Rising land values consigning affordability to the suburbs

The long view

With land in short supply but financing still cheap, builders and brokers of local real estate gathered for the Vancouver Real Estate Forum on April 11 to discuss how to thrive in a market with low yields.

Consensus focused on long-term holds of hard-to-replace income-producing properties.

Cycles rise and fall, and the end is often rough, opined Helmut Pastrick, chief economist with Central 1 Credit Union in Vancouver.

But like the band on RMS Titanic as it sank 105 years ago this past weekend, the economy plays on.

“In the long term, prices will continue to rise,” Pastrick said, noting that average house prices in B.C. have risen to nearly $700,000 today from $12,000 in 1961. B.C.’s population rose to 4.7 million from 1.6 million over the same period, with a forecast of six million by 2041.

“So which way do you think prices are going to go in 25 years?” he asked forum participants. “I predict higher, and land prices will probably double between now and 2041 – if not more, quite frankly. Because it’s really all about land and the shortage of land relative to demand, relative to population.”

“It’s done”

“Be bold or move to suburbia” was how Bob Rennie marketed Woodward’s in advance of its sold-out launch on April 22, 2006. Thanks to rising land and development costs, Anthem Properties Group CEO Eric Carlson said, the suburbs are where first-time buyers will have to look because prices aren’t about to fall from $1,500 a square foot to $600 in downtown Vancouver.

“We’re creating this illusion that somehow we can fix it; we can make prices cheap again. We can’t. It’s done,” he said. “You’re going to probably have to move to a townhouse in Fleetwood – and by the way, it’s affordable. The mortgage there is less than the mortgage on the starter house I bought in 1985.”

Carlson’s fellow speakers on the Vancouver Real Estate Forum’s closing panel – including Jon Stovell of Reliance Properties Ltd., Remco Daal of QuadReal Property Group and John Horton of Shape Properties Corp. – all conceded that Vancouver prices aren’t for everyone. It might even be a city of renters within a few years.

Vulnerable plight

With street homelessness up 30% in Vancouver and BC Housing divesting itself of assets and operating agreements, the most vulnerable in the province’s real estate market also figured into discussions at last week’s forum.

“They need to be looked after,” Carlson said. “This is one of those rare examples where free markets don’t work really well, and that conversation – critically important – is being hijacked by the affordability issue from the emerging middle class because they have louder voices, and they tend to go vote.”

Neither Vancouver nor provincial agencies have definitively addressed the real estate needs of the least fortunate. The failure of any meaningful redevelopment on the Little Mountain site is a prime example.

Central Okanagan Kiwanis Community Service Society’s decision to terminate its long-term operating agreement with BC Housing and sell its 146-unit tower in Kelowna to a private operator is another example of how the province is rejigging its social housing commitments.

Details of provincial “programs, policies and services” are unavailable during the election campaign, a Housing Ministry spokeswoman said, “as part of its “obligation to remain impartial.”

Carlson didn’t hold back on stakeholders’ need to act, however. “[It’s] an opportunity for developers and government – provincial and civic – to do a way better job of trying to solve a huge social issue,” he said.