The need to reduce costs

Cost breakdown for a new condo

It’s not an affordability crisis, it’s a cost-of-delivery crisis. Brad Jones (Wesgroup), Real Estate Magazine, January 2025. Breaks down the cost of building a $1.5-million, 1000-square-foot two-bedroom condo in downtown Vancouver:

• $294,000 (20 per cent) is for land acquisition

• $490,000 (32 per cent) is for hard costs (i.e. labour, building materials)

• $102,000 (7 per cent) is for soft costs (i.e. architectural designs, legal fees)

• $92,000 (6 per cent) is for marketing and realtor commissions

• $77,000 (5 per cent) is for finance charges and loan interest

• $267,000 (18 per cent) is for government taxes and fees

• $178,000 (12 per cent) is the gross profit margin required by banks to provide financing

If we want to keep building more housing as prices come down, we need to keep reducing costs. There’s no single magic bullet. Even if land was free and profit was zero, the cost would still be more than $1M.

Mike Moffatt and the Missing Middle Initiative identify 10 corresponding ways to improve affordability: Make New Homes Affordable Again. To highlight a couple of them:

Lowering the cost of and allowing for the more efficient use of land. The importance of this cannot be overstated, given that it is 20% of the costs in Brad’s example, and for other projects, it can be well over half. It is also one of the pathways where governments have the most levers.

Lowering government taxes and fees. This is a lever that governments directly control, and it is a large one, as construction-related taxes can account for over 30% of the cost of some projects.

More

• Itemized bill for a rental apartment in Portland.

• A back-of-the-envelope comparison: Why housing in Vancouver is about 2X as expensive as Edmonton.