Month: August 2024

Housing Construction Slows Down in Vancouver: New Reports Highlight Growing Concerns

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Vancouver is facing a significant slowdown in housing construction, according to new data that confirms the fears of many industry observers. Despite a strong demand for housing and a unified push from all levels of government to boost supply, factors such as high interest rates, rising construction costs, and permitting delays are stalling new developments. This decline in construction activity raises serious concerns about the city’s ability to address its housing shortage.

Significant Drop in Housing Starts

The latest figures from the Canada Mortgage and Housing Corporation (CMHC) reveal that new housing starts in Metro Vancouver fell by 15% in July 2024 compared to the same month last year. This drop contrasts with an 8% increase in housing starts across other Canadian cities with populations over 10,000. While 2023 saw a record 33,200 housing units started in Greater Vancouver, the Conference Board of Canada predicts a decline to 28,800 units in 2024 and around 26,000 units annually over the next few years.

This slowdown is alarming given the city’s growing population and persistent housing demand. “It confirms what we feared,” said Mike Moffatt, an Ontario-based economist and senior director of the Smart Prosperity Institute. “Despite a growing population, the conditions for building new homes are not improving.”

A Perfect Storm of Challenges

The construction slowdown is attributed to several factors that have converged to create a “perfect storm” for developers. High interest rates, which have risen sharply over the past two years, are a major hurdle. These rates have increased borrowing costs, making it more expensive for developers to finance new projects. Additionally, rising construction costs, driven by supply chain disruptions and labor shortages, have further strained budgets.

Permitting delays also contribute to the slowdown. While governments at the municipal, provincial, and federal levels have expressed a commitment to increasing housing supply, the process of securing necessary permits remains slow and cumbersome. This bureaucratic bottleneck is a significant barrier to ramping up construction.

Even with a potential rebound in developer activity in the coming years, some experts worry it may not be enough to meet the housing demand in Vancouver and other major Canadian cities. “We’re basically treading water,” Moffatt said. “Even if interest rates fall and activity picks up, we’re not building nearly enough to address the shortage.”

The Broader Implications

The slowdown in housing construction has broader implications for the Vancouver housing market. In 2022, the CMHC estimated that Canada would need 5.8 million new homes by 2030 to restore affordability, requiring an additional 3.5 million units beyond the 2.3 million currently projected. Given this context, the current decline in housing starts is particularly concerning.

Bob Ransford, vice-president of development for Century Group, a Vancouver-based builder, remains cautiously optimistic. He believes that once interest rates stabilize, development will resume at a faster pace. “I’ve been through downturns before, and I’ve seen deeper ones than this,” Ransford said. “This is a pause driven primarily by interest rate movements.”

However, even if market conditions improve and government policies successfully encourage more development, another challenge looms: labor shortages. The B.C. Construction Association has long warned of a shortage of skilled workers in the province. Earlier this year, it estimated that by 2033, there will be 6,600 unfilled construction jobs in B.C. “We’re going from one problem to the next,” said Tony Letvinchuk, managing director of Macdonald Commercial Real Estate Services in Vancouver. “Even if we solve the market issues, we still need to find qualified workers to build the homes.”

Looking Ahead

While some industry experts remain hopeful that the housing market will recover in the next few years, the current slowdown highlights the challenges facing Vancouver’s housing sector. The decline in new housing starts is a setback in the city’s efforts to address its housing shortage and restore affordability.

The housing market in Vancouver is at a critical juncture. With population growth continuing and housing demand remaining strong, the need for new homes is more urgent than ever. However, unless the factors currently hindering construction are addressed, the city may struggle to meet this demand, prolonging the housing crisis and further straining affordability for residents.

In summary, the slowdown in housing construction in Vancouver is a troubling development that underscores the complexities of the city’s housing market. High interest rates, rising construction costs, permitting delays, and labor shortages are all contributing to a challenging environment for developers. While there is hope for a rebound in the future, the current situation suggests that Vancouver’s housing shortage may persist for some time.

BC Landlord Wins Approval for 23.5% Rent Increase Due to Financial Losses from Variable Mortgage Rate

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In a decision that could set a significant precedent for rental markets in British Columbia, the Residential Tenancy Branch (RTB) approved a landlord’s request to increase rent by 23.5% over two years at a fourplex property. The ruling has sparked debate on whether rising interest rates justify such substantial rent increases, as landlords and tenants face the effects of economic turbulence.

The Situation: Financial Strain from Rising Interest Rates

The landlords purchased their fourplex in October 2021, securing a variable mortgage with a favorable rate of 1.9%. For years, variable mortgage rates had remained relatively stable, making this financing option attractive. However, beginning in 2022, the global economic landscape changed drastically due to the COVID-19 pandemic’s aftershocks, leading to soaring interest rates. By July 2023, the mortgage rate had ballooned to 6.65%, significantly impacting the landlords’ ability to manage their property.

According to the RTB’s ruling, the landlords experienced an unexpected financial burden as their mortgage payments more than tripled. Despite having a financial cushion for potential rate increases, the rapid and substantial rise in interest rates left them unable to maintain the property under the current rental income. They argued that without a rent increase, they would continue to incur financial losses, making the situation unsustainable.

