Construction costs continue to rise

British Columbians spent more building or fixing up homes in the third quarter of 2007, but mostly because it is more expensive to build and not because they are building more, according to Statistics Canada.

Statistics Canada reported Monday that B.C. saw $3.8 billion spent on residential construction investment in the third quarter, an increase of 11.2 per cent from the same quarter a year ago.

Spending is heading up in all three components of that $3.8 billion figure, Statistics Canada analyst Etienne Saint-Pierre said.

Renovations spending in B.C. rose the quickest, with $1.3 billion spent in the quarter representing an 18.4-per-cent increase. Acquisition costs, which accounts for taxes, insurance and other purchase fees rose 12.5 per cent to $398.6 million.

Spending to build new homes also rose seven per cent to $2.1 billion, but Saint-Pierre added that when inflation in construction prices is factored out, the amount of actual building that took place shrunk by 1.8 per cent compared with the same quarter of 2006.

"That means a significant amount of the increase in investment [the report] shows is mostly related to the price for building new," Saint-Pierre said.

And the inflation factor driving up the investment amount isn't just a B.C. phenomenon.

Statistics Canada said residential-construction investment nationally hit a record $24.3 billion in the third quarter, up nine per cent over the third quarter of 2006, its report added that "rising levels of investments for new housing were largely brought about by significant cost increases."

In the Lower Mainland, builder Gary Friend has watched land prices ratchet up, prices for building materials have risen and don't seem to be coming down although house construction in the United States has fallen dramatically.

However, for Friend and other builders, labour remains the biggest culprit in rising construction costs.

Depending on which component of the building he is trying to price, Friend said he builds in an inflation factor of between 10 and 20 per cent per year to secure the overworked tradespeople he needs.

"The good, skilled people I have are all overworked," Friend said. "So unless I make it monetarily very fruitful for them, they say, 'What's the point? I'm tired, I don't get any holidays, my wife's mad at me, so why do I care if you pay me more?' "

He added that his bankers include an appraisal of what costs per square foot of construction should be in the construction loans that they approve, but meeting those budgets "is a constant challenge."

The stress of rising costs has created some obvious casualties in the regional market, such as 32 pre-sale buyers in Coquitlam's Riverbend project who had their contracts cancelled because their developer said inflation pushed costs way over initial pre-sale prices.

Friend added that buyers are facing increasing degrees of sticker shock as he raises prices between one phase of a development and the next, although they may be the same types of units.

"My building hasn't changed in quality or size, how do I justify that [higher price]?" he added. "If you look at the marketplace, you are not seeing dramatic increases in wages in other sectors as you are in construction.

(prepared by Derrick Penner/Vancouver Sun)