Spike in cost of construction hits affordable housing plan

Metro Vancouver’s housing committee says its $100-million, 10year plan to build affordable housing has been hit by dramatically rising construction costs over the past two years.

But the consultant retained to assess the situation says the region’s goal of adding 1,350 new and redeveloped units can still be met even as prices for materials, labour and fuel surge.

“In the realm of affordable housing, much of the funding is coming through government agencies, which have these blocks of funds that they set aside. They are not bearing the same risk of interest rates (rising) as everyone else,” explained Vancouver-based Ken King of Hanscomb Quantity Surveyors.

As market housing developers will have to reconsider what they can spend and pull back on splashier budgets because of rising interest rates, there is a window for affordable housing projects to get more for the same amount of money.

“The housing craze is going to cool down a bit because the price of money has gone up. The industry that supplies market housing relaxes its prices. And then the affordable housing group can go and take advantage of that and do some very careful purchasing. This actually works very well for them,” said King, citing the example of buying appliances that are now cheaper with less competition for them.

His view comes as the housing committee notes that challenges have increased uncertainty and risk for the 10-year plan.

Since January 2020, there has been an increase of about 15 per cent a year in construction costs compared to what had, for a decade prior, been a steady increase of between just 2.4 per cent to 2.8 per cent a year. Population growth and high immigration rates leading to high demand for housing were past factors, according to a memo to the housing committee from staff.

During the pandemic, as many more homeowners undertook renovations, the cost of some materials increased as supply chains were hit. Labour was also more expensive as demand intensified.

The staff report also cited geopolitical challenges such as the Russian invasion of Ukraine and China’s zero-COVID strategy that have hurt already fragile supply chains and will continue to reverberate.