The RTB’s Decision

In light of these circumstances, the landlords applied to the RTB for an extraordinary rent increase beyond the annual allowable limit, which was set at 3.5% for 2024. Under British Columbia’s Residential Tenancy Act, landlords can request additional rent increases if they can prove financial losses that could not have been reasonably foreseen when purchasing the property. The RTB agreed that the landlords had met this burden of proof.

“I find the landlords have been successful. They have proven, on a balance of probabilities, all the elements required to impose an additional rent increase for a financial loss for financing costs of purchasing the residential property under section 23 of the Regulation,” the ruling stated. The decision was made based on the landlords’ demonstration that the extreme rise in interest rates was not foreseeable, even with their careful financial planning.

The RTB approved a phased rent increase: 15.5% in the first year (3.5% annual allowable increase plus an additional 12%) and the remaining 8% in the second year, adjusted to align with the provincial maximum for that year. Even with this increase, the landlords admitted they would still struggle to break even, highlighting the severity of their financial situation.

The Tenants’ Response

The tenants, understandably, were not pleased with the ruling. They argued that the financial risks associated with a variable mortgage were well-known and that the landlords should have been prepared for rate fluctuations. They felt that the landlords were attempting to pass on the consequences of their investment decisions to the tenants, many of whom faced their own financial challenges.

One tenant reported that the landlords initially approached them in April 2023, requesting a $500 monthly increase to cope with their rising costs. The tenants declined, leading to the formal application to the RTB. Some tenants pointed out that despite the landlords’ current financial strain, the property itself was likely to appreciate significantly over time, suggesting that the situation might not be as dire as presented.

“The landlords should enter these kinds of financing circumstances with a cushion to absorb the rate variability,” argued the tenants. They also expressed concern that this ruling could open the floodgates for other landlords to seek similar rent increases, further exacerbating the affordability crisis in BC.

Industry and Government Reactions

The decision has ignited a broader conversation about the impacts of rising interest rates on the rental market and the potential for more landlords to apply for rent increases. David Hutniak, CEO of LandlordBC, expressed understanding of the challenges faced by the landlords in this case, noting that many in the sector are grappling with escalating operational costs, including taxes, insurance, utilities, and now interest rates. He highlighted that while this specific decision might be unique, it reflects the broader difficulties faced by rental housing providers across the province.

“High interest rates have exacerbated an already bad situation. Furthermore, a steady stream of regulation, layered upon layer, with rent control being the most notable, are pushing more and more rental housing providers to abandon the sector,” Hutniak stated. Although he had not reviewed the specifics of this case, he noted that the financial pressures described are widespread among landlords.

Minister of Housing Ravi Kahlon also weighed in, acknowledging the ruling’s significance. He emphasized that while the provincial government has kept rent increases at or below inflation since 2018, the policy allowing for extraordinary rent increases due to financing losses predates the current administration. Kahlon stated that this is the first time such an application has been granted since the province began collecting data in 2021. He has directed his staff to review the policy in light of this decision, signaling potential changes to protect tenants from similar rent hikes in the future.

A Precedent for Future Cases?

The RTB’s decision raises important questions about how landlords and tenants can navigate the economic challenges brought on by high interest rates. For landlords, it underscores the risks of relying on variable-rate mortgages, especially during periods of economic uncertainty. For tenants, it highlights the potential vulnerability to rent increases if landlords face financial difficulties.

As the housing affordability crisis continues to deepen in British Columbia, this ruling may lead to more landlords seeking similar rent increases, particularly if interest rates remain high. The outcome could have widespread implications for both the rental market and the broader housing sector.

At the same time, the government’s response to this case could influence future policy changes. If Minister Kahlon’s review leads to revisions in the regulations governing rent increases, it might provide additional protections for tenants while balancing the financial realities faced by landlords.

For now, tenants at the fourplex will have to prepare for a significant rent hike, while other landlords and tenants across the province watch closely to see what this decision could mean for them.

BC’s Ban on AirBnB Rentals Doesn’t Solve Anything – New Stats

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A recent Statistics Canada (StatCan) report reveals that short-term rentals, which could be repurposed as long-term housing, make up only a small fraction of the total housing stock in British Columbia. Despite efforts to regulate these rentals, their impact on overall housing availability remains minimal.

According to the report, the proportion of short-term rentals in B.C. that could be converted into long-term housing nearly doubled between 2017 and 2023, surpassing rates seen anywhere else in Canada. However, these “potential long-term dwellings” still account for less than 1% of all available housing units.

“In the housing market, short-term rentals still represent a small share of the total housing units,” the report’s authors noted.

This analysis coincides with the introduction of stricter regulations in B.C. designed to curtail the number of short-term rentals and boost housing supply. As of May 1, new rules restrict short-term rentals to homeowners’ principal residences, including basement suites or laneway homes on the same property.

Premier David Eby defended the legislation, stating, “The number of short-term rentals in B.C. has skyrocketed, removing thousands of long-term homes from the market. We’re taking strong action to rein in profit-driven mini-hotel operators, create new enforcement tools, and return homes to the people who need them.”

