Construction cost increases have become so dramatic in Metro Vancouver that they’ve outstripped land prices as the single biggest unknown in proformas for developers.

That’s the message Greg Zayadi, president of the Rennie Group, delivered to a breakfast meeting of the Independent Contractors and Businesses Association this week.

“When developers are working on proformas today, the biggest impact on the end number to the consumer is the construction pricing,” Zayadi told Western Investor following the breakfast. “The land you purchase, the cost to hold, the soft costs – all of these things are much less significant than managing the construction costs.”

Time was that land prices and construction costs were both in the $250 to $300 a square foot range. Today, construction costs are often closer to $500 a square foot.

“We’ve seen a 30 per cent increase over the past 14 to 16 months, and in the last four months we’ve estimated that it’s 5 per cent to 7 per cent a month,” Beau Jarvis, president of Wesgroup Properties said. “It’s making it extremely challenging to understand the dynamics of a viable construction project. It’s so difficult to understand what’s going on.”

Wesgroup is planning a project in East Vancouver that started out at $430 a square foot in hard costs, but when the project went to tender it came in at $525 a square foot.

“In order to make that project viable we had to raise the revenue assumptions in the project,” Jarvis said. “We haven’t launched that project yet, so we don’t know if those new revenue assumptions are even viable in the marketplace. And so that’s a project that could be paused.”

Zayadi isn’t aware of any projects that have been shelved to date by construction cost increases. But he notes the situation is hitting woodframe construction particularly hard, impacting affordability for first-time buyers.

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