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Okanagan developers hit by soaring construction costs, projects stalled

B.C. housing crisis worsens as developers struggle with costs
Worman Commercial renovated this building rather than build new, due to cost.

It's getting more difficult and more expensive for developers to complete projects as building costs reach levels "not seen in a generation."

That's according to Mark Holland, a representative of the Okanagan branch of the Urban Development Institute, during a presentation on the state of the industry before Kelowna city council's committee of the whole meeting Monday morning.

With material and labour costs skyrocketing since the pandemic, Holland says profit margins are dropping, making it more difficult to get financing.

They're lending your money, your savings and pensions, Holland told councillors.

"They are not going to put your savings at risk. They insist on around a 15 per cent profit margin, up to 20 per cent," said Holland.

"They love the project, love the agenda but can't risk everybody's savings on that so we look for other financiers who may charge more because of the risk factor.

"The outcome of all of this is a lot of projects are at that critical stage being slowed, stopped or paused."

Several projects on hold

He cited several developers who have been forced to pump the brakes on projects across the city.

One of the biggest, One Varsity, a 35-storey tower on St. Paul across from the UBCO downtown campus has been paused.

"The pre-sales of One Varsity are not good. They are so bad they've stopped Casorso (former Central Mobile Home Park) so those 1,000 or so units we've been gearing up for Casorso are paused and stopped because they can't make it work with One Varsity in the pre-sales," said Holland.

"They may ultimately get to that, they may find some other financing mechanism to get past the pre-sales edge and get started, but this is the most expensive housing we build — in concrete towers."

Holland said a number of other projects have also been impacted.

Stober Group's planned development at the Original Joes' site on Pandosy with 150 to 175 units has been paused, Worman Commercial renovated an existing building on Lakeshore Road rather than construct a new mixed-use development while Mission Group have quite a few projects where the financing numbers don't work and are pumping the brakes.

"We can't compel lenders to lend money to make these project work."

As costs rise, whether they are due to material costs, labour, financing or government fees and charges, Holland says 100 per cent of those are passed back onto the buyer.

All this he says is contributing to the housing affordability crisis being felt across the country.

Where in previous generations people would move from rental to ownership perhaps in their 30s, people now are not leaving the rental market because they can't afford home ownership.

"We have an entire generation largely stuck in rental.

"Grandkids and kids are in rentals and it will be a long time before they can save for a down payment."

Holland hopes the industry and local government can work together to try and find solutions to make housing more attainable.