Kelowna's Development Scene Hits a Slowdown

In the heart of the Okanagan, Kelowna has become synonymous with rapid growth and development, a beacon of urban expansion in British Columbia. Yet, recent times have seen a palpable shift, with major development projects hitting an unforeseen pause.

Understanding the Kelowna Development Slowdown

The once-thriving development scene in Kelowna is currently experiencing a noticeable deceleration. Builders and developers, previously on the forefront of transforming the cityscape, have begun to exercise caution, putting several significant projects on hold. This shift has sparked a city-wide discussion, leading many to wonder if municipal policies might be contributing to the slowdown.

Mark Holland, speaking on behalf of the Urban Development Institute (UDI) on Monday, has provided some clarity on the matter, emphasizing that the challenges faced by developers are not rooted in the city council's actions. Instead, the crux of the issue lies in the escalating costs associated with bringing building projects to fruition. "It's getting to the point where it's putting many projects on hold when we need more housing, not less," Holland notes, pointing to the tightened grip of financial constraints on the industry.

The Economic Forces at Play

The development downturn in Kelowna can be attributed to a complex interplay of economic factors, each exacerbating the challenge of bringing new housing projects to life. At the heart of these challenges are the rising interest rates, a consequence felt not just in Kelowna but globally, as economies grapple with post-pandemic recovery efforts. For developers, this means the cost of borrowing, which typically covers a substantial portion of construction expenses, has surged, directly impacting the feasibility of new projects.

Compounding the issue are the soaring costs of construction materials, a trend that has persisted since the onset of the pandemic. From lumber to steel, the price tags on essential building blocks have reached unprecedented heights, eroding profit margins and making it increasingly difficult for developers to secure the necessary financing. Banks and financial institutions, wary of the reduced profit margins, have grown more reluctant to lend, leaving developers in a precarious position as they seek alternative financing solutions.

Projects Affected by the Slowdown

In Kelowna's dynamic landscape, the slowdown has not been an abstract concept but a reality impacting several high-profile projects. Notably, the One Varsity project, a 35-storey tower anticipated to stand as a landmark near the UBCO downtown campus, has seen its progress halted. The developer Kerkhoff: Develop-Build also paused Casorso project, which was intended to bring minimum 1000 units to the city. The stalling of these project underscores the broader challenges facing the development sector, where even the most ambitious projects are not immune to the prevailing economic headwinds.

Similarly, other developers have had to reevaluate their plans in light of these conditions. The Stober Group's project on Pandosy, intended to bring 150 to 175 new units to the area, has been paused. Meanwhile, Mission Group, a largest developer in the city, pointed out in December, that several of its projects also paused, unable to proceed as the numbers no longer add up due to escalating costs and financing challenges.

Earlier, in September 2023, hightly anticipated Downtown Hotel project by Westcorp was canceled, stating the same economic reasons behind the decision.

This confluence of economic pressures has not only slowed the pace of development in Kelowna but also cast a shadow over the city's housing market. In mentioned projects, more than 2,000 units have been on hold or canceled. With projects paused and new developments scarce, the dream of homeownership drifts further away for many, exacerbating the housing affordability crisis that looms over the region.