Home and condo prices set to soar into 2001

Construction costs have risen 25 per cent in the past 18 months and contracts for a variety of construction trades will be expiring next spring.

Some trades, such as concrete-forming carpenters - the workers who build forms to hold freshly poured concrete - are being paid well above their regular $34 per hour rate when working on many condominium projects.

- Emilio Tesolin, Monarch Construction

``It's simply a matter of supply and demand,'' said Emilio Tesolin, vice-president of construction at Monarch Construction.

``There's a real shortage of construction trades these days and contractors are raiding sites, trying to entice workers away to other projects by offering higher hourly wages. You have to offer higher wages to keep them or higher wages to steal them away.''

Tom Dutton, vice-president of construction at Daniels Group, said he expects some condominium projects currently on the market won't proceed because the sale prices on their units are not enough to cover construction costs.

``We are a general contractor as well as a developer, and we can keep tighter controls on our expenses,'' said Dutton. ``But there are many developers out getting construction prices now for suites they sold six months ago and they are getting a shock.

``They are being quoted prices way beyond their cost estimates done six months ago,'' Dutton said.

Hunter Milborne, president of Milborne Real Estate Inc., one of Toronto's leading condominium sellers, expects condo prices to rise at least 10 per cent early in the new year.

``That's a conservative estimate and I would say prices will be up another minimum of 10 per cent next year.''

Milborne said prices are being both pushed and pulled higher.

``Prices are being pushed higher by much higher construction costs, which economists call cost push and there's also demand pull, which causes inflation because there's less land and more demand.''

Patrick O'Hanlon, the new president of the Greater Toronto Home Builders' Association and president of Angus Glen Developments, said prices have to go up.

``I see an 8 per cent price hike just on construction trade costs alone,'' said O'Hanlon. ``During my year as president (of the builders' association) I will be trying to persuade consumers, trades and builders to be realistic. They all have to share in absorbing these price increases.

``And the price increases won't cover the cost increases homes and condos have been experiencing and will be experiencing in the new year.''

O'Hanlon said builders can't absorb the cost increases alone because competition is much stiffer than it has been in years and there's little or no inflation to help carry the extra costs.

``Builders today must struggle with very narrow margins, increased consumer demands, rising land prices, and higher government taxes and fees. And today there are twice as many builders and housing sites in the Greater Toronto market than we had during the boom times in the late '80s,'' O'Hanlon said.

``The construction unions and the builders both must remember not to lose sight of the overall market. The consumer isn't going to absorb much more increase either.''

Milborne said construction delays ``from a shortage of trades and supplies is a big contributor to higher costs.

The average condo project costs about $50 million to build and with the developer paying 8 per cent interest, that's $4 million a year. But when there is a delay of six months in construction that adds $2 million to his costs and delays of that duration are happening.''

Tesolin said Monarch set residential prices for its latest project, a 31-storey condominium at 21 Hillcrest Ave. just off Yonge St. in North York, to reflect current and future construction costs.

``Sales have been very slow there because the consumer can find similar suites in competing buildings at lower prices,'' said Tesolin.

``But when it comes time for those bargains to be built, the builders may just walk away. They either can't make a profit or lose big time by building at the prices they were charging.

``We aren't the only builder increasing our prices. I understand Menkes is having resistance to its prices at Spectrum further down Yonge St. from us. We may just have to tough it out on the sales side until consumers start to understand that the severe shortage in people and equipment and supplies is driving costs through the roof,'' said Tesolin.

 `Architects and designers overwhelmed with work'

Dutton said the strong condominium market is also creating a backlog in architectural drawings.

``The architects and designers are overwhelmed with work, so you don't always have finished drawings available when you are doing your cost estimates.

``That means there may be some small changes when construction is underway and the final drawings are done, but contractors really hammer you with extra costs when there are changes.

``Again, as a general contractor we can avoid many of those charges, but a lot of developers can't and that again is going to drive up their construction costs. Too often it will be beyond their sales income.''

Tony Moro, president and chief executive officer at Deltera Inc., the construction wing of Tridel Ltd., Canada's largest condominium builder, says there's a constant in-house debate at Tridel about whether to raise prices.

``On the construction side, we are pushing for higher prices to cover increasing construction costs and the marketing side keeps resisting price increases because there is a very low level of price tolerance among consumers. It's a battle we face here nearly every day,'' said Moro.

He said the banks, too, ``are being very cautious about lending money for construction costs. They see the cost/price ratio and they're getting more cautious about lending.

``Because we build so much, we can make bulk purchases on supplies and keep trades busy and we have a long track record with them, so there's more loyalty,'' said Moro. ``But the trades are certainly able to call the shots right now. It's the opposite of what it was in '91 and '92.''

Moro said he had to go to Hawaii to find a large construction crane to build a Tridel condo downtown. ``Even that crane is in for a shock. It's coming from Hawaii and now making its way from Seattle through snow storms on the backs of eight transport trucks.''

Dec. 30, 2000 Toronto Star - Pat Brennan REAL ESTATE REPORTER