Builders have record new homes in the pipe, but “lag effect” means it could be a while, reports BCREA
Metro Vancouver is seeing a record number of housing starts, and this surge should help ease the housing supply crisis – at least, when those homes are finally complete, according to a report published November 7 by the British Columbia Real Estate Association (BCREA).
In The Surge in Metro Vancouver New Home Completions, the BCREA reported that multi-family housing starts were up 40% year over year to 22,700 units in 2016, 55% above the 10-year average, with another 19,700 multi-family starts expected this year, and a further 19,000 in 2018. It added that about 35,000 multi-family units are currently in development in the Metro region.
However, the “lag effect” – the time it takes to complete those homes, ready for occupancy – is the reason this current surge has not yet helped with the supply crisis. The report said, “According to CMHC, it takes more than 20 months for an apartment project to proceed from start to completion in Metro Vancouver. This varies from a high of 35.7 months in Downtown Vancouver to a low of 12.5 months in Surrey.”
Report author Cameron Muir, BCREA’s chief economist, wrote, “Strong economic growth has created rising labour demand and consumer confidence side-effects, while net migration and a wave of millennials entering their household-forming years have rounded out a “perfect storm” of demand-side momentum. In turn, the supply of resale homes on the market in Metro Vancouver has plunged to decade lows. This has led to continuing upward pressure on home prices, because elevated consumer demand hasn’t been matched by an equivalent increase in supply.”
He continued, “It’s more difficult for home builders to meet demand in a timely way, as the emphasis on higher-density communities lengthens the period between project conception and completion. This lag effect has exacerbated short-term market imbalances and even caused some in the media to question the efficacy of long-established market theory [of supply and demand].”
The report said, “According to our estimates, multi-family home completions will increase 50%... rising from less than 4,000 units per quarter in 2016 to approximately 6,000 units through the third quarter of 2018.”
It said that although many of those units are presold, new multi-family completions add to the overall housing supply in several other ways:
• Households moving from rental to homeownership free up rental supply.
• Households moving from existing ownership boost resale supply when they list their homes.
• Investors who rent out their units create additional rental supply.
Muir concluded, “This surge in multi-family completions isn’t the only solution for housing affordability in Metro Vancouver. However, a marked increase in aggregate supply can move the needle toward market balance and help slow the pace of housing price/rent growth in the region.”
See below for the varying degrees of “lag effect” in Metro Vancouver’s various municipalities.