Editorial: Is a recession coming?

Editor Elsa Lam checks in with architecture firms preparing for a possible recession.

Photo by Scott Blake on Unsplash

Are we headed towards a recession? And if so, what should architecture firms be doing to prepare?

Over the past months, the Bank of Canada has steadily increased its policy interest rate, in a bid to control inflation and find a “soft landing” for the economy that tames excessive spending, while avoiding a recession.

“Higher interest rates will help slow demand and allow supply time to catch up. Consumer spending will moderate as the pent-up demand from pandemic restrictions eases and the cost of borrowing increases,” said Bank of Canada Governor Tiff Macklem in a press conference in mid-July. “Housing market activity is already cooling rapidly from unsustainably high levels during the pandemic. And slower global growth will reduce demand for our exports.”

John Mollenhauer, president and CEO of the Toronto Construction Association, has said that since the construction sector is currently so busy in his city, even if a full-blown recession were to hit, it would only result in a modest reduction in activity.

Some firms have economic resilience built into their business model. Architect Oliver Lang and partner Cindy Wilson are co-founders of Vancouver architecture firm LWPAC as well as a sister company, Intelligent City, which produces modular, mass timber housing.

“Housing is probably the most price-sensitive, interest rate-sensitive product there is,” says Wilson. “In times like this, when the cost of materials is so high and interest rates are rising, how do you de-risk projects?” She and Lang started Intelligent City to create affordable, sustainable urban housing through a process that allows them to control the quality of the end result. The company has recently opened an automated manufacturing facility for modular, multi-unit housing and raised $30 million in funding.

Sustainability is key to Intelligent City’s buildings, which are produced from mass timber and are highly energy efficient. “Over the lifespan of a building—and especially for the operator of a building if it’s rental housing—the maintenance and operating cost is almost more important than the initial cost,” says Wilson. She sees the demand for rental housing, especially in the non-profit sector, continuing to grow even as Vancouver’s property market begins to cool.

For Natasha Lebel of 12-person Toronto firm Lebel & Bouliane, much of the economic information we’re getting from the United States doesn’t apply to local conditions in Toronto, where the city’s growth and prosperity will continue to fuel the construction sector: “We’re in the most successful city, in one of the most successful countries in the world.” She adds that her firm, which divides its work between commercial, institutional, and residential sectors, has seen renewed growth since the end of July, when they closed out a number of projects that had experienced significant pandemic-related delays. They are now energized by starting on new projects.

Lebel does believe that the Covid-related job site closures, labour shortages and supply chain issues will have a significant, but temporary, effect on the construction and architecture sector. “We’re currently feeling the bullwhip effect of a very inefficient construction process from the past year,” she says. “The bullwhip will snap, and things will realign in 2023. Firms in Ontario and Toronto will be fine—we’re not in a recession, and I don’t think we will be.”

“Whatever’s going to happen this coming year, I hope it loosens the reins on everything,” says Lebel. “It’s not good to have little available labour or mobile labour, in architecture as well as in the trades. It’s stressful to have too much work, to have work you can’t do, to be working people very hard because of the inefficiencies of the market and because it’s difficult to hire.”

“The softening of the economy—what everyone calls the doom and gloom of a recession—it’s a good thing. It’s a chance for everyone to exhale, to play musical chairs and figure out where they should be,” says Lebel.