasonable trade deal.<\/p>\n
In the meantime, the TCA is stepping up advocacy efforts on such issues as immigration, procurement, infrastructure spending, approval timelines and development costs.<\/p>\n
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.<\/p>\n
RICHMOND HILL, ONT. \u2014 The Toronto Construction Association recognized top contractors at its AGM and Best of the Best Awards ceremony in Richmond Hill Feb. 24.<\/p>\n
Here are the winners:<\/p>\n