Residential price drop failing to ease Vancouver’s housing crisis

Prices will double

Ten consecutive months of declines in the Real Estate Board of Greater Vancouver’s benchmark home price have brought the figure down 7.5% since last May to $1,011,200. Sales are also down, with March seeing the lowest tally in 33 years. On the bright side, this was the smallest monthly decline of the year, and the strongest month for sales since October, when the board reported 1,966 transactions.

The future holds even brighter times, Central 1 Credit Union chief economist Helmut Pastrick told the Vancouver Real Estate Forum on April 4.

“Prices will double between 2016 and 2041,” he said. “And it wouldn’t surprise me if that’s on the low side.”

The reason is simple: the region’s population is increasing, and densification is the name of the game in the Lower Mainland as developers try to build more homes for more people. Throw in the effect of increased regulation and rising construction costs, from materials to labour, and there’s only one direction for prices to go: up.

Not government’s job

Rising prices mean scant hope of an end to the region’s affordability crisis, but as a recent presentation to the Urban Development Institute (UDI) noted, Metro Vancouver isn’t special.

Jonathan Woetzel, a senior partner with McKinsey & Co. in Shanghai and leader of the consulting firm’s Cities Special Initiative, told the UDI audience in February that, by 2025, a third of all city dwellers, or about 1.6 billion people, will face inadequate housing worldwide.

“That’s a combination of people who just can’t find housing, there isn’t housing there for them, and people who have to pay too much for housing,” he explained. “So Vancouver, you’re not alone.”

Plugging the gap will require about $650 billion in housing.

It’s money the public shouldn’t expect government to spend, BC Housing CEO Shayne Ramsay told CBRE Ltd. executive vice-president and managing director Norm Taylor in conversation following Helmut Pastrick’s presentation at the Vancouver Real Estate Forum.

“Government can’t spend its way to create the rental housing that’s needed,” he said, noting that social housing – the core of BC Housing’s mandate – makes up 6% to 8% of the housing stock. “It’s really the private-sector development that’s going to be needed.”

Reducing approval times and creating an attractive tax environment are how government can help private builders deliver the housing that’s needed.

BC Housing, for its part, stepped up to finance a 135-unit condo project Chard Development Ltd. is building in Victoria. The arrangement lets owners buy at 8% below prevailing market prices (if they commit to live in the units for at last two years), then reinvest the equity in their next home.

Will buyers buy?

With home sales through the Real Estate Board of Greater Vancouver running at least 30% below last year, buyers’ fears are palpable. So are the concerns of industry professionals.

CBRE’s Taylor noted that Altus Group indicates the proportion of first-time homebuyers in Vancouver expecting to buy in the next year is 8%, down from an optimistic 14% a year ago.

Similarly, a February report for Re/Max by market research firm Léger found that even singles with low debt levels and the means to buy are reticent to purchase because of high prices and economic angst.

A week earlier, pollster Angus Reid reported that buyers were more willing to ignore debt in order to leave their parents, cleave to a spouse and have kids than to buy a house (in that order). But as obligations grow, a Mustel Group survey for Sotheby’s International Realty Canada noted that buyers find it harder to save up to buy a residence.

Ultimately, one clear conclusion from the survey data is that single buyers lack confidence and families lack affordable product. Developers may not be able to address the former, but they must heed the latter. •