Soaring material costs may stall housing starts

May 19, 2022

Despite having the highest new home prices in Canada, housing starts in Metro Vancouver are down 40 per cent during the first quarter of 2022, compared to last year. A key reason, analysts suggest, is soaring construction costs in a building environment already characterized by razor-thin margins.
Greg Zayadi, president of the Rennie Group in Vancouver, told a recent meeting of the Independent Contractors and Businesses Association that construction is now the single-biggest expense for home builders.
“When developers are working on proformas today, the biggest impact on the end number to the consumer is the construction pricing,” Zayadi said. “The land you purchase, the cost to hold, the soft costs—all of these things are much less significant than managing the construction costs.”
Altus Group estimates multi-family construction costs in Vancouver increased 5 to 7 per cent in 2021, and senior director Dave Schoonjans expects a similar increase this year.
“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 pull back in residential construction in Metro Vancouver may also be seen in Ontario markets, where high building material and labour costs are colliding with cooling buyer demand for homes and plateauing prices.
Across Canada, total housing starts in March 2022—latest figures available—were down 2 per cent from February, according to Canada Mortgage and Housing Corp which expects starts to track lower in 2022 compared to 2021.
“We’ve seen a 30 per cent increase [in construction costs] over the past 14 to 16 months, and in the last four months we’ve estimated that it’s 5 per cent to 7 per cent a month,” Beau Jarvis, president of Wesgroup Properties, Vancouver, said. “It’s making it extremely challenging to understand the dynamics of a viable construction project.”