As we usher in a new government in B.C., one of the big questions is what will be done about Metro Vancouver’s high-priced real estate market.
Despite clear factual evidence that the supply of new homes has failed to keep pace with high demand in recent years, causing steady upward pressure on prices, myths about the market abound. I would like to apply Urban Analytics’ primary researched data to correct some of those myths.
Myth No. 1: we don’t have a supply problem.
•Not a single new townhome was complete and move-in-ready in the city of Vancouver and only 16 townhomes and 15 condos were completed and unsold in the entire Metro region at the end of March 2017.
•There were 1,164 more units sold than were approved and released for sale in the first quarter of this year.
•Based on the pace of sales over the previous 12 months, there was less than two months of supply of unsold new condo and townhome units remaining at the end of 2017’s first quarter.
Myth No. 2: government intervention on the demand side will solve the problem.
We saw various levels of government introduce multiple measures in the past year in an attempt to slow housing demand. While the 15% foreign-buyers tax had an initial dampening effect on the market last summer and fall, the impact on the new condominium and townhome market was short-lived as evidenced by the continued escalation in demand and prices. Of the nearly 2,900 highrise condo units released for sale since the start of this year, just 645 (22%) remain unsold. Thirteen of the 21 projects launched so far in 2017 are either sold out or have fewer than 10 units remaining.
Meanwhile government intervention on the supply side has been lacking. While we need to continue providing non-market housing opportunities for those on low/fixed incomes, we can’t ignore the need to increase the supply of homes for residents with the means to buy them. The new provincial government could address this issue by requiring municipalities to limit the amount of time it takes to approve new developments, particularly those that meet an area’s zoning and density guidelines.
Myth No. 3: foreign purchasers are buying most new condominium and townhome units and driving up prices.
Developers depend on pre-sales for a project to obtain construction financing. However, lenders will not recognize bulk pre-sales. That is, if someone buys 10 units, they won’t recognize any of them because they view this as a speculation buy, which they’re not comfortable with. As for not recognizing foreign-buyer purchases, while lenders I spoke with indicated they’d be uncomfortable lending on a project where foreign buyers made up more than the typical 8% to 10% of foreign-buyer purchases, none could recall a project where the number of foreign buyers had exceeded this proportion.
Myth No. 4: local buyers are getting shut out of local project pre-sales because developers are marketing and selling them to their “friends and family” and offshore buyers first.
Despite recent reports of local developers marketing Vancouver-area projects offshore, the high level of local demand for new homes over the past several years renders the significantly higher costs developers would incur to market and sell their projects offshore unnecessary. Mainstream and social media claims of various local developers widely advertising projects offshore are misinformed and misleading. The ads are typically posted on various platforms by local and international realtors seeking buyers for these projects. We’re aware of just two or three local developers that have marketed and sold a small proportion of their local units offshore in the past two years.
The reality is local demand is far exceeding supply. We have seen many examples of this, including a recently launched highrise project in Coquitlam with more than 8,000 online registrants and 3,500 suite requests for its 364 units. If you’re interested in buying into a project, I suggest contacting the developer directly and becoming that squeaky wheel that won’t stop bugging them until they sell you a home. Or find a realtor who has an established relationship with a developer to try and secure a unit for you.
We’re seeing prices rise dramatically in a short period of time, thereby pricing many prospective buyers out of the market because of insufficient competition and supply. Let’s stop pointing fingers at who’s to blame for this situation and start implementing solutions to fix it – solutions that must include addressing the lack of competition and supply. •
Michael Ferreira (firstname.lastname@example.org) is the managing principal of Urban Analytics, an advisory firm that specializes in monitoring the new multi-family home sector in Metro Vancouver, Calgary and Edmonton.