Prices Analytical Series:
Technical Guide for the Building Construction Price Index, 2023

1. Introduction

This technical guide describes the estimation of the Building Construction Price Index. It explains the component cost methodology, the aggregation structure, and the data sources used to derive price relatives that are appropriately aggregated to estimate the index.

The Building Construction Price Index (BCPI) measures the quarterly change over time in the prices that contractors charge to construct a range of new residential and non-residential buildings. It is composed of two separate indexes: the Residential Building Construction Price Index and the Non-Residential Building Construction Price Index. The index is available for 15 Census Metropolitan Areas (CMAs) – St. John’s, Moncton, Halifax, Quebec, Montréal, Ottawa, Toronto, London, Winnipeg, Regina, Saskatoon, Calgary, Edmonton, Vancouver, and Victoria – as well as for a Canada-wide composite.

The BCPI is used by government agencies and other users for economic analysis and evaluating the economic impact of price changes in the construction industry. Statistics Canada, for example, uses the BCPI in preparing estimates of the construction industry's contribution to national expenditure, real output, capital stock, building permits and construction investment. Other uses include re-evaluating expenditure and output for construction work, adjusting project costs for escalation, indexing municipal development charges, as well as forecasting financial requirements for proposed projects and real rates of return on investment.

2. Component Cost Methodology

The component cost approach uses the price change of sets of standardised homogenous components representing typical operations in the construction of a representative building construction project.  

It begins with identifying representative building projects and all the cost components required for these building projects. Of all the cost components required for a building project, a sample of representative cost components is selected with a target coverage of components that together account for about 80% of the total expenditure of the project. The price movements of these representative components are tracked over time.

Price movements of the cost components are collected from contractors in the 15 CMAs to account to account for regional differences. These movements are aggregated by division, building type, structure type, CMA, province, and across CMAs to derive a 15-CMA composite price index for residential and for non-residential building construction.

Additional details about the representative construction project and representative cost component selection processes are provided in the appendix.

3. Aggregation Structure

The BCPI aggregation structure is presented in Figure 1. It illustrates the various levels of aggregation from the elementary aggregates at the cost component level, to higher level indexes at the division, building and structure levels, up to the total residential building construction and non-residential building construction index.

The index at each of these levels is compiled as a weighted aggregation of the cost components associated with the major construction divisions. The index at the division, building, structure and aggregated residential or non-residential levels is available for each of the 15 CMAs surveyed and as a 15-CMA composite.

Description for Figure 1

BCPI aggregation structure. This figure illustrates two aggregation structures, one for the residential building construction price index and the other one for the non-residential building construction price index. It includes the elementary aggregates at the representative cost component level, and higher level indexes at the division level, followed by the building and structure levels, followed by the census metropolitan area (CMA) and province levels.

The residential index includes two building types, which are aggregated into a structure type, and two additional structure types. The structure types include Single-detached house, Townhouse and Apartment buildings. Apartment buildings include: High-rise apartment buildings (five or more storeys) and Low-rise apartment buildings (fewer than five storeys).

The non-residential index includes six building types, which are aggregated into three structure types. Commercial buildings include: Office building, Warehouse, and Shopping centre. Industrial buildings include: Factory and Bus depot with maintenance and repair facilities. Institutional buildings include: School.

Indexes at the division level are available for 23 construction divisions and a composite of these divisions:  General requirements, Demolition, Concrete, Masonry, Structural steel framing, Metal fabrications, Wood, plastics and composites, Thermal and moisture protection, Openings, Finishes, Specialities, Equipment, Conveying equipment, Fire suppression, Plumbing, Heating, ventilation and air conditioning, Integrated automation, Electrical, Communications, Electrical safety and security, Earthwork, Exterior improvements, and Utilities.

