In the Field of Dreams movie, the baseball ghost says, “Build it and they will come”. Some planners and community activists make a similar but very incorrect assumption about land use zoning: “Zone it and they will build”! Urban planner and developers, need to understand that this “Field of Dreams” paradigm does not govern city building. There are other forces at play.
Most consumers think developers profit from it all but, I am writing to debunk such myth crunching some numbers so, when no matter the new zoning once review pro-forma they will NOT make sense to build.
The Bog 3 are (1) Land (2) Construction and (3) Government Fees and Taxes
What do you think is the current construction cost for the new building in Vancouver based on current building codes ? $200 a foot ? $300 a foot ? $ 350 ? Based on experience, it costs more than $500 a foot for a fairly standard product. The estimated cost in Vancouver Westside where land acquisition is more expensive is more like $600 a foot. After buy the land, construction and soft costs to build 100,000 sq ft for example can probably only sell 85,000 sq ft because corridors, stairwell, elevator or lobby.
a. How about soft cost? These includes consultant fees, 15 or more for each project, permits , taxes, legal, insurance = 30%
b. Lets talk marketing. The banks requires most developers to pre-sell at least 50% of the value of the project. Other marketing costs are 2-5% depending on the size, location etc Furthermore, wants to see historical profit of 15% of the cost , recognizing that this project will sell in 4-5 years from it's conception.
Developers do not set out the to build luxury projects. But when add up all costs you're at luxury prices. Those developers who recently bought buildings or land in Vancouver need to sell at least $1500 a foot to make a project viable. You can just barely get a small 2 bdrs unit for 700 sq ft. That means it will cost you $1,050,000 to get that baby.