An unprecedented increase in construction costs over the past two years threatens to “significantly” impact planned affordable housing projects, according to a recent Metro Vancouver report.
The report, authored by Metro Vancouver Housing‘s (MVH) program manager for housing planning and policy and director of housing planning, development and finance was presented to the regional district board on May 19.
“Construction costs have seen unprecedented increases over the past two years, a trend that is significantly impacting the development of new housing and in particular, affordable rental housing,” the report states.
The report states that average cost increases in the decade before the COVID-19 pandemic were between 2.4 and 2.8 per cent per year. Since January 2020, those increases have shot up to 15 per cent, it found.
The report attributed those cost increases to multiple factors, including supply chain disruptions, material and labour shortages, sawmill shutdowns and weather-related reductions in lumber harvest and skyrocketing fuel costs.
“All of these challenges increase uncertainty and financial risk for housing’s capital program,” the report warns, adding further work is necessary to understand the long-term impacts on Metro Vancouver Housing’s plans.
Metro Vancouver Housing is a non-profit owned by the Metro Vancouver Regional District that operates about 3,400 affordable housing projects at 49 sites across the region.
Over the next decade, the organization has committed $100 million to develop and redevelop housing projects with the aim of adding another 1,350 new units.
In an interview, MVH director of housing planning, development and finance Jason Hingley maintained that despite the escalating costs, the plan remains realistic.
“We’re on track to do that … we have a number of projects in motion, and so that’s given us a good head-start on this process,” he said.
“We’ve always gone into this with a good budgeting process, understanding of cost escalations, hence this report being given and presented in the first place. So we know what we’re looking at and what we’re getting into.”
MVH is not alone in facing challenges developing affordable housing amid spiraling costs.
William Azaroff, CEO of the non-profit Brightside Community Homes Foundation said the higher cost of materials including lumber, plumbing, concrete and steel have changed the financial calculation for what kinds of projects are viable.
“It’s hard to build affordable housing at the best of times — you think about all the different market conditions, financing, building to higher environmental standards, building nice units, it’s already difficult to make an affordable housing project pencil out and make financial sense so you can build it,” he said.
“All of these additional pressures have just exacerbated those pressures.”
With projects financed across 30- to 50-year periods, he said, recent increases in interest rates have only further challenged the viability of some projects.
Azaroff said his organization has three projects already underway which are fully financed, but that planners are watching the affordability and viability of a fourth project, planned for the Marpole neighbourhood in Vancouver, “slip away.”
“The amount of affordability we are aiming for, it’s being eroded and an organization like ours which is a not-for-profit, it’s not like we have millions of dollars of equity we can just fill that gap with,” he said.
Because developers can’t make up the difference by increasing rents in affordable units, the net result of rising costs is a lower percentage of units at affordable rates in a development, he said.