Construction, land prices easing

November 1, 2022




Construction costs are poised to fall as both residential and non-residential projects scale back, according to developers at a commercial real estate association conference (NAIOP) in Vancouver October 27.
While strong demand earlier in 2022 gave many builders confidence the market would be able to absorb cost increases, six successive interest rate hikes have put the brakes on deals for space and construction intentions.
“Residential and commercial [builders] have paused projects,” said Ben Taddei, chief operating officer with the Conwest Group, which is both a developer and operator of a contracting division.
Contracting activity has slowed significantly this year with housing starts in Metro Vancouver through September down 10 per cent versus 2021—with further slowing expected. Starts of condo and townhouse projects in Metro Vancouver are running about 40 per below the pace seen in 2021, according to Canada Mortgage and Housing Corporation (CMHC).
Housing starts in the country’s six largest cities fell 5 per cent in the first half of 2022 compared to a year earlier, with a 9 per cent drop in multiple family starts leading the decline, CMHC said.
“So what does that mean?” Taddei asked. “Some prices have to come down.”
While labour remains tight, higher financing costs are giving some developers pause, reducing demand and freeing up supplies.
But the long-term outlook remains positive because of the constrained land supply. This constraint will support asset values—any pause in the market will eventually become history and activity will resume, the meeting was told.
“Peak land pricing is probably coming down, so when the groups are ready to jump back in, they’ll probably feel a lot more comfortable,” said Ryan Kerr, a principal with Avison Young.
“The land pricing adjustment is a good thing,” Kerr added. “Seeing [prices] come down and normalize a bit, so it’s not so scary, it is a great thing.”