If you have ever spoken to anyone in the Greater Vancouver Area, or perhaps had internet access at some point, you have probably heard about Vancouver's affordability problems.
But why does that new condo cost so much? We have already talked about what is driving up the prices on houses, so this articles focuses on what determines the cost of your new condo.
What Drives New Condo Apartment Prices?
We broke down the cost of a new condominium apartment to provide you with a better understanding. In this example, we use a new condo apartment in Vancouver West. Don;t worry though, we provide a similar breakdown for areas across Metro Vancouver later in this same blog:
- A new 700 sq. ft. condo is going to cost you around $460,000 ($660 per sq. ft., give or take)
- At $175-$250 per buildable sq. ft., land prices make up around a third of the total cost of a new condo
- Construction costs are high, accounting for the majority of the cost ($282,500 for a 700 sq. ft. condominium apartment)
- Builder profit is a relatively small portion of the piece
- It is important to note that this does not directly include and development cost charges, which can be upwards of $37,000, according to the Fraser Institute and which are partially baked into the price of a new apartment
Land is Driving the Cost on New Condo Apartments in Vancouver
While the majority of the cost of a new condominium apartment in teh Vancouver area comes from the construction of the building, these costs are by no means out of the ordinary in Vancouver. In fact, as the graph below illustrates, the cost of new condominium apartment construction in Vancouver is comparable to that in other cities in Canada:
- New construction is notably cheaper in Vancouver compared to Calgary and Edmonton, where labour shortages have been an issue (this may change going forward)
- Montreal is about the same as Vancouver
- Construction costs in the two maritime markets examined here are notably lower
With the cost of construction being on par with other major Canadian cities, it must then be the cost of land that is driving new apartment prices in Vancouver.
How Do Land Costs Vary Across the Vancouver Area?
Land costs vary significantly across Metro Vancouver. (see here for more details):
- Construction costs are comparable across the Vancouver area, meaning that differences in new condo prices are driven largely by land prices
- A 700 sq. ft. apartment in the downtown core can easily set you back $450,000, a third of the total cost
- In New Westminster, however, the cost of land is just over $50 per buildable sq. ft., contributing very little to the total cost of the unit.
How We Calculated The Cost Breakdown of a New Apartment in Vancouver
In case you are interested and to give you some additional confidence in the data presented here, we will lay out our methodology:
- Land prices are taken from Colliers' semi-annual Landshare report (see here). The average of the reported range is used;
- Construction costs are taken from Altus Group's annual construction cost guide (see here). The average cost of high quality condominium apartment construction is used;
- Construction costs do not include soft costs (site preparation, sales, etc). These are assumed at 25%;
- Builder profitability is assumed at 10% of construction costs