This week’s top stories cover policy that may help or hinder the construction of new housing in Metro Vancouver, as well as industry expert opinions on whether that policy will ultimately be successful. This week, the province announced new housing measures designed to facilitate rental-only housing and curb presale condo flipping. Meanwhile, the CMHC finds that the housing market is still high risk, despite measure implemented when the B.C. Budget was announced. At a recent real estate panel, experts believe construction labour shortages may not be enough to keep up with 114,000 new homes promised by the government.
Here is Western Investor’s pick of the top real estate stories published this week.
CMHC’s quarterly assessment of region’s real estate correction risk is unchanged since Q3 2016 – and not optimistic.
In its latest Housing Market Analysis, which was released April 26 but assesses activity in 2017’s fourth quarter, CMHC said it “detected a high degree of vulnerability” in Metro Vancouver’s market, driven by overvaluation, price acceleration and overheating.
The report said, “Tight market conditions, reflected in our detection of moderate overheating, particularly for lower-priced properties, continue to exert upward pressure on the prices of homes. This can create affordability challenges for households with average local incomes. Rising prices for homes in the sub-$1 million market segment, coupled with rising mortgage rates, have eroded overall affordability further, accentuating CMHC’s valuation models’ detection of overvaluation in the Metro Vancouver housing market.”
It added, “Demand and supply fundamental factors such as population, income, financing costs and land supply cannot account for the current price levels.”
The quarterly Housing Market Analysis analyzes real estate markets across Canada, assessing a combination of four key risk factors: overheating, when demand for homes in the region outpaces supply; sustained acceleration in house prices; overvaluation of house prices in comparison with levels that can be supported by economic fundamentals; and overbuilding, when the inventory of available homes exceeds demand.
The only area where the risk was seen as low in Metro Vancouver was overbuilding. “Despite record-breaking new home construction over the past two years, new home inventories remain low as developers have not been able to keep up with the demand,” said the report.
Eric Bond, report author and principal of market analysis at CMHC, observed that Metro Vancouver’s market varies considerably depending on property type. He wrote, “The majority of the sales-to-available[-listings] ratios for townhouses and apartments remained well within sellers’ territory, as high demand continued to exist for these home types due to their relative affordability in comparison to single-detached homes. In the past two years it has become clearer that the difference in market conditions between property types and locations is primarily determined by affordability.”
Despite Canada as a whole being assessed as at “moderate risk” in price acceleration and overvaluation, and at “low risk” in overheating and overbuilding, the CMHC pegged the country’s housing market at “high risk” overall, for the seventh straight quarter. The report said that it was the “persistence” and combination of price acceleration and overvaluation that led to this assessment.
Victoria Census Metropolitan Area (CMA) was also assessed as at high risk overall, with the same ratings in each of the four factors as Metro Vancouver.
Three new housing measures were announced by the finance minister April 24, focusing on shadow flipping and rental housing supply.
A crackdown on non-payment of taxes on presale condo flips is one of three new housing measures announced by the finance minister April 24.
If legislated, changes to the Real Estate Development Marketing Act will require that developers report presale condo assignments to ensure that flippers pay capital gains and property transfer taxes when assigning a purchase contract to a new buyer. The ministry stated that developers must include terms in their contracts to tell buyers about the new requirements.
“For too long, people who resell condos before they have been built have been inflating real estate prices, without necessarily paying taxes on their gains,” said finance minister Carole James. “We are making it fairer for people who want to buy a condo, by making sure those who flip presale condos are paying their fair share.”
Two other pieces of legislation were also announced, with “the aim of helping local governments protect and encourage the building of affordable rental housing, and to respond to the housing needs of their communities,” according to the ministry.
One measure will allow municipalities to zone areas for rental housing only, through the use of a new rental zoning tool. Any undeveloped land that is zoned for rental would need to be developed with rental projects. The amount of rental housing that needs to be developed on that land would be “at the discretion of the local government.” For example, stated the ministry, local governments may require that 40 per cent of the units in new multi-family residential buildings in a certain zone be rental.
It added, “The rental zoning authority will be optional for local governments.”
“Local governments have been looking for tools to protect and enhance the supply of rental homes,” said Union of BC Municipalities president Wendy Booth. “The proposed legislation will facilitate affordable rental development in B.C. communities.”
The final announcement was legislation that, if approved, would make it mandatory for municipalities to “conduct housing needs assessments that will assist with community planning.” The provincial government would support local governments with a $5 million fund, and municipalities would be mandated to prepare housing needs reports every five years.
