Halifax Developers Warn Of Higher Rents Due To Rising Prices Of Lumber And Materials
HALIFAX – Local developers are warning that rents could be higher on new projects because of the increased costs for materials.
On March 24, lumber was trading for $945 (U.S.) per thousand-foot board on the open market. Back in April of 2020, that price was below $260. To compound the problem, aluminum, steel, plastics, and other important material have also gone up in price worldwide.
This is bad news for a city that needs more apartments at affordable prices. Jason Brunt, president of Clayton Developments Limited, says the huge markup in prices will mean higher rents when new apartment units are complete.
“When you add onto that commodity prices that are in excess of [a 100 percent increase] since July of last year, that’s not going to be absorbed by the builder- that gets passed forward,” said Brunt.
Peter Polley, the Halifax developer who owns Polycorp, also predicts higher rental costs for new buildings in the years to come.
“The amount of rent that a person needs to get is going to go up,” Polley said.
“I would say if you’re starting a project today, you’d need to be up 20 percent. That’s an educated guess.”
In November, Nova Scotia put in temporary rent control measures, which capped rent increases at two percent a year. But there is no law that determines how much a landlord can charge for brand new units on the market.
There are several factors that have led to lumber and other commodities to go up so drastically in price.
During the early days of Covid-19, a lot of mill operations were at a standstill. But with so many people now bored at home, people across the world began home reno projects. Factor in the fact that cities like Halifax and Toronto never stopped growing during the pandemic and the construction industry had a high demand for materials, but low supply. And, as everyone knows, high demand and low supply in the free market mean big prices.
“I’d say two of the main driving factors are operational shutdowns due to Covid, causing significant supply shortages at the manufacturing level. And, as they try to ramp up production, they are confronted with a construction boom,” said Brunt.
“That’s going to continue for quite a while. We’re not just concerned about the pricing of these core materials to build, but we’re now concerned about access to it.”
Clayton Developments currently has eight development applications submitted to the HRM for approval including one proposal to build as many as 900 units at the Penhorn Mall site in Dartmouth. Brunt predicts having to spend “tens of millions” more on future projects if these prices remain high.
The low access to supplies, as well as high demand for trade labour, means it can take a lot longer to complete a construction project. Brunt estimates that if it used to take seven months to complete a new house, it would now take up to 11 months. And the cost of building materials will add tens of thousands of dollars to the final price.
Polycorp is currently building 300 units in Nova Scotia. Peter Polley considers himself lucky that he purchased most of his building supplies before the sudden increase in commodities. But he is still preparing himself for future increases.
Last week he paid more than $7 for a single piece of 2×4. Prior to the rise in prices, he paid about $2 for the same piece of lumber. After Texas froze over, the price for plastics and resin, which were already becoming expensive, went through the roof.
“We’re getting calls from our subcontractors saying that some items are going up 30 to 40 percent. All wires and some plumbing are up 30 to 40 percent. But, to make it worse, some wholesalers are on rations, so it’s not available at any price,” warned Polley.
“Some of this stuff, on the plastic piping is due to the oil refineries in Texas suffering damages from the freeze up and production facilities are offline. And a lot of petrochemical processing industries have been affected, which produce the resins for producing pipes and plastics.”
Of course, these increased costs will not only affect new construction. Any major renovations to a building will now be much more expensive. Polley believes the recent rent control measures are unfair, given the fact operating costs are soaring with no controls possible. He also believes rent control leads to deferred maintenance and poorer building conditions.
“It’s pretty sickening; you look at the broad… average rental increase, and it’s two or three percent a year, which actually isn’t keeping pace with the escalation in any of our operating costs,” said Polley.