Construction costs drop

Declining construction costs have piqued the interest of potential apartment developers, but has not yet pushed many into taking on new projects in Vancouver, according to market observer David Goodman of Macdonald Commercial Real Estate Services.

Statistics Canada, in its latest measure of costs to build new apartment projects, calculated a 4.7-per-cent decline in Metro Vancouver between the third quarter and fourth quarter of 2008.

That was the second largest quarterly drop in apartment construction costs among six major metro markets that Statistics Canada tracks. Edmonton experienced the deepest decline at 6.1 per cent, Ottawa/Gatineau saw the biggest increase at 0.9 per cent.

Nationally, Statistics Canada’s composite index of apartment construction costs declined 2.8 per cent from the third quarter to fourth quarter of 2008.

However, builders started work on only 729 apartment units in 2008, according to Robyn Adamache, a market analyst with Canada Mortgage and Housing Corp., which was less than four per cent of regional housing starts.

In 2007, Adamache said builders started work on just 482 apartment units.

Goodman said declining construction prices “is getting [developers] thinking about” building rentals.

“Construction costs have come off, land prices have dropped,” Goodman said, but with all the costs added up and developers aiming for monthly market rents of $1.75 to $2.75 per square foot, Goodman said “the numbers scarcely work.”

Goodman said governments could do more to encourage apartment construction from municipal councils giving developers breaks on development costs to the federal government foregoing GST on rental construction.

“All levels of government have been guilty in not providing any incentives for rental housing in Canada,” he said.

(prepared by Derrick Penner/Vancouver Sun)