Housing momentum slowing, but more supply still needed

Slowing momentum

Affordability was the elephant in the room at the annual Urban Development Institute (UDI) forecast luncheon on January 18. While few panellists mentioned it by name, its shadow fell across the conversation moderator Jon Stovell of Reliance Properties Ltd. had with Ward McAllister of Ledingham McAllister, Todd Yuen of Beedie Industrial and Kevin Layden of Wesbild Holdings Ltd.

Layden was the most blunt in his forecast for real estate in 2018.

“We’re running out of momentum,” he said. “Every aspect, whether it’s interest rates or demand-side measures, is going to slow us down. I think it’s just a question of time.”

McAllister echoed Layden’s comments, stealing a phrase from Intracorp Projects Ltd. president and CEO Don Fors-gren to declare himself “nervously optimistic.”

“We’ve been in a very, very good cycle,” he said. “We should technically be at the end of that cycle, but it really looks like with all the economic and global factors that we’re on for another good ride for a number of years, but there are those five little things that we all talked about that could screw this market up big time, and I hope they don’t happen.”

Those include government intervention in the market, inconclusive municipal election results this fall (approximately 55% of luncheon attendees felt Vancouver will have a hung council), geopolitical risk, interest rate hikes and public opposition to projects.

Crafting affordability

Affordability is the éminence grise behind most risk factors facing the real estate market – fuelling public pushback to development plans, shaping government policies and driving election promises.

“I’ve never seen so many issues all at once in the very near term. We’re going to know very quickly whether we’re going to have another great market year or not,” McAllister told UDI.

But if government intervention is a risk factor, it also has the potential to address affordability.

UDI maintains that more housing means more affordable housing, and Premier John Horgan wants to see more housing – but government isn’t in the development business. 

“How do we increase supply?” Horgan asked UDI members last November. “That’s up to you. You have the ability, you have the resources, you have the expertise to make that happen.”

Government at all levels needs to be responsive, however.

“We all know that the housing affordability crisis didn’t arrive yesterday; it didn’t arrive five years ago. It’s been building for some considerable period of time,” Horgan said. “It is our commitment to work with you hand in hand so you can deliver on what you do best and we can deliver on what we committed to, and that’s thousands of homes.”

This makes more sense to McAllister than efforts to dampen demand, which does nothing to make B.C. the world-class destination it aspires to be. (Layden warned against the risk of rearguard policies restricting foreign investment, Uber and Airbnb not only dampening demand but driving it elsewhere.)

“I don’t think we have anything to worry about in this economy about people wanting to come here. I think as long as they’re allowed they’re going to come in droves,” McAllister said. “How do we deal with it? Increased supply. ... We do not want to moderate and put pressure on demand.”

This being said, an audience survey indicated that the majority favour some kind of tax measure to ensure the housing that’s built benefits locals, with a smaller proportion expecting some kind of pre-sale registry.

Taxes, however, might just change who’s buying the homes, not the price they’re selling for.

A year ago, Anthem Properties Group CEO Eric Carlson described the effect of the foreign-buyer tax implemented in 2016 as “mice nuts.” Benchmark pricing in Metro Vancouver has increased 13% since the tax to more than $1 million.

McAllister said if the province is serious about fulfilling its ambitious promise of 114,000 affordable homes over the next 10 years, it has to give BC Housing the needed cash in its upcoming budget. •