The Cost to Develop in a New Area

Land costs are multiplying by the week here in the Lower Mainland. In a recent Vancouver Courier article, developer Michael Geller claims that land sales are now in excess of $500 per buildable square foot in the city of Vancouver for just an average site. That makes an 800 square foot condo close to $500,000 just for the land. The speculators are truly insatiable, and while the newly introduced NDP policies to curb them are a good step, it will take a serious paradigm shift in BC development policy to bring these land costs back to earth.

Until then, the price to develop in a new area is simply out of reach for all but the biggest BC developers. In a conversation with ENM project manager Daniel Greenhalgh, he laid out the layers and layers of costs that municipalities require for a new project on undeveloped land.
 

“Let’s say we have a development that will cost $46 million, just for the construction costs. We’re looking at least $5.6 million just in fees to the city to make that project happen. To get the go ahead from the city or township, the developer has to agree to build a road or a boulevard to the site and around it. We also have to do things like upgrade the septic system and donate five acres of the land we’ve just purchased for a school, a park, and/or a pond.
 

“So no one can develop in a new area until someone gifts the city that stuff. Five acres cost about $5 million, so after all the costs, we’re essentially giving a $22 million gift to the township. Everyone else piggybacks off of this, and they pay a latecomer fee that goes back to the original developer, so they get paid back over a period of about 15-20 years. But you’ve got to front $23 million to get this done. There’s no profit for a long time, it’s like a trickle back kind of income. This kills any option for smaller, socially conscious developers like ENM to go and build in a new, undeveloped area.”
 

Daniel points out that that there are only three developers in the Lower Mainland capable of meeting these kinds of costs, and most of them focus only on highrises. “So to get some affordable townhouses, or purpose-built rentals like we’re doing here at Willoughby Walk, it’s nearly impossible to meet these costs. You’ve got to partner up with other developers, pool together about $100 million in upfront costs and financing. You say, you give the pond, I’ll give the school, and you try to make it happen. Once you develop there, the land costs will double or triple really quickly.”
 

The NPD’s newly introduced rental-only zoning tool (link) will give townships the power to somewhat regulate the costs of land in those areas. But there’s no obligation to use this tool, and it’s likely those new zones will do next to nothing to curb the soaring costs of land overall. The only sure thing is that these land prices can’t continue to double every month. It remains to be seen if the solution will be a sane, government-led policy implementation or a traumatic crash that catches townships and residents by surprise.