Viewpoint (June 01, 2006)

There are some who feel that the construction market in Ontario is showing some signs of decline. This fear is likely due to the way money is being spent on construction and related professional and technical services. However, architects may not be benefitting as much from our robust economy as developers or contractors. According to Statistics Canada, expenditures on construction in Ontario will continue to increase by 12.5 percent in 2006 while professional and technical services are likely to decline by roughly 5 percent. By comparison, Alberta and British Columbia will see an increase of 33 percent in construction dollars, with professional services showing only negligible changes. With a record $31.5-billion investment in commercial and industrial projects in Canada last year–an increase of 8.7 percent–the pressures placed on the cost of labour, materials and site acquisitions are increasing the need for risk-averse projects while suppressing both profit and innovation in architecture firms. Governments and financial institutions would do well to develop new ways for builders to manage risk in non-residential construction projects. Canadian banks are also lagging behind, mitigating their risk and exposure associated with the funding of institutional projects. This conservatism amongst domestic financial institutions has begun to open the market for foreign banks, such as the Dutch bank ABN AMRO to finance large educational projects in Canada.

Weak mechanisms for financing new public buildings might become the Achilles’ Heel of not only the construction industry but the long-term health of our cities. Having recently changed its Public Private Partnership project delivery method to the rather loathsome term of Alternative Financing Procurement, Ontario has inexorably shifted its ability to mitigate financial risk toward the contractor and banks, with the architect trailing behind. At the recent OAA conference in Ottawa, it became apparent that if anyone is going to get into public-sector building in Ontario, they better have a highly developed management structure to protect them during contract negotiations. With little or no honouraria to even get on the shortlist of an AFP project, the risks are too high and the financial rewards too low. Unless you happen to be one of the largest architecture firms in Ontario, your firm cannot afford to pursue work through an AFP model. Ontario must become more aware of the risk-to-benefit ratios associated when procuring architectural services.

Frustrated, Ontario architects are looking to expand their markets from Dubai to Alberta. The Alberta market is so hot that skilled architects are in short supply. Some firms have to pay their Calgary interns six-figure salaries just to keep up with the workload, but they are not seeing their fees increase along with their ballooning payroll. On projects like the new EnCana headquarters in Calgary–Canada’s largest construction project at 2.1 million square feet–the design team has been given a mere 18 months to produce designs and contract documents. Tight deadlines on significant projects are not necessarily resulting in additional profits for architects.

And then there is the issue of our cities’ ability to spur investment through new construction. According to John Lorinc’s The New City (Penguin Canada, 2006), during the 1990s, federal and provincial revenues climbed by just over 42 and 53 percent respectively, while the revenue for municipalities increased by 5.2 percent between 1992 and 2001. These figures indicate a net outflow of revenues from the city to the province, while underlining the fact that our cities are increasingly helpless if they wish to promote innovative architecture that affects the quality of life of the majority of Canadians who live in urban areas.

But new models encouraging reinvestment do exist. Ranging from basic private-sector reinvestment to cleaning up brownfield sites or improving streetscapes and infrastructure, US municipalities have been engaged in what is known as tax- increment financing (TIF) which raises capital through the issuance of bonds that are paid back through incremental increases in property taxes, resulting in improved investment for targetted areas. Lorinc claims that Chicago’s mayor Richard Daley raised five dollars in private investment for every dollar of public funds. Clement Demers, Director General for the rejuvenation of the Quartier International in Montreal, claims similar returns on public investment. Although TIFs already exist in Winnipeg, Calgary is Canada’s only municipality actively experimenting with them. While not enough is being done to manage risk in new architecture and infrastructure in the public realm, there is hope that Canada is on the cusp of entering a new era of intelligent development opportunities.