Costs soar as construction boom continues in Halifax

Posted on 14. Nov, 2012 by in News

Chronicle Herald : November 13, 2012 – 8:00pm By REMO ZACCAGNA Business Reporter

Prices for materials and labour in Halifax have gone through the roof as the region experiences a construction boom not seen in years.

According to Statistics Canada figures released Tuesday, the non-residential building construction price index in Halifax had the highest jump in Canada from the second to third quarter.

The index, which measures selling prices for materials, labour and equipment and provincial sales tax in the commercial, industrial and institutional sectors, is at 144.4 (not seasonally adjusted) in Halifax, a 0.7 per cent increase from the previous quarter. The next highest increase was experienced in Edmonton, which saw a 0.3 per cent jump between quarters.

Overall, construction prices in Halifax went up 2.3 per cent from the same period last year, placing the city in the middle of the seven metropolitan areas that Statistics Canada surveyed.

At 3.6 per cent, Edmonton once again had the largest increase in prices year-to-date.

“The demand for non-single-family home construction in our market is as high as it’s been in the last 12 months as we’ve seen in decades,” said Bill MacAvoy, managing director of the Cushman & Wakefield Atlantic real estate firm.

“If you merely count the amount of cranes operating in the metro area right now — the last count we did, it was almost 30 — which is a lot.

“So effectively what you have is a demand-supply curve that’s favouring the tradespeople and suppliers.”

Danny Chedrawe, president of Westwood Developments Ltd., said prices have skyrocketed in the last five years and have “way outpaced” the cost of living.

“Costs are very high down here right now, and that’s not anything to brag about,” he said.

“Everyone is very busy, so everybody is pricing things at higher … reflecting the amount of activity.”

In the last 12 months, Westwood has completed commercial developments like the Shoppers Drug Mart, CIBC and Second Cup on Portland Street in Dartmouth and the TD building at Spring Garden Road and Birmingham Street in Halifax.

Even in the current high-cost climate, low borrowing costs in the form of favourable interest rates over the last several years have served to balance things out. But that is about to change, Chedrawe warns.

“You’ve seen a total levelling off of interest rates where they’ve kind of hit rock bottom, so that leverage is no longer going to be there, so hopefully prices will start to level off or you can head to a situation where you go from being very busy to not as busy because it’s not economically viable,” he said.

But MacAvoy said construction costs are not the determining factor that motivates developers to break ground on a project.

“I’m not convinced that it’s a major component,” he said. “I think it’s the second most important variable after market demand, and that’s what the developers are really working toward, to sustaining or fulfilling the demand that’s happening in the marketplace for commercial and multi-family residential.”

A levelling off of that demand and broadening the labour pool are two ways that prices can be contained, he said.

Barring that, MacAvoy said, developers historically have looked at alternative solutions to deal with ballooning construction budgets.

“It may just mean that the developers become a little more creative in how they’re sourcing the supply of labour and materials, which might mean looking into other markets and across provinces,” he said.

“We’ve seen that happen before. If the development community believes that they’re not getting fair pricing, they will implement methodologies that allow them to bring back into balance that demand-supply curve.”

Chedrawe said he’s concerned that the federal shipbuilding contract will create a vacuum in the next decade where people will opt to work at the Halifax Shipyard or in related industries and create a shortage in the construction trade.

“Most construction firms are very busy and finding people to work is difficult, so sometimes you have to bid higher or pay more to get people to get things done on time,” he said.

“You have to be careful in a situation like this because as prices continue to go high, they price themselves out of the market and therefore projects do not become viable if prices get out of control.”

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