Metro Vancouver construction starts on new housing dropped by 23%

Construction progress on Landmark on Robson at 1400 Robson Street, Vancouver, as of August 7, 2022. (Kenneth Chan/Daily Hive)

It is increasingly challenging to get going with starting construction on new housing in Metro Vancouver in terms of both the recent changes in demand and the ability to actually get going with building.

This is reflected in the findings of Canada Mortgage and Housing Corporation’s (CMHC) national housing supply report for urban regions released today, which found that housing starts fell by 23% in the first half of 2022 compared to the first half of 2021.

For condominiums, the drop was the highest amongst the building types, with a fall of 46% over the same period.

CMHC analysts state developers are now taking a more cautious approach to start condominium projects and may be looking to time the market in order to achieve desired returns — especially when they acquired development sites at high prices.

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“Municipalities have started reporting growing numbers of developers of approved projects that are choosing to wait to start construction. It remains to be seen whether some developers will let their permits expire and cancel their projects due to current market conditions,” reads the report.

While condominiums fell, construction on semi-detached homes nearly doubled in the first half of the year, even though it normally accounts for a small proportion of total housing starts. CMHC notes most of the increases in semi-detached residential construction were located within Vancouver, which recently enacted the Making Home policy to allow semi-detached development in many existing single-detached neighbourhoods. The policies are now attracting some interest from property owners.

CMHC also states that the purpose-built secured rental housing construction segment was “resilient” over the first six months of 2022, with its housing starts growing by 18% compared to the same period in 2021. This was a “multi-decade high” attributed to low vacancy rates, record migration to the province, and continued upward pressure on rents.

Most of the rental housing starts were located in suburban areas, and this includes transit-oriented developments and low-rise structures.

But analysts warn there are already signs the pace of increase in rental housing starts is already undergoing a slowdown in the second half of 2022 due to growing costs as a result of the Bank of Canada’s interest rate hikes.

“Rental development is sensitive to changes in interest rates, since the developer typically takes out a mortgage on the property following completion and earns a return on their investment over time. With interest rates increasing sharply in recent months, the associated higher financing costs could render some planned projects unviable,” reads the report.

There are also growing costs for construction equipment and materials due to inflation and the shortage of skilled labour, with the number of construction workers currently hovering below 2018 levels.

“Costs continue to climb during these delays, posing challenges for project viability without comparable increases in the prices or rents of the housing units being created,” adds the report.

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