Real estate industry experts have had differing opinions on measures announced by the province to try and moderate the housing market – but only time will tell whether they are truly effective.
Taxes designed to curb speculation and other forms of demand and give local buyers an edge play well to the public, but the unintended consequences have drawn fire and forced tweaks.
Unveiled against a backdrop of new mortgage qualification rules that imposed a stress test on borrowers, it’s no surprise that housing sales declined 9.4% in the first quarter, according to the BC Real Estate Association (BCREA).
“You simply cannot pull as much as 20% of the purchasing power away from conventional mortgage borrowers and not create a downturn in consumer demand,” wrote BCREA chief economist Cameron Muir in his monthly market report.
But of course, we’re not given two eyes to look at things one way. Martello Property Services Inc. recently sponsored content in local media saying that Vancouver’s empty-home tax – applied to approximately 3% of residential properties in the city – meant greater choice for tenants and more stable rents.
“The tax has provided a little bit of breathing room for people in the market to find a place to live at more affordable prices,” Martello senior vice-president Warren Smithies said in the piece.
Ontario economist Will Dunning struck a similar note in his quarterly report for New Westminster’s Landcor Data Corp. in considering the impact of heightened taxes on foreign nationals and non-resident owners.
“[These] will reduce buying to some extent, although they might also mean that more properties will be offered for sale by non-resident owners, which would mean more opportunities for purchases by residents,” he opined.
Some observers feel those claims are premature, however.
David Goodman, a veteran apartment broker with HQ Commercial in Vancouver, said spring usually brings more choice to tenants, especially for secondary suites, because of turnover among students.
Muir noted the low rate of foreign ownership in Vancouver means any sales by foreign owners would have little impact on supply.
“Foreign buyers in Metro Vancouver last year were 3.6% of homebuyers, so how is a change in that number going to impact the market at all?”
Muir added that any impact would be tough to verify.
He feels the real drivers of the market continue to be ignored.
Supply is especially needed, both in terms of listings and new construction. Resale listings are at historic lows, meaning prices have continued to increase this year despite hopes for greater affordability.
Moreover, new supply contributes to economic activity whereas demand curbs don’t.
“The cure for a lack of supply in the housing market is typically more supply,” he said. “Severely cutting demand has a negative impact on the economy, whereas increasing supply has a very positive impact on the economy and jobs.”
Even with funding and expedited approvals, there simply aren’t enough tradespeople to build B.C. government’s promised 114,000 new affordable homes, says industry panel
Speaking to a huge audience at the Vancouver Real Estate Forum April 25 at the Vancouver Convention Centre, at a panel event on housing affordability, Concert Properties CEO and panel moderator Brian McCauley raised the issue of labour shortages as a key barrier to meeting the NDP government’s target of 114,000 affordable homes in 10 years.
McCauley said, “You hear on a daily basis about labour shortages, escalating construction costs… Just the provincial government program alone, wanting to build 114,000 affordable homes in the next 10 years, would require double the output of the current infrastructure in the building industry… We can’t ignore the fact that we just don’t have the capacity to build housing as fast as we need to.”
Greg Moore, Mayor of Port Coquitlam and chair of Metro Vancouver Board of Directors, replied, “You nailed it, and I think it’s going to get worse going forward [when you factor in other major infrastructure projects]… There’s a huge issue there for all of us. Whether we’re building infrastructure for our communities or housing in our communities, [the labour shortage] is one of the major issues we should be discussing.”
Anne McMullin, president and CEO of the Urban Development Institute, added, “In our discussions with the B.C. government since the provincial budget came out, I don’t think there’s really that recognition. Exactly how are we going to build this? We keep saying… let alone getting approvals, how are we going to get this done? The development industry needs to address this, but also the provincial government needs to address this, whether it’s with training or recruitment.”
Luke Harrison, CEO of the Vancouver Affordable Housing Agency, said, “I’ll get my plug in for prefabrication… We’re seeing some interesting results. When you look at what we’re doing with modular housing [for Vancouver], our labour costs are in Kamloops, our supply costs are independent of the weather and other potential cost issues in a local market. It also helps on the design side – you don’t have to customize a wall assembly through engineers and architects every time, that common wall is being replicated over and over again. I think that this is one of the opportunities that we’re going to have to spend more time on if we’re going to get close to the housing supply.”