Builders have hit a ‘ceiling’ in starting new housing projects
Bruce Constantineau
Sun
The pace of home construction has fallen dramatically in Greater Vancouver because of a shortage of skilled workers and suitable properties, doubling the cost of residential building over the past five years.
According to a Canada Mortgage and Housing Corp. report, the number of housing starts during the first six months of 2005 fell 12 per cent to 8,574 units while the number of Fraser Valley starts declined 17 per cent to 3,488 units.
CMHC analyst Cameron Muir said home builders have hit a “ceiling” as they try to start new projects while coping with a record number of housing developments already under construction throughout Greater Vancouver. He said a record 18,565 housing units were being built during the first half of this year.
“Builder and developer resources are already stretched to the limit,” Muir said in an interview.
“They’re finding it tough to ensure there are enough tradespeople around to build the units already underway.”
Cressey Development Corp. vice-president Hani Lammam said the Vancouver-based home builder has built up a significant land bank of future development sites, but a shortage of skilled trades and price uncertainties associated with those trades, have reduced the amount of new house construction activity.
He said builders can no longer sell their housing units first and then lock in contracts with tradespeople to build those units at a later date.
“That’s too big a risk now because construction costs are escalating so fast that we might lose our margin,” Lammam said in an interview.
He said rising labour and materials prices have pushed up residential construction costs in Vancouver to at least $200 a square foot for quality multi-family projects, up from $120 a square foot five years ago.
Muir said a strong rebound in the non-residential construction sector in B.C. — fuelled by transportation and Olympics-related projects — means Vancouver home builders must compete with non-residential builders for materials and tradespeople, which drives costs higher.
Lammam said another reason for the new house construction slowdown can be found at the municipal level, as some municipalities become too busy to process new housing project applications expeditiously.
Muir said the slowdown should prevent any kind of oversupply situation from developing, which could cause the housing market to “burst” at some future point.
“Since there’s a ceiling of new homes being built and inventories are low, builders are constrained from overbuilding,” he said.
While some Greater Vancouver developers still have significant land holdings for future housing projects, others are not so fortunate and land-supply constraints have become a big issue in the market. Muir said the biggest and best sites have already been taken, so many developers now are keen on “brownfield” sites — properties that were formerly industrial sites.
Park Lane Homes, for example, currently plans to develop a major housing project on a former lumber operation site along the Fraser River in Fort Langley.
“Ten years ago, builders wouldn’t touch those sites with a 10-foot pole, but today they represent some of the largest sites that are close to urban areas,” Muir said.
Greater Vancouver Home Builders’ Association chief executive officer Peter Simpson said he’s not worried by the drop in new housing starts so far this year.
“Being down 12 per cent from the best year in a decade isn’t really something we’re overly concerned about at this point,” he said. “It’s still a good year.”
Simpson said builders are more concerned now about the supply of building materials than about rising costs.
“So far, nobody has had to wait long for things like drywall and steel and lumber, but we monitor that all the time to make sure there is enough supply out there to feed the demand,” he said. “We’re competing against other parts of Canada for these materials.”
Simpson said that despite rising prices, the demand for new Greater Vancouver housing remains strong because mortgage rates are still very attractive, with five-year mortgages available for just over four per cent. He noted that 47 per cent of household income was required to service debt in Canada in 1990, but lower interest rates have pushed that figure down to the 30-per-cent level.
“It would take a mortgage rate of more than 13 per cent to push us back to 1990 [debt-service ratio] levels,” Simpson said.