The Challenges of Rising Construction Costs

One of the root causes of the crisis in affordable housing is the ballooning costs of construction in the Lower Mainland. The costs are higher in Vancouver across the board than anywhere else in the country. This is because Vancouver has its own uniquely strict building codes with higher standards than most other regions. In Vancouver we need to account for sustainability elements, amenities and seismic design. There are also costs associated with the rezoning process that so often accompanies new developments in the Lower Mainland. All of this amounts to an increasingly bloated bottom line that developers have to meet for construction.

Daniel Greenhalgh, ENM’s co-founder, says that the province’s mandated STEP Code updates will multiply costs in ways that most citizens don’t realize.
 

“Last year, the province committed to making every building net-zero energy ready by 2032. They’re doing it in five steps, incrementally over the next few years, so right now we’re still at STEP 1. This is obviously great for the environment - but when we’re talking about rising housing costs as the greatest social crisis affecting the province, these mandated energy standards are going to dramatically add to the problem. For example: Every building will need to have geothermal heating with much thicker walls. Even if there are no additional cost increases for supplies or other construction costs, the costs to follow the STEP Code, will more than double current costs. And of course, those cost increases will be passed along to the consumer via the increase in the price of the home or unit.
 

“The province has told developers that in just the next five years, they want everyone to be at STEP 3. So, those costs are going to hit very soon. For STEP 3, we’re going to have dig 12-14 feet down in every driveway, or under every building, and put large coils underground for geothermal heating; for a 2000 square foot home this translates to a cost increase from $320/sf to $640/sf. There are a few grants to help developers with these updates, but they’re really just a drop in the bucket. The homebuyers are going to be paying for these updates.
 

“The trade-off is that it well cost less to heat the home. Plus, the benefits to the environment for the entire province of BC to be at net-zero will be great for future generations, and we know that’s a big priority for British Columbians. But,       there’s inevitably going to be some extreme sticker-shock in the next 5-10 years when homebuyers see how much these improvements will cost them.”

Dan also points out that Canada’s new tariffs on drywall have been a big challenge to developers in trying to keep prices steady.
 

“Sometimes we hurt ourselves with artificial cost increases. Last September, the federal government put in place a new tariff on drywall. So now costs have gone up 17%. There’s an immediate cause and effect to this that hits homebuyers directly. The government believes they’re going to be benefitting from the construction boom, but we’re all businesses. We’re just passing those costs on to end users, and that hurts the people that vote them in.
 

“Locally, the BC government has just given TransLink the authority to impose development-cost charges, or DCC’s, on new construction in metro Vancouver. It’s great to find ways to improve the transit system, but this is again just piling on to all the new fees and tariffs that have been imposed on developers in the last 5-10 years. The UDI (Urban Development Institute) just released figures stating that in the last ten years, development fees for a 900 square foot downtown Vancouver unit have gone from $43,000 to $343,000. And our biggest crisis is the cost of housing? I think we’re doing a lot of the damage to ourselves. Again, developers aren’t making less money because of these fees and tariffs. Consumers paying more.”