The indexes at the division level, building level, structure level, and at the aggregate residential and non-residential levels are available as a 15-CMA composite, provincially  –  Newfoundland and Labrador, Nova Scotia, New Brunswick, Quebec, Ontario, Manitoba, Saskatchewan, Alberta, and British Columbia  –  as well as for each of the following CMAs: St. John’s, Halifax, Moncton, Quebec, Montréal, Ottawa, Toronto, London, Winnipeg, Regina, Saskatoon, Calgary, Edmonton, Vancouver, and Victoria.

The source for this diagram is Statistics Canada Catalogue number 62F0014M.

4. Data Sources

The BCPI uses a multi-stage sample design, starting with the selection of representative cost components, which is detailed in the appendix.

4.1. Prices

The index is calculated based on estimated prices in the real market for the cost components. The current price for each cost component is estimated by adjusting the previous quarter's price to reflect quarterly changes in the value of its material, labour rate, overhead and profit components. Information on price changes is collected from respondents or derived from administrative data or other Statistics Canada survey sources as described below. These current quarterly prices are then used in the quarterly calculation of the BCPI.

4.1.1. Electronic questionnaire – Construction Contractors Survey

For cost components categorized under the general requirements, architectural and structural trade groups, price information is collected using an electronic questionnaire called the Construction Contractors Survey (CCS). The electronic questionnaire was originally designed, tested and refined in consultation with the Questionnaire Design Resource Centre within Statistics Canada and with residential and non-residential general contractors operating in the Vancouver, Toronto, Ottawa-Gatineau and Montréal CMAs. The electronic questionnaire is sent quarterly to a sample of building contractors that work on building project types covered by the BCPI and their response to the survey is mandatory.

A sample of active general contractors is selected for each CMA. The contractors must be actively bidding and winning a share of the residential and/or non-residential construction jobs and are usually members of local construction associations who are knowledgeable and capable in their pricing. Their reported price movements are considered to be representative of market conditions in their CMA.

Many of these contractors report intended building construction projects to Statistics Canada’s Building Permits Survey. Other sources include the companies listed on Statistics Canada’s Business Register (BR) as well as external research by Statistics Canada. 

Over time, contractors enter and exit the construction market. To ensure that the BCPI continues to measure price changes for residential and non-residential buildings, the sample of contractors must be monitored and refreshed on a quarterly basis. Statistics Canada subject matter staff continuously review the contractor sample size and composition to remove those that are no longer in business or determine when new units need to be added.

The electronic questionnaire collects information on price movements of the cost components included in building projects in their respective CMA, the reasons for those movements and local construction market conditions. With reference to a project built or bid on in the previous quarter, respondents are asked to report how much the estimated costs for each cost component would have changed if they repeated the build or bid in the current quarter. Respondents are asked to compare the price on the 15^th day of the middle month of the previous quarter to the price on the 15^th day of the middle month of the current quarter (i.e. February 15^th compared to May 15^th) or to the nearest business day prior to the 15^th.

Reported price movement quotes undergo an outlier treatment process by subject matter experts. An average is taken for all of the treated price movement quotes that are reported by respondents for a cost component within a CMA. This average price movement is applied to the output price of the previous quarter to obtain the output price for the current quarter. These steps are repeated for each cost component in a particular building. Since the price movements reported by contractors include labour, overhead and profit margins, no further manipulations are necessary.

As an example, assume that the mean of all movements reported in the electronic questionnaire averages to 3% for a particular cost component. If the unit output price in the previous quarter for that cost component was $5.00, with a 3% price increase, the unit output price in the current quarter would be ($5.00 x 1.03) = $5.15.

4.1.2. Administrative data sources

For cost components under the mechanical and electrical trade groups, administrative data from a variety of secondary sources is used to collect prices. These sources include construction industry costing catalogues and in-house data such as the Industrial Product Price Index and the Machinery and Equipment Price Index. Additionally, labour rates are obtained from the Construction Union Wage Rate Index (CUWRI).

