A shortage of new condominiums and townhouses is looming in Metro Vancouver as soaring costs of new construction has chopped presales at new project launches and put several planned developments on hold.
For buyers, this means that resale condos may represent not only lower prices but the only option in some markets, according to a new study.
“Construction costs of residential buildings grew by 25 per cent year-over-year in the first quarter of 2022,” noted Engel & Völkers in its Mid-year 2022 Luxury Real Estate Report. “These rising costs are trickling down to consumers and contributing to increases in new home prices. Higher material costs combined with government regulation are creating real and present pressures on new home building in Canada.”
Metro Vancouver is seeing the results.
Starts of new condo apartments fell 41 per cent in the first seven months of this year compared to the same period in 2021, according to Canada Mortgage and Housing Corp., while starts of new strata townhouse fell 24 per cent in the same period.
In all, more than 4,000 less strata homes have broken ground this year than last.
At the end of the second quarter of 2022, Altus Group noted it was tracking 17 “coming soon” strata projects in Metro Vancouver that had marketing stating they were planning to open by spring 2022.
In an email to Western Investor, Altus confirmed that the launches of six of those projects were delayed due to slowing market conditions and rising interest rates.
“Additionally, some [developers] mentioned inflation concerns and labour and/or supply chain issues. The other 11 projects either declined to provide an estimated opening date or said that sales would proceed in the fall.”
Of the eight Metro Vancouver condo projects that did launch in July, pre-sales reached an average of just 21 per cent according to MLA Canada, which monitors the new home market in Canada. This compares with pre-sales of up to 30 per cent of new condo units earlier this year and up to complete sells outs that were common during 2020-2021
“Many developers are holding new project releases for the fall 2022 or spring 2023 markets, further restricting supply,” noted Suzana Goncalvas of MLA Canada, which monitors Vancouver’s pre-sale market.
Gregg Baker, a Vancouver real estate advisor with Engel & Völkers, said it all comes to price, suggesting that resale condos offer better value than new units.
Baker said the last big successful launch of a Vancouver condo project was the Butterfly by Westbank, a 331-unit, 57-storey luxury tower at 1019 Nelson Street, that completes in 2023 and sold out at average prices of $2,300 per square foot a year ago.
Grosvenor’s The Pacific at 889 Pacific Street in Vancouver, which completed last year, has sold out 95 per cent of its 224 strata units at average prices in excess of $2,000 per square foot.
Developers looking at launching new Vancouver projects today are contending with even higher prices, Baker noted, in some cases cresting over $2,800 per square foot.
“There is some disbelief at those prices,” Baker said.
But Baker noted that condo buyers can purchase older, quality apartments in Vancouver’s upscale Coal Harbour neighbourhood, from $1,600 per square foot.
“Even with renovations and upgrades, you are still coming in at less than a new condo,” he said.
An REW.Ca. search for resale condos this week found Vancouver downtown units from $1,200 per square foot, Kitsilano condos at $965 per square foot and East Vancouver condos from $835 per square foot, similar to prices in suburban markets.
Aside from high land prices, new condos are subject to extra charges that are not applied to existing homes, noted Kevin Skipworth, managing partner with Dexter Associates Realty in Vancouver.
“In Vancouver, city development fees and charges average $186,000 on a new condo, and this does not include the federal GST which nails another 5 per cent to the cost, or the increase in building material costs over the past year,” Skipworth noted.