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Costs frustrate efforts to build affordable housing

Industry says clarity on upcoming building targets, support from Ottawa could help
Shawn Bouchard, vice-president at Quadra Homes, says Ottawa is "moving too slow" with its program to help developers finance below-market housing | Chung Chow

Stakeholders and analysts in B.C.’s construction industry are warning that the high cost of materials, unprecedented interest rate hikes and labour shortages may make building more affordable housing a challenge.

These pressures could frustrate the feasibility of municipalities meeting provincial government supply targets, part of Premier David Eby’s plan to bring more affordable housing to market.

The creation of more supply, said Shawn Bouchard, vice-president of Quadra Homes, is indeed the key to addressing affordability.

“What we have is a very systemic problem of under-building for over a decade. So we have a major supply problem and the only way to fix that is to build more or lower immigration. The government is not going to lower the immigration numbers, so that means we have to build more, a lot more,” Bouchard said.

According to the Canada Mortgage and Housing Corp. (CMHC), affordability is a household devoting no more than 40 per cent of their disposable income to housing. By this measure, affordability as it relates to housing in B.C. was last seen in 2003-04. In 2021, by comparison, the average B.C. household spent 60 per cent of disposable income on housing, the report said.

In order to restore the affordability by 2030 to a level not seen in nearly two decades, 3.5 million additional housing units across Canada need to be built. In B.C., CMHC projects B.C. will need to build an additional 570,000 new homes – on top of what gets built on average each year – in order to achieve affordability.

The vast majority of those additional units are needed in Metro Vancouver. An analysis by Wesgroup Properties estimates that the region needs an extra 523,530 units by the end of 2030 in order to achieve affordabililty, as defined by the CMHC.

According to Bouchard, Metro Vancouver built roughly 22,500 units in 2022. However, due to increasing immigration, Metro Vancouver required a total of 31,000 new units in 2022 – 8,000 more than what was created.

“British Columbia will grow by roughly 200,000 people in the next three years. That means building a city, the entire city, every home, and every amenity and essential service, the size of Burnaby,” said Cameron McNeill, executive director and partner at MLA Canada.

In order to meet the housing targets that will be set by the provincial government in mid-2023, those interviewed by BIV say more certainty is needed.

McNeill, for example, said that a more targeted policy is needed in 2023 in order to plan for the growth of B.C.’s housing supply levels, but that plan will have to come with a high level of consistency across municipalities.

“You would create an environment where the investment and the banking community would be more keen to invest,” McNeill said. “The timelines would have much more certainty and therefore that rate of return would be able to be more easily calculated. Right now, we have projects that we don’t know how to get finished and how do you make a business decision when you have that margin of variance.”

Bouchard noted that eliminating red tape around approvals would allow the government to “unleash” the industry from some of the constraints their facing, ultimately leading to the capacity to build more.

Another aspect of the solution, according to Bouchard, lies in increasing B.C.’s rental stock.

As of June 2022, rental vacancy rates were below three per cent in major cities across Canada, but roughly 1.2 per cent in Metro Vancouver, Bouchard said in a report to Ottawa. This local rate is far below the measure of a balanced market, he said.

Bouchard’s report proposes that the federal government and CMHC rethink the current Rental Construction Financing Initiative, a federal housing program to build below-market housing. Under the program, funds to build this housing are borrowed by the developer in the form of a mortgage directly from the Bank of Canada. But the bank has been unable to keep pace with the program’s demand, according to Bouchard.

Bouchard argues funding for affordable housing could be increased by creating a fixed low interest rate for developers, from the Bank of Canada.

“That way, they can provide a low interest rate and it doesn’t cost anything to the taxpayer, it doesn’t cost anything to the government. The government actually gets all that money back and the interest rate that they charge actually becomes a revenue stream,” he said.

In order to further increase certainty within the industry, Chris Atchison, president of the British Columbia Construction Association, says prompt payment legislation is needed in the province.

According to Atchison, 50 per cent of contractors in B.C. are currently working at a loss or at breakeven.

“They’re trapped between soaring costs, which they pay up front, including wages and benefits, and then there’s the slow payment timelines,” he said. “I think the reality is that some contractors may not survive, let alone thrive at the exact time they’re being asked to help serve this provincial mandate.”

He said that prompt payment legislation would ensure more security on job sites and help the industry support Eby in his promise to create more affordable housing.

When it comes to labour shortages, Ravi Kahlon, minister of housing, says that he hopes talent coming to the province through immigration over the next year could help.

“The labour shortage is a real challenge. We know that skilled trades are one of the areas that we’re seeing the biggest pressures on our labour market and it’s only second to the care economy,” he said in an interview with BIV.

The hope, he says, is to work with the Ministry of Education to ensure there are pathways for newcomers to the province to apply their skillsets to the trades.

“It starts at the top. Premier Eby has already set a very aggressive pace at taking action for important issues that British Columbians care about. And my goal is to keep pace with them,” said Kahlon.

—With files from Peter Mitham.

This article was first published in BIV's print edition. For first access to print content, become a BIV subscriber.

Editor's note (Jan. 31, 2023): Story updated in eighth paragraph to clarify location and number of units.