Rising costs throw wrench in Metro Vancouver’s affordable housing plan

But a consultant says rising interest rates could benefit affordable housing providers, as market housing is more sensitive to borrowing costs.

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Metro Vancouver’s housing committee says its 10-year, $100 million plan to build affordable housing has been hit by dramatically rising construction costs over the past two years.

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But the consultant hired to assess the situation says the region’s goal of adding 1,350 new and refitted units can still be met even if prices for materials, labor and fuel rise.

“In affordable housing, a lot of the funding comes from government agencies, which have these blocks of funds that they set aside. They don’t bear the same (rise) interest rate risk as everyone else,” explained Ken King of Vancouver-based Hanscomb Quantity Surveyors.

While market housing developers will have to reconsider what they can spend on projects and cut more dizzying budgets due to rising interest rates, there is a window for affordable housing projects to get more for the same amount of money. They tend to stick more to fixed budgets and are less sensitive to the cost of borrowing.

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“The housing craze is going to cool off a bit because the price of money has gone up. The industry that provides the market housing is easing its prices. And then the affordable housing group can take advantage of that and make very careful purchases. It actually works really well for them,” King said, citing the example of buying devices that are now cheaper because there is less competition for them.

His view comes as the housing committee notes that the challenges have increased uncertainty and risk for the 10-year plan.

Since January 2020, there has been an increase of about 15% per year in construction costs compared to what had been, for a decade before, a steady increase of only 2.4% to 2.8% per year . Population growth and high immigration rates resulting in high housing demand were past factors, according to a staff memo to the housing committee.

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During the pandemic, as more homeowners undertook renovations, the cost of materials such as wood and plastics rose as supply chains were impacted. Labor was also more expensive as demand intensified because workers got sick, were laid off, or changed jobs.

In particular, already higher housing costs in the Lower Mainland are contributing to increased business costs and shortages, and dramatically rising fuel costs are impacting the transportation of materials.

The staff report also cited geopolitical challenges such as the Russian invasion of Ukraine and China’s zero-COVID strategy that have hurt already fragile supply chains and will continue to reverberate.

The $100 million plan approved in 2020 aims to redevelop existing housing and develop new sites on public land leased from Metro Vancouver Housing rather than buying new land or property, said Jason Hingley, director of the developing and financing housing plans at Metro Vancouver Housing.

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So far, some of the money has been used to redevelop properties in Eastburn Square in Burnaby, Malaspina in Coquitlam and Heather Place in Vancouver, as well as partnerships with the municipalities of Southwynde in Burnaby and Pitt Meadows Civic Center. All five have been approved and are in the design phase.

jlee-young@postmedia.com


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