Unit prices are obtained for the labour and material factors of each cost component by mapping to similar components from the various administrative data sources. For instance, the 8” PVC pipe is a component in various BCPI building models, which is mapped to a particular product carried by an industry supplier. The price of this product is provided in a costing catalogue from where the price movements are tracked over time to be reflected by the 8” PVC pipe component.

Since the administrative data sources do not provide prices that are inclusive of labour, and overhead and profit. These are added to calculate the output price of each cost component. While labour rates are derived from CUWRI, the overhead and profit rates are applied as determined during the initial specification of representative building models. Overhead and profit rates vary between 7% and 11.5% for the various representative cost components.

As an example, assume that the previous quarter unit input price is determined to be $3.33 for a certain amount of PVC piping material and $2.22 for the plumber needed to install the piping, respectively. This unit output price is determined from the contractor’s initial specifications for the building model. Then, administrative or alternative data sources are searched to find appropriately similar products and their corresponding prices for both the previous and current quarters.

In this case, a previous quarter material price of $350.80 and a current quarter material price of $361.30 may be available for a different amount of the same type of PVC piping material. Similarly, a previous quarter wage rate index of 130.20 and current quarter wage rate index of 134.10 may be available from the Toronto Plumber construction union wage rate index. From the latter sources, a price movement can be calculated between the relevant quarters as 3% for both the material price and labour wage rate. This price movement can then be applied to the previous quarter unit input price to determine the current quarter unit input price for the material and labour costs being $3.43 and $2.29, respectively. Finally, an overhead and profit rate of 11% is added to calculate the total current quarter output price for the relevant cost component: ($3.43 + $2.29) x 1.11 = $6.34.

4.2. Weights

The BCPI utilizes two sets of weights. Component weights are used for cost components within building types and CMAs. Building permit weights are used to aggregate building types within geographical levels.

Component weights are derived from the detailed costs originally provided by consultants when the building construction projects were chosen. For non-residential buildings and high-rise apartments, this was in 2015; for all other residential buildings, it was in 2017. The weight assigned to each cost component reflects the share in the total project cost that was attributable to the sampled component and the other components that it represents.

The weight for the same cost component may vary by building type and by CMA. For example, since more lumber is necessary on average in residential construction projects relative to non-residential construction projects, a relatively higher weight will be attributed to lumber in the various residential buildings (except for high-rise apartment buildings). As component weights are price updated quarter to quarter and these price movements can differ between CMAs, each CMA will have differences in the weight distribution of the cost components across a particular building type.

Building permit weights are used to reflect the relative importance of particular buildings in the higher level indexes and within a CMA. The unadjusted annual estimates of the value of building permits by CMA and building type are provided by Statistics Canada's Building Permits program. The building permit weights are based on a three-year moving average of building permit values for residential and non-residential building construction approved in each CMA.

The annual weight update process occurs as a part of the second quarter release. The process redistributes component weights based on the updated building permit weights, resulting in one set of annual weights, which are specified by cost component, building type and CMA.

4.3. Revision and seasonal adjustment

The BCPI series are subject to a one-quarter revision period after publication of a given quarter's data. The indexes are not seasonally adjusted.

5. Index Estimation and Aggregation

The BCPI is based on a fixed sample, where quarterly price changes for building construction are measured over time by using a fixed set of cost components that are used in the construction of a building. The BCPI is calculated for the current period and compared to the previous period to measure price movement. Estimates are calculated using a weighted average of price relatives by cost components which are chained together to form an index series. Two separate indexes are produced: the Residential Building Construction Price Index and the Non-residential Building Construction Price Index. These indexes are fixed-weight Laspeyres indexes available at the CMA, province, and the 15-CMA composite levels.   

The BCPI encompasses both elementary aggregates and higher-level aggregate indexes. Elementary aggregates measure the price movements at the building level by CMA using price-updated component weights for cost components. For higher level indexes, building permit weights are applied to each building under a structure or the aggregate residential and non-residential levels by CMA. To calculate the provincial or 15-CMA composite indexes at any level, the building permit weights are adjusted to reflect the relative importance of each building type across the relevant CMAs.

