Wood frame construction costs trump land values

March 30, 2022

The cost of residential construction in Metro Vancouver and the Greater Toronto Area (GTA) is now challenging land costs as the biggest factor in wood frame construction, according to builders.
Vancouver builders say recent price increases have outstripped estimated costs for 2022.
According to Altus Group’s recent 2022 Construction Cost Guide, a three-storey stacked townhouse costs $185-$240 per square foot (sq. ft.) in Toronto and $175-$240 per sq. ft. in Vancouver. A wood-framed condo up to four storeys costs $215-$285 per sq. ft. in Toronto and $195-$290 per sq. ft. in Vancouver. In Toronto, the price per sq. ft. for a wood-framed condo five to six storeys costs $225-$300 per sq. ft. and $215-$300 per sq. ft. in Vancouver.
Developers say construction cost increases have become so dramatic in Metro Vancouver that they’ve outstripped land prices as the single biggest unknown.
“When developers are working on proformas today, the biggest impact on the end number to the consumer is the construction pricing,” Greg Zayadi, president of the Rennie Group, told a Vancouver meeting of the Independent Contractors and Businesses Association.
“The land you purchase, the cost to hold, the soft costs – all of these things are much less significant than managing the construction costs.”
Zayadi isn’t aware of any projects that have been shelved to date by construction cost increases. But he notes the situation is hitting woodframe construction particularly hard—impacting affordability for first-time buyers.
“When all of a sudden every woodframe project is needing $750 to $800 a square foot, that is really putting pressure on that first-time homebuyer,” he said.
Altus Group estimates multifamily construction costs in Vancouver increased 5 to 7 per cent in 2021, and senior director Dave Schoonjans expects a similar increase in 2022.
“It doesn’t sound bad, but you’ve got developments that only have a 10 percent margin,” he said. “Say you’ve got permitting issues or some other delay, and in 12 months your profit is gone.”
The situation in Vancouver is less dire than elsewhere in the country, he noted. Toronto, Montreal and to some extent Ottawa are under greater pressure because the markets there were going full tilt when the pandemic hit. Labour constraints and supply chain disruptions made a bad situation worse, and the surge in presales over the past year has compounded these woes.
And the pressure isn’t about to let up.
Taxes and fees aren’t about to drop, and municipal approval processes have yet to catch up with demand. All of this may be convincing developers to put new projects on hold.
Recent data on new Vancouver housing starts shows this trend. In February 2022, total Metro Vancouver housing starts plunged 38 per cent from the same month last year, to 1,365 units. Starts of new townhouses fell from 275 in February 2021 to 173 in February 2022, despite record high selling prices, according to Canada Mortgage and Housing Corporation.