It’s not an affordability crisis, it’s a cost-of-delivery crisis

The housing industry knows this story all too well: prices are soaring and demand (until recently) has been relentless yet projects are stalling. The blame often falls on high land values or developer greed, but the real culprit is clear to anyone in the sector—it’s the staggering cost of delivering new homes.

The numbers are sobering. The Canada Mortgage and Housing Corporation (CMHC) says that we need to build 5.8 million new homes by 2030 to restore affordability to 2004 levels. If successful, that would mean that a newly built 1,000-square-foot, two-bedroom condo in downtown Vancouver would sell for $620,000 instead of the $1.5-million that it currently does. 

But here’s the reality: even if land were free and developers waived their profits, that condo would still cost more than $1-million to build. In Toronto, it’s a similar story, with hard costs alone pushing the price beyond $800,000.

By the numbers

Here’s how the numbers break down for that $1.5-million Vancouver condo:

• $294,000 (20 per cent) is for land acquisition
• $490,000 (32 per cent) is for hard costs (i.e. labour, building materials)
• $102,000 (7 per cent) is for soft costs (i.e. architectural designs, legal fees)
• $92,000 (6 per cent) is for marketing and realtor commissions
• $77,000 (5 per cent) is for finance charges and loan interest
• $267,000 (18 per cent) is for government taxes and fees
• $178,000 (12 per cent) is the profit margin required by banks to provide financing

(Numbers rounded for clarity)

Climbing costs lead to stalled projects

This isn’t news to anyone in the industry. What’s alarming is how quickly these costs are climbing, forcing projects to stall or fail altogether. In Vancouver and Surrey, B.C. alone, 58,000 homes are paused because the cost of delivering them exceeds what buyers can pay.

So, if the affordability crisis is really a cost-of-delivery crisis, what can be done? While macroeconomic factors like interest rates and global material costs are beyond our control, governments hold significant levers to reduce costs and unlock stalled projects.

Three areas of reform stand out:  

1. Reduce financing costs for housing projects

• Allow development cost charges (DCCs) and municipal levies to be paid at the end of a project, rather than upfront. This would reduce financing costs and free up critical capital.
• Exempt DCCs from GST/PST/HST and land transfer tax calculations—double taxation only inflates prices unnecessarily.
• Expand municipal surety bond programs to replace capital-intensive letters of credit, unlocking billions in tied-up equity.

2. Provide stability for developers 

• End the constant churn of new regulations. Introduce in-stream protections so projects already in process aren’t derailed by sudden policy changes or fee hikes.
• Expand the pre-sale period in British Columbia—currently, developers have only 12 months to meet pre-sale requirements for projects to move ahead, resulting in many projects not launching, or failing to meet requirements. This holds housing projects back that would otherwise be able to move forward 
• Establish a nationwide policy moratorium to provide the sector with a stable planning environment for the next five to 10 years.

3. Implement fairer ways to fund infrastructure and amenities

• Create a municipal services corporation for water and wastewater services so that regional districts can borrow and amortize infrastructure costs over time instead of relying solely on development cost charges.

While these changes require government leadership, the industry has a role to play. Developers need to speak with a unified voice, push for sensible reforms, and share the data that demonstrates the urgent need for change. Transparent conversations about what it actually takes to bring homes to market will help shift public perception and rebuild trust in the sector.

CMHC’s affordability target isn’t impossible—but it demands bold action. The time for incremental adjustments is over. If we want affordability to return to Canadian housing markets, we need governments and industry to tackle the true crisis: the soaring cost of delivering homes.