Tommy MacGregor, CPA
VANCOUVER ISLAND – In 2021, the Vancouver Island market for real estate construction financing was humming along. The market was buoyed by low interest rates and awash with capital competing to finance new projects. Thoughts of inflation and rising interest rates were far from our minds.
In 2022, geopolitics, supply chain disruptions, a tight labour market, and the hangover from robust government spending in 2020/2021 stoked inflation in the economy unseen in a generation.
The Bank of Canada responded by increasing interest rates more rapidly than at any time in recent memory. Construction financing became more expensive and leverage levels came down, forcing developers to commit more equity to fewer projects. It became harder for new home buyers to qualify for financing, which reduced pre-sale demand making construction loan requirements harder to achieve.
Price inflation of labour and materials increased building costs by 30% or more and suddenly many projects didn’t pencil out. Against this backdrop, many developers were mired in endless delays in the permitting and approval process, most notably at the municipal level.
Today’s new reality has forced most stakeholders to evolve. For instance, numerous developments were redesigned from for-sale condominiums to rental apartments to take advantage of favourable government financing. Many firms have had to adjust their business models in order to remain competitive. Recently, the Province of BC introduced its Homes for People Action Plan aiming to incentivize the building of small-scale, multi-unit housing and reduce red tape around zoning.
Lenders have reacted to new market conditions as well with some outright retrenching from certain geographies on Vancouver Island or market segments (i.e., single family, office), while others have materially tightened up their term sheets.
As we look out over 2024, a lingering feeling of uncertainty remains, yet Vancouver Island is a unique market that has a long history of going its own way. Coastal Community Credit Union is the largest Island-based financial institution, with boots on the ground in local Island communities. We’re committed to the financial health of our members and our communities – and we still think Vancouver Island is a good place to do business.
Tommy MacGregor, CPA, is a Senior Business Relationship Manager in the Comox Valley. If you have any questions on how Coastal Community can help, please email tommy.macgregor@cccu.ca
