While rents in many B.C. cities are soaring higher every month and house prices continue to rise, the number of homes being built is declining, with home builders saying that interest rates and prohibitive land and construction costs continue to hobble them.
Housing starts and new-home registrations are down this year, and the number of building permits in some high-growth cities has fallen noticeably from last year.
Vancouver, which issued about 2,600 building permits from January to May last year, issued just 2,100 in the same period this year. In Surrey, about 220 fewer permits were issued, a year-over-year drop of 10 per cent.
In contrast, Burnaby and Coquitlam have seen increases or no decline. Both are suburbs that were primarily single-family bedroom communities until the past decade, when their local councils began encouraging density in certain areas and approving some of the region’s tallest towers.
On the whole, however, B.C. and national statistics show that the later stages of home building – permits, completions, new-home registrations – are down in many places, even though municipalities may have approved a number of new homes in the past couple of years.
The effects may not be visible now, a University of British Columbia economist says, because builders are still going ahead with projects started earlier. But the shortage will become evident in the coming years as many developers hit the pause button.
“Waiting is pretty attractive right now,” Tom Davidoff said. “So a couple of years down the road, you will see a dip in new supply coming on.”
Developers and senior city managers say it’s clear that high interest rates, which climbed again this past week, along with land, labour and material costs are making rental projects particularly unworkable.
“There must be close to hundreds of projects that are effectively on hold in the region,” said Jon Stovell, the chief executive officer of development company Reliance Properties Ltd. and a board member of the Urban Development Institute. “Everyone is waiting for construction costs to come down. But, in the meantime, I think we will see continued rapid contraction of supply” – even though demand for rentals in the Vancouver region is, as he put it, “unhinged.”
That’s because the rents that even the most optimistic developers forecast won’t cover current costs. Mr. Stovell said construction costs have increased more than 50 per cent since mid-2020.
Ron Rapp, the CEO of HAVAN, Homebuilders Association Vancouver, says he is also seeing pauses on approved projects.
“The projects that were more viable two or three years ago, the new environment may not be sustainable for them,” he said.
New-home registrations this year in B.C. are 23 per cent lower year-over-year, according to statistics to the end of June collected by BC Housing. In terms of multiunit buildings, only 10,800 new homes were registered in the first half of the year, compared with 17,500 for the same period in 2022. The slowdown has become evident in cities such as Vancouver and Surrey, where multiunit projects account for a large proportion of new building.
“Because our development is increasingly in large multifamily projects, these numbers can change very quickly when a small number of large projects receive permits,” said Surrey’s manager of planning and development, Don Luymes. “But I would suggest that the higher-interest environment, plus the increasing cost of construction and labour, are having a noticeable effect on construction.”
Building-permit values – which indicate the value of what is being built – were down 16 per cent year-over-year for the province from January through April. In Vancouver, values for January to May this year were only $834-million for residential projects, compared with $1.3-billion for the same five months last year, according to city reports.
Vancouver’s general manager of buildings and licensing, Andrea Law, said some builders are waiting for the city’s proposed new housing strategy – allowing four, five and sixplexes on former single-family properties, depending on lot size – so they can apply for denser projects.
Ms. Law, too, said she is generally hearing from building-permit applicants that interest rates, problems with the supply chain and labour costs are the biggest problems.
Coquitlam’s director of planning, Andrew Merrill, said the city is still seeing a high volume of building-permit applications. Burnaby has seen building-permit values soar in recent years, with multifamily permit values more than doubling in four years. It has $784-million in building permits for the first five months of 2023, compared with $775-million for the same period last year.