Despite these measures, StatCan’s data shows that short-term rentals eligible for long-term use comprised less than 0.5% of housing units in Canada’s five largest metro regions in 2021, with Metro Vancouver recording the highest rate at 0.45%.

These findings align with a 2023 report from the Conference Board of Canada, which concluded that Airbnb activity in most cities is too small to significantly affect rental prices.

“The short-term rental market simply isn’t large enough to influence rental prices meaningfully,” said Tony Bonen, an executive director at the Conference Board of Canada. He described the impact of short-term rentals on the housing supply as “a drop in the bucket.”

Bonen emphasized that the number of short-term rentals is too small to bring about widespread changes in rental prices. “If the goal is to reduce short-term rentals to lower rental prices across the market, it’s just not going to happen,” he added.

The StatCan report concentrated on short-term rentals that could be converted into long-term housing, specifically units listed for more than 180 days a year. Vacation properties like cottages and dedicated vacation homes were excluded. The report also acknowledged that housing affordability is influenced by many complex factors, including multiple-property ownership, population growth, and interest rates.

In Vancouver, around 2,400 short-term rental units in 2021 could have been used as long-term housing, representing 0.8% of all housing in the city. This was the highest rate in Metro Vancouver, but cities like Kamloops, Kelowna, and Victoria had even higher rates—1.4% in Kamloops and 0.9% in Kelowna and Victoria.

Tourist destinations such as Whistler, Sun Peaks, and Tofino had much higher rates, ranging between 20% and 40%. These areas are exempt from B.C.’s short-term rental regulations due to their importance in supporting tourism and stimulating the local economy.

Bonen noted that the remote locations and limited accommodation options in some of B.C.’s resort towns likely contributed to the higher proportion of short-term rentals suitable for long-term use. “Short-term rentals have filled a gap in some of these harder-to-reach areas,” he said, emphasizing the need for a balanced approach in resort communities.

“The major challenge remains making rent affordable for Canadians,” Bonen concluded. “While regulating short-term rentals can be part of the solution, it’s not going to have a substantial impact on its own.”

Vancouver Real Estate Market Update – August 2024

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Metro Vancouver’s housing market is experiencing a surge in newly listed properties, with inventory rising nearly 20% year-over-year in July. Despite this increase, the number of transactions has not kept pace, highlighting a disconnect between supply and demand.

According to the Greater Vancouver REALTORS® (GVR), residential sales in the region totaled 2,333 in July 2024, a 5% decrease from the 2,455 sales recorded in July 2023. This figure is 17.6% below the 10-year seasonal average of 2,831, suggesting that buyers remain cautious despite favorable market conditions.

“The trend of buyer hesitation that began a few months ago persisted in July, even after the Bank of Canada reduced the policy rate by a quarter percentage point,” said Andrew Lis, GVR’s director of economics and data analytics. “Given the recent half-point decline in the policy rate and the abundance of inventory, it’s surprising that transaction levels are still below historical norms as we reach the mid-summer point.”

In July 2024, there were 5,597 newly listed detached, attached, and apartment properties on the MLS® in Metro Vancouver. This represents a 20.4% increase from the 4,649 properties listed in July 2023 and is 12.7% above the 10-year seasonal average of 4,968.

The total number of properties currently listed for sale on the MLS® in Metro Vancouver is 14,326, a 39.1% increase from July 2023, when there were 10,301 listings. This is also 21.5% above the 10-year seasonal average of 11,788.

The sales-to-active listings ratio for July 2024 across all property types is 16.9%. For detached homes, the ratio is 12.8%; for attached homes, it is 20.1%; and for apartments, it is 19.3%. Historical data suggests that home prices face downward pressure when the ratio stays below 12% for a sustained period, while upward pressure occurs when it exceeds 20% over several months.

“The market is experiencing balanced conditions, with inventory levels not seen in years,” said Lis. “Price trends across all segments have leveled out, with modest declines month over month. While it’s uncertain if softening prices and improved borrowing costs will encourage buyers as we approach the fall market, it’s worth noting that it can take time for better borrowing conditions to translate into increased transactions. We will be monitoring the market for signs of increased activity in the coming months.”

The MLS® Home Price Index composite benchmark price for all residential properties in Metro Vancouver is currently $1,197,700. This represents a 0.8% decrease from July 2023 and a 0.8% decrease compared to June 2024.

Detached home sales in July 2024 reached 688, a 1% increase from the 681 detached sales recorded in July 2023. The benchmark price for a detached home is $2,049,000, representing a 2.1% increase from July 2023 and a 0.6% decrease compared to June 2024.

Sales of apartment homes totaled 1,192 in July 2024, a 6.9% decrease from the 1,281 sales in July 2023. The benchmark price for an apartment home is $768,200, which is a 0.3% decrease from July 2023 and a 0.7% decrease compared to June 2024.

Attached home sales in July 2024 amounted to 437, a 6.2% decrease from the 466 sales in July 2023. The benchmark price for a townhouse is $1,124,700, representing a 1.4% increase from July 2023 and a 1.2% decrease compared to June 2024.