The Effects of Inflation on Your Reserve Funds

Almost all Canadians are experiencing the pinch of inflation, from gas to our grocery bills. Beyond its more visible day-to-day effects, inflation can have a significant impact on condominium budgets and on the overall health of your reserve fund.

Boards, property managers and engineers are grappling with the need to maintain condominium buildings, while minimizing cost increases that many residents cannot afford. While the consumer price index has increased by 7.7% over the past year[i], residential construction prices increased 22.6% year over year in the first quarter of 2022, with the largest increases in Calgary (+31.4%), Edmonton (+26.6%) and Toronto (+26.5%)[ii].

These are huge cost increases, so what can be done? Unfortunately, no one has a perfect solution but there are a few options to mitigate the impacts of construction inflation that can be considered:

1.     Undertake an updated engineering study before you start your capital repair project. Do not rely on your reserve fund pricing from 1-2 years ago as being accurate.

2.     Your engineer or contractor may be able to come up with practical solutions for material substitution to reduce costs, achieve energy savings, or phase work to spread out the costs. Ask for their input as soon as possible.

3.     Make your contractor’s life easier. By making site storage, transport, and other site impacts easier, it may reduce their labour or overhead costs, which can be passed on to your corporation.

4.     Award work as soon as possible after pricing is received. When asking for pricing, do not expect contractors or suppliers to hold pricing over 30 days.

5.     Be flexible, some price increases appear to be accelerating, while others may be temporary. Recent decreases in lumber prices are an example that price increases may not be permanent.

Inflation has profoundly affected the condominium industry. Although there is no way to eliminate its influence on your condominium, we can work together to reduce risks and plan accordingly.    

–         Jeffrey Stevens EIT and Jordan Swail P.Eng.

[i] https://www.bankofcanada.ca/rates/price-indexes/cpi/

[ii] https://www150.statcan.gc.ca/n1/daily-quotidien/220505/dq220505b-eng.htm

Jeffrey Stevens EIT and Jordan Swail P.Eng.
RJC Engineers
www.rjc.ca