Development

The True Cost Of Homebuilding - It's Not What You Think

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The question we get asked most often related to our development projects is “How much does it cost to build per square foot”. This is a tough question because if we’re being frank, the answer is $100-$400 per square foot. 

We never actually say this, because:

  1. It’s not helpful for anyone

  2. We would sound like jerks

The reason most people would like to know the cost per square foot is because it’s always fun to do a “back of the napkin” analysis, where you plug in the cost of a property, the cost to build based on house size and SF price, and boom! There’s your profit. 

Maybe we’re being a wee bit facetious here, but it’s not far off.

The answer we actually give is “it depends.” And boy, does it depend.

So here are a few things that an investor needs to consider before plugging in a square foot build cost.

  1. Are you hiring a builder or are YOU the builder? And if you’re the builder, what value are you adding for your time and energy?

  2. The size of property. All things being equal, a 3000 SF home will have a lower per/SF cost than a 2000 SF home because of certain fixed cost.

  3. How many units are you building? This is similar to point 2. 10 units should have lower per unit costs than 2 units.

  4. What’s your relationship with trades and suppliers? 

  5. What are labour and material costs in the city you’re building in?

  6. What is the quality of the build? There are usually varying degrees of quality depending on who your target market is.

  7. What season are you building in? Winter construction will cost more.

  8. And are you just concerned about “hard costs” (i.e. cost of materials and labour for construction), or are you considering “soft costs” before construction begins (i.e. planners, surveyors, house designer/architect, application fees, parkland fees, demolition, legal, engineering, development charges, building permits, and additional miscellaneous fees.

To give you an idea of these “soft costs”, here are some rough numbers for our recent Semi detached development in St.Catharines with legal second suites (4 units in total).

  • Planner: $10,000 (Typically $5,000-$7,000)

  • Surveyor: $6,000

  • House Designer - Stage 1: $2,000 (Basic Layout and Elevations)

  • Application Fees (Lot severance): $11,000 (Typically $3,000-$5,000)

  • Parkland Dedication: $10,000 (5% of New Lot Value)

  • Demolition: $5,000

  • Legal: $2,000

  • Engineer: $5,000

  • House Designer - Stage 2: $5,000

  • Development Charges: $15,000 (this can vary wildly depending on the city)

  • Building Permit Fees: $4,000 (Based on Sq Ft)

The numbers for your potential project will definitely be different.

So there you have it. The right answer to what the SF price is it depends, and it would be best for any serious investor to do an analysis on all the items mentioned above before trying to determine actual costs to build a home.

The purpose is not to scare you away from development, but rather to encourage you to be realistic. 

The opportunities are out there, but you have to budget accordingly, and you can be on your way to being an infill developer and profiting!


What Is Infill Development & "The Missing Middle"?

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You may know that our website is InfillDevelopments.com, and “infill developments” is what we do.

But do you know really understand what “infill” entails? Let’s take this opportunity to explain it clearly just in case.

Even though the term may seem self-explanatory, there’s really quite a bit to it.

Let’s start with Wikipedia’s definition:

"Infill is the urban planning term for the rededication of land in an urban environment, usually open-space, to new construction." It goes on to say that "Infill has been promoted as an economical use of existing infrastructure and a remedy for urban sprawl."

We feel this is a pretty accurate description, but want to add that it typically involves the development of vacant or underutilized parcels of land within the existing urban areas. Essentially we are “filling the gaps”.

So how did we get here, and why do we think this is a good opportunity for you and us to take advantage of? 

To explain that, we’ll have to get a bit macro.

In North America, urbanization is happening fast. Limited supply of new construction, along with soaring population growth is resulting in extreme unaffordability and a continued rise in property values.

At the same time, governments are facing massive economic and environmental challenges with urban sprawl, and realizes that this type of development is unsustainable in the long term. As a result, many are creating rules which makes intensification a mandate across many cities.

This means the government is encouraging development within the existing infrastructure. 

Most traditional home construction falls at two ends of the spectrum. On one end, you have low-rise single family homes, and on the other end you have mid and high rise condo apartments. 

Unless you’re already a big developer or have deep pockets, it’s unlikely you will be able to do either. 

However, as a smaller investor, you can get involved in a certain type of infill development known as “the missing middle”. This is what we’re mostly involved in, which includes housing such as duplexes, triplexes, townhouses, and even mixed use live/work type spaces.

We need to build more of the “missing middle”

We need to build more of the “missing middle”

These are the types of development projects that many smaller investors can get venture into.

In addition to the potential for profitability, these projects also contribute to the community in many ways, including providing:

  • Efficient use of land and infrastructure

  • Increased affordability due to an increased supply of housing

  • A diversity of housing options to meet different demographics of people

  • Increased vibrancy to an otherwise dilapidated neighbourhood

So that’s a quick explanation of what infill development is. 

We truly feel that infill developments can benefit the community and also be profitable, and encourage you to take the following steps;

  1. Find a city you love and want to help improve;

  2. Get to know the rules and development costs for that city;

  3. Build local professional contacts that can help you (i.e. planners, architects, engineers, surveyors, builders, contractors, etc.); and lastly

  4. Find the right property to develop!

We hope to provide more content for you that you can use to get started on this journey as well!



Design Review Panel - An Extra Step In Small Scale Development?

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Whenever you take on any small-scale land development, it’s highly unlikely you would be able to accomplish your objective “by-right”, meaning within the existing zoning by-law framework. Restrictions such as building setbacks, height, lot size, etc are common obstacles you would need to push beyond the current rules in order to make your project feasible, typically through minor variances. This is especially true if you plan on doing any lot severances.

The process involves determining what variances would be required, and putting in an application for a hearing at the Committee of Adjustment (CofA), who are a group of local residents appointed by City Council. The city will evaluate first, and make recommendations to the CofA, who will make a final decision on whether or not you have permission to move forward with the project. It is wise to be proactive, and seek the advice of city planners on your project, either on your own or through the assistance of a private planner.

The recommendations by the City is in the form of a City staff report, and is the most important factor influencing the CoA's decision. It is critical that the report is supportive of your proposal for higher chances of success.

The Design Review Panel (DRP) in most cities is an advisory body made up of design professionals to advise City staff on issues related to design which affects the "public realm, including proposed buildings, structures, landscape and associated streetscapes", as described by the City of Vaughan. In most cases, these are focused on larger scale projects.

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However, in the City of St. Catharines, where we currently have 2 projects, they have started a pilot DRP program even for small-scale development. They state that the purpose of the DRP is “to advise and assist in reviewing and evaluation applications for residential lot creation”.

Is this a sign that cities will be adding this additional layer of bureaucracy as a result, even on small projects because of various intensification projects sprouting up as a result of our housing shortages?

We don't quite know yet, but we certainly hope not. And we'll be keeping a close eye on these developments in other cities.

In the meantime, this additional step may be coming to a city near you, so in addition to function and financial feasibility, your project should also focus on good design.