As Canada looks to seriously ramp up housing construction, an industry leader warns there are still too many cost hurdles to get many projects off the ground.
Ed Sonshine, founder and chairman of RiCan REIT, said construction costs and interest rates remain too high for most builders to turn a profit on new builds and are ultimately stifling projects at a time of need.
“It’s uneconomical, between interest rates and construction costs, to build anything new, except in the most extraordinary of circumstances,” he told BNN Bloomberg in a television interview Monday.
“At a certain point, you hit a ceiling of affordability, but even with those higher rents, between the interest rates and the cost of construction, it’s very hard to make a purpose-built rental housing make financial sense.”
Earlier this month, RioCan REIT paused all new construction starts due to rising costs. RioCan CEO Jonathan Gitlin indicated that new construction in the short term “isn't the most effective use of our shareholders' money.”
Sonshine said the federal government’s recent GST removal on new rental builds “helped” address some of the cost issues, but that taxation still represents 30 per cent of a construction project’s costs.
“Unfortunately, I think interest rates went up half a point since they did that, which totally took that benefit away, but it’s still a benefit on the cost side,” he said.
A recent report from Statistics Canada shows Canada issues 64,400 new residential construction permits in the third quarter of 2023.
With files from The Canadian Press