Blog by Mark Longpre

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Building construction costs down

VANCOUVER — Last year’s recession dried up enough plans to build new buildings and erased enough construction jobs to take a substantial bite out of the cost to build new buildings that will last until at least 2010, according to a new survey.


For almost five years, double-digit annual inflation in construction costs was the norm, but those days are gone.


From a peak in 2008, construction costs fell in 2009 from around five to six per cent at the low point to more than 20 per cent, depending on building type, the survey — which was conducted by quantity surveyors BTY Group in conjunction with the Independent Contractors and Business Association of B.C. — found.


With a smaller pool of available work, more companies are competing for each job, Philip Hochstein, president of the independent contractors association, said in an interview.


Also, with less work contractors have laid off their least experienced and less productive workers, and don’t need to pay experienced tradespeople the huge incentives and overtime that were required in the boom period.


“It’s the productivity improvement that has reduced the labour costs more than reduction in wages,” Hochstein said.


Hochstein added that the strong Canadian dollar, combined with lower commodity prices, gives contractors better purchasing power for buying materials as well, which also helps to reduce costs.


However, with the infusion of infrastructure projects, from the Gateway transportation projects to government stimulus spending and new hospital projects, Joe Rekab, a principal at the BTY Group, said activity in the market will again put pressure on pricing around 2011.


“If we look at the developments planned for, say the Gateway project, that is going to take a lot of the front-end trades involvement,” Rekab said. “Then if you look at some of the vertical infrastructure, some of the health-care projects that are going to come up like the Surrey hospital and BCIT, those are significant contracts.”


Rekab expects enough of the construction sector to once again be occupied to reintroduce inflation at the rate of about two to three per cent per year, which he said has been historically typical for the industry.


In the meantime, however, developers and contractors are working with a reduction of costs that Rekab said helps them build in more predictable profit margins for projects.


In its survey, the BTY Group tracked construction cost reductions ranging from around six per cent for some health-care-related facilities to as much as 18 per cent for luxury, highrise, residential construction and 24 per cent for low-rise, wood-frame, rental apartments.


The BTY survey estimated that low-rise rental apartments cost $118 to $142 per square foot to build today, compared with $153 to $187 per square foot at their height in 2008.


Luxury highrise condominium projects, according to the BTY survey, cost in the order of $262 to $338 per square foot today vs. $310 to $410 during the boom. More prosaic highrise condominiums, which cost in the order of $219 to $281 per square foot today, cost $245 to $325 per square foot at their peak.


Rekab added that commodity prices that are creeping up due to rising demand for materials to be used in infrastructure projects worldwide work against B.C. builders on a couple of fronts.


Not only do rising commodity prices make materials more expensive, Rekab said higher oil prices have caused oil producers to begin restarting projects that they delayed during the downturn, which could reignite the competition for labour.


Keith Sashaw, president of the Vancouver Regional Construction Association, said that despite thousands of layoffs during the downturn, B.C.’s construction sector also has the demographics of its workforce working against it.


Sashaw said that with the average age of skilled tradespeople around 55, the industry still faces the prospect of being depleted by retirements in the coming decade.


“There’s more people retiring out of the industry than coming in,” Sashaw said. “Maybe not this year, but when we get into a robust market, that’s going to be a consideration again.”