Housing affordability in Vancouver suffers from both demand and supply-side pressures. Demand growth is high while both geography and regulation restrict housing supply. Of what land developers could use, zoning limits where and how. A long and arduous permitting process slows the supply response to increases in demand.
With Vancouver’s limited land base, increasing density in single-family areas is the right first step. So the million dollar question is how much supply is required to cool the Vancouver real estate market?
In a 2016 Georgia Straight interview with Vancouver condo marketer, Bob Rennie highlights the pressures mitigating against adding to the housing supply. According to Rennie, banks will not fund construction unless 60% of condos have been presold. This means that anytime anyone sees a construction crane, it means the project is 70 to 100% sold out.
“The good news is over 4,500 West Side condos will be delivered in 2016, 2017, and 2018,” Rennie added. “The bad news is that inventory is already over 90% sold.”
What you need to understand is when you see a development under construction, a hole in the ground or cranes, these developments are, at minimum, 70% sold out for the sole purpose of the banks being able to provide financing.
In truth, there is not a whole lot of inventory coming available to suddenly cool the Vancouver housing market. We are, however, getting some healthy inventory coming in in 2018 (with approximately 30,000 units currently under construction), but the absorption rate is so high that it’s nowhere near enough.
“This explains the pressure on land,” he said. “We are going to see a land sale of over $500 per square foot buildable west of Main.”
Rennie claimed that this will lead to condo prices of $1,300 per square foot in this neighbourhood. We are there now. If anything we’re beyond that. While it may have seemed like a bold prediction in 2016, Rennie’s prediction turned out to be an understatement.
“If every person that worked in the city wanted to live in the city, the population would have to increase by 197,000,” he said. “That would be a 30% increase in population.” This, in turn, would translate to an additional 76,000 dwelling units.
In a lighthearted tone, he said that this could be accomplished by building 380 30-storey towers. Or it could be achieved by tearing down 12,666 single-family homes and building 76,000 townhomes at six townhomes per lot.
In my personal opinion, the media is preoccupied with foreign buyers, foreign speculation, empty home etc. However, these are not the main catalyst which is the supply and demand dynamic. If you are waiting for the market to cool, I can’t see that happening until the conversation starts to change and more inventory starts coming into the market or we see a significant increase in interest rates or further mortgage policy changes.
If you are in the market for a presale condo, please don’t make the mistake of entering into a contract to purchase a brand-new condominium without contacting us first to pre-qualify you for the purchase amount to complete.
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Charlie S. (2016), The Georgia Straight, “Bob Rennie says Metro Vancouver baby boomers have clear title to $197 billion worth of residential real estate” accessed April 8, 2018, https://www.straight.com/news/710911/bob-rennie-says-metro-vancouver-baby-boomers-have-clear-title-197-billion-worth
