While the Lower Mainland and other regions of B.C. may appear to be buzzing with construction as cranes dot the horizon and major projects continue to build skyward, the economic story simmering under the surface could be quite different.
A recent Vancouver Sun column by Douglas Todd pointed to several economic factors that belie the appearance of a homebuilding boom, such as higher interest rates.
Independent Contractors and Businesses Association of BC (ICBA) chief economist Jock Finlayson said low borrowing costs in previous years led to the projects now underway, and economic conditions at present aren’t favorable towards new construction.
“Put simply, the cost of money has risen dramatically in the last two years. In addition, banks have toughened lending conditions for developers and many other businesses. All of this means that many development projects have stalled or been shelved until financing costs come down,” he said.
Canadian Home Builders’ Association of BC (CHBA BC) CEO Neil Moody agreed current conditions aren’t amenable to the homebuilding market.
“Unfortunately, the cost of building homes has never been higher. A recent report from RBC showed Canada’s residential construction price index has increased over 50 per cent since the start of the pandemic due to a shortage of workers, higher development charges and disruptions to the supply chain,” Moody said.
Lumber prices were up but have now eased somewhat. The cost of building materials like concrete and structural steel are up substantially, 55 per cent and 53 per cent respectively since the first quarter of 2020.
“DCCs (Municipal development fees) and levies are also having an impact and have increased by as much as 30 per cent annually in 2022 for single-family homes and semi-detached units,” he added.
Finlayson also pointed to regulatory hurdles and a drawn-out permitting process as obstacles to further growth in the residential sector.
“A second factor impeding homebuilding is the complex and costly processes developers and builders face to obtain approvals and permits to proceed with projects. Despite the political priority seemingly attached to boosting housing supply, in many cities the bureaucratic and regulatory costs remain an obstacle to development and end up slowing the process of adding housing supply,” he said.
Moody said multi-family construction in particular is seeing a slowdown and that some regions of B.C. are hurting more than others.
“With all the additional government fees added to the cost of construction, it is making it difficult for multi-family builders to build a product that homebuyers can afford,” he said. “When looking at regions throughout the province, we have heard that builders in Northern B.C., specifically Prince George, are currently struggling to keep their businesses going and trying to keep their trades working due to an economic slowdown that has impacted the area and homebuyers. Of course, the closure of mills in the area plays a large role in the downturn.”
Moody did point to the recent announcement of a new Building Permit Hub developed by the B.C. government in consultation with stakeholders as a positive sign.
“The announcement of the Building Permit Hub responds to a long-standing challenge the residential industry has faced when moving through the complex, multi-layered provincial approval process. It’s important that after the initial pilot project by the B.C. government, that it is rolled out to the rest of the province as quickly as possible,” he said.
He also pointed out it’s too soon to assess the B.C. government’s attempts to streamline the homebuilding process.
“Although the B.C. government has made several announcements over the last year related to housing, like the single-window application service and the Housing Supply Act, which are intended to help simplify the approval process and speed up construction, we’re still waiting to feel the impact of these changes,” Moody said.
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