5.1. Price relatives

The starting point in the estimation of the index is to determine the initial output price and the current output price in unit terms. This calculation differs between the general requirements, architectural,  structural, mechanical, and electrical trade groups.

5.1.1. General requirements, architectural and structural trade groups

For the general requirements, architectural and structural trade group cost components, the price movements are derived from the responses of building construction contractors in the electronic questionnaire (see section 4.1.1). These average reported price movements for each component in each CMA are multiplied by the initial output price to arrive at the current output price.

5.1.2. Mechanical and electrical trade groups

For the mechanical and electrical trade group cost components, the output prices are calculated using the contractor’s original detailed specifications for each building construction project (see section 4.1.2). Each cost component that was priced in the original building specification is mapped to similar items from administrative and secondary data sources. The previous quarter and current quarter prices are obtained for this similar item and a price movement is then calculated for the cost component.

The cost components in these trade groups are split up into material, k, and labour, l, factors and price movements for the factors are determined. The labour wage rates and the material prices from the previous quarter are then multiplied by the price movement for each factor, respectively, and aggregated. Since the administrative data sources do not include overhead and profit margins, these are added to arrive at a complete initial output price:

$$p_{mc}^t=[(k{p}_{mc}^{t-1})k{\Delta }_{mc}^t+(l{p}_{mc}^{t-1})l{\Delta }_{mc}^t](1+o)$$

$p_{mc}^t$   : The current output price.

$k{p}_{mc}^{t-1}$   : The initial material price which equals the material price for the previous quarter.

$k{\Delta }_{mc}^t$   : The material price movement for cost component $m$ for CMA $c$ at time $t$.

$l{p}_{mc}^{t-1}$    : The initial labour wage rate which equals the labour wage rate for the previous quarter.

$l{\Delta }_{mc}^t$   : The labour wage rate movement for cost component $m$ for CMA $c$ at time $t$.

$o$   :  The overhead and profit rate.

5.2. Elemental indexes

The estimation of elementary aggregates is the first step in index aggregation. The elementary aggregate is a weighted price relative for each cost component by CMA mapped to the building model types being estimated.

$$P{R}_{mbc}^t=\frac{p_{mc}^t}{p_{mc}^{t-1}},$$

$P{R}_{mbc}^t$   : The price relative of cost component $m$ in building $b$ for CMA $c$ at time $t$.

$p_{mc}^t$   : The current output price for the cost component $m$ for CMA $c$ at time $t$.

$p_{mc}^{t-1}$   : The output price for the cost component $m$ for CMA $c$ at time $t-1$.

$$E{A}_{mbc}^t=(P{R}_{mbc}^t)w_{mbc}^t$$

$E{A}_{mbc}^t$   : The elemental aggregate of cost component $m$ in building $b$ for CMA $c$ at time $t$.

$w_{mbc}^t$   : The component weight for cost component $m$ in building $b$ for CMA $c$ at time $t$.

$$I_{mbc}^t=(I_{mbc}^{t-1})E{A}_{mbc}^t$$

$I_{mbc}^t$   : The elemental index for cost component $m$ in building $b$ for CMA $c$ at time $t$.

$I_{mbc}^{t-1}$   : The elemental index for cost component $m$ in building $b$ for CMA $c$ at time $t-1$.

5.3. Higher level indexes

Since the Laspeyres index is consistent in aggregation, at all aggregation levels higher than the elemental index, the elementary aggregates can be weighted and aggregated as necessary to compile higher level indexes. The indexes by CMA for the structure, residential aggregate or non-residential aggregate levels are calculated as follows:

$$I_{xg}^t=(I_{xg}^{t-1}){\displaystyle \sum _{xg}[(E{A}_{mbc}^t)w_{mbc}^t]}$$

$I_{xg}^t$   : The index at level

$x=(division,building,structure,residentialaggregate,non-residentialaggregate)$ for geography level $g=(CMA,province)$ at time $t$.