There are so many massive projects under construction right now it’s starting to put pressure on the availability of materials and labour.
Montreal’s in the midst of a building boom. All around the city and in outlying suburbs, construction workers in yellow hard hats are beetling around job sites, fluorescent-vested flag persons are directing traffic around busy backhoes, and it seems every other street is a rue barrée.
Throughout Greater Montreal, major infrastructure projects are underway: bridges and buildings, hospitals and highways, and, of course, the REM line. While all this is going on, we’ve also had a boom in residential construction, building new condos downtown and starter homes in the suburbs.
While the orange traffic cone has long been an emblem of Montreal almost as iconic as poutine or the Mount Royal cross, there are so many massive projects under construction right now that it’s starting to put pressure on the availability of materials and labour.
According to a new report from Altus Group, a real-estate consulting firm which provides market data to condo developers, builders are facing a number of new budget challenges, ranging from increased material costs and labour shortages, to new taxes and fees.
The cost of many common building materials like steel, concrete and Gyproc has gone up from 25 per cent to as much as 40 per cent. The price of aluminium has reached a 10-year high. Increased fuel costs have also driven up the cost of transportation throughout the supply chain. The price of land is likewise going up, as empty lots have become more scarce on the island.
Changes to the calculation of development fees to fund things like parks and heritage conservation are also fattening the bill for developers. Plus those building within a kilometre of a future REM station have to pay extra taxes to support the rapid transit project.
According to Altus analyst Vincent Shirley, all this means prices will go up, and not just for those in the market for new construction.
“It’s not true that the budget for these projects can absorb these extra costs, it’s impossible,” said Shirley. “If the budgets go up and it costs more to build, inevitably the bill will rise for the end user. It’s Monsieur or Madame who will pay the bill for this in their rent or the price of their condo.”
If buyers turn away from pricey new condos in hopes of finding more affordable older units, or those in recently completed buildings, it won’t take long to drain the pool of bargain buys, Shirley said.
Despite all the new construction, the inventory of homes and condos for sale in Montreal has been shrinking steadily since 2016, which has been one of the factors behind the rise in prices. There are already not enough homes to meet demand.
“For a while there may be less new construction because demand will diminish. But what happens is the resale market will shrink, and prices on the resale market will go up and will come close to the price of new construction,” Shirley said. “If we were in a market like 2012 with 15 to 20 months of inventory it would be fine, we could eat up all the excess inventory. But we’re already in a sellers market.”
Ironically, new policies introduced by the city of Montreal intended to curb sprawl and improve the supply of affordable housing may end up doing the opposite if development fees and regulations push the cost of doing business too high, Shirley said.
For example, if municipal policies are introduced that require developers to include certain ratios of affordable housing, social housing or family-sized units within their projects, it will have to be paid for somehow, he said.
Unless the extra costs required to build these units are subsidized by government funding, or developers are given some other incentives such as density bonuses or zoning changes that can improve a project’s profitability, they’ll have no choice but to raise the prices of the other units — or look for another place to build.
“If developers don’t build in Montreal they’ll build elsewhere,” Shirley said. “Developers will build in Brossard, Longueuil or the West Island if it costs too much to build in the city. It will encourage sprawl.”