CMHC: No affordability relief in sight for Vancouver housing in 2022

Moderating growth in prices, sales, housing starts and rentals outmatched by demand, lack of inventory and construction costs

The CMHC projects the MLS average price for the Vancouver CMA to be in the range between a high of $1,459,000 and a low of $1,064,000 in 2022. | Rob Kruyt, BIV

Canada’s housing market will “moderate from historic 2021 levels” in terms of price, sales, starts and rentals over the next year – but not to the point where owning or renting a home will be any more affordable than it is now.

That is the forecast published by the Canada Mortgage and Housing Corporation, or CMHC, this morning in its latest Housing Market Outlook. The report noted that, despite the expected moderation in prices and the number of sales throughout Canada, costs growth will continue to outpace income growth in several major cities – placing “greater pressure on the affordability of home ownership.”

“Improving levels of employment and immigration are expected to be key factors, as the impact of pandemic restrictions continue to recede,” said CMHC chief economist Bob Dugan in a statement about sales, prices and housing starts remaining elevated in 2022. “In 2023 and 2024, the growth in prices will trend closer to long-run averages, with sales and starts activity expected to remain above 5- and 10-year averages.”

The report paints the same picture for Metro Vancouver, Canada’s most expensive real estate market. According to the CMHC outlook, price growth of homes should slow down this year from the blistering pace seen in 2020 and 2021 – but immigration-driven demand and rising debt servicing costs will lead to a worsening of affordability.

CMHC projects the growth rate of home prices in the Greater Vancouver region will not continue on its double-digit rate beyond Q1 2022, and the rate of growth in prices will actually fall to below 5% year-over-year by 2023.

When asked during a media call on the forecast’s release, Dugan - despite noting a variety of factors - laid majority of the blame on one specific cause.

“Despite the strong base of housing starts, the housing stock in Canada is too low, and the pace of new home construction forecast over the next several years will not be sufficient to rectify the shortfall,” he said. “Much more housing supply is needed.”

Dugan added the tightness in the home sales market will likely have a knock-on effect on rents, as people who might have been able to afford entry-level homes will now likely be forced to stay in rentals - further stressing the lack of inventory while keeping rental demand at a high level.

“[Housing] supply has been so low relative to demand that even if you have demand pull back somewhat, I think you can still have a situation that continues to drive prices higher,” he said.

”We do definitely expect price growth to moderate going into the next year as mortgage rates go up,” Dugan continued. “… but the main idea is that supply constraints remain binding in this environment and it continues to put upward pressure on prices... We need to do a lot more work on supply in order to sort of get to the point where we can stabilize prices and allow incomes to catch up.”

Braden Batch, CMHC’s senior analyst of market insights (and author of the outlook’s chapter on Vancouver), noted there are variables in the projection of continued growth for the Lower Mainland’s real estate market. Batch noted that “trouble in the national and global markets” – ranging from interest rates to other economic pressures on B.C. home buyers – could slow market activity to a greater degree than what’s projected if Metro Vancouver cannot remain insulated.

Similarly, total housing starts will fall this year in Metro Vancouver and shift towards row and semi-detached units, but shortage in skilled trade labour and supply chain bottlenecks will continue to push costs of construction higher.

“Vancouver will emerge from the pandemic with a strong economy,” Batch said in the report. “Immigration will be a major demand driver over the next few years, but a lack of supply at all levels and tightening credit has worsened affordability.”

The theme of continued unaffordability stretches to the rental market. The CMHC is projecting Vancouver’s rental vacancy rate to remain around 1%, all while the economic and migration rebound will put new pressures on demand, leading to rent increases.

“Long development timelines and the current level of construction won’t provide enough new units in the next three years to raise vacancy rates or to provide sufficient competition among property owners to lower rents,” Batch said. “Upward pressure on rents is inevitable for much of the market, particularly when rent controlled units turn over and reprice for the current market.”

Overall, the forecast projects the MLS average price for the Vancouver CMA to be in the range between a high of $1,459,000 and a low of $1,064,000 – showing no significant deviations from 2021’s average of $1,150,357 and demonstrably higher than the pre-COVID level of $923,070 recorded in 2019.

Home resale transactions this year will range between 44,000 and 60,000, again not venturing far from 2021 and 2020 figures (61,829 and 44,468, respectively). Again, those projections are significantly higher than levels recorded pre-pandemic in 2019 (35,715 sales transactions).

The full report can be found at www.cmhc-schl.gc.ca/en/professionals/housing-markets-data-and-research/market-reports/housing-market/housing-market-outlook.