“Our elected municipal leaders throughout Metro Vancouver have failed to respond to higher housing demand through improved efficiency of approvals processes to allow more supply to enter the market. Too much of the conversation on housing affordability has focused on demand and not supply. We need to talk about how to get more supply on the market.”
– Michael Ferreira, Managing Principal, Urban Analytics
Yes, there is currently an immense amount of demand for housing throughout Metro Vancouver.
Yes, some of that demand is being driven by foreign capital seeking a safe place to invest in a safe and stable market and in a region that is among the most livable in the world.
Yes, some of that demand is being driven by local bab-boomers seeking to cash out of the substantial equity appreciation they’ve accrued in their homes to downsize into a smaller and newer home, and help their kids with the purchase of their homes.
Yes, some of that demand is being driven by local first time buyers and families seeking a great home to live in.
And yes, some of that demand is being driven by investors looking for an asset to hold and build equity in, or to flip for a profit.
Let’s consider the two parts of the demand-and-supply equation as they relate to the new multi-family home market in Metro Vancouver.
1. Demand
- 6,227 new condominium and townhome sales in the first quarter of 2016:
- 64 per cent increase over the first quarter of 2015.
- 13 per cent higher than Q4-2015.
- Q1-2016 would be even higher if there was more supply in some sub-markets, particularly for townhomes.
Michael Ferreira UA sales graph June 2016
- Strong demand has continued into the second quarter of 2016.
- 25 new condominium and townhome projects with a total of over 2,100 units have begun preselling since April 1, 2016.
- 1,755 (83 per cent) of these units have already been presold leaving just 363 unsold units.
Michael Ferreira UA presale graph June 2016
2. Supply
- For the first time since we began tracking this metric in 2010 we saw the number of units sold in a quarter exceed the number of unsold units at the end that quarter in Q4-2015 when there was just over three months of supply of new condominiums and townhomes in Metro Vancouver.
- This trend continued in the first quarter of this year when we saw over 3,200 more units sold than were unsold at the end of March, which translates to less than two months of supply in the region.
Michael Ferreira UA inventory graph June 2016
- Buyers have much less choice in the market today; as projects are sold out they are not getting replaced by new projects quickly enough.
- As of the end of Q1-2016 there were nearly 25 per cent fewer new condominium and townhome projects being actively marketed than at the end of the first quarter in 2014.
- The low-rise condominium (-34 per cent) and townhome (-43 per cent) sectors have experienced the biggest drop in the number of actively marketing projects.
Michael Ferreira UA marketing graph June 2016
3. The Bottom Line
Demand is clearly exceeding supply in the new multi-family home sector of Metro Vancouver’s real estate market, and it is putting increased pressure on new home prices. The demand and supply imbalance has manifested into a fear of loss among buyers; they fear missing out on the opportunity to own a home due to rising prices, which in turn increases urgency levels and thereby pressure on home prices. We’re seeing this increased pressure on pricing throughout the region.
- New condominiums in Downtown Vancouver is now seeking average sale prices of over $1,200 per square foot.
- New condominium pricing along the Cambie Corridor has increased by over 20 percent in the past year.
- Townhome pricing in the Fraser Valley has increased by over 15 per cent.
The pressure on pricing will only continue to increase until demand abates or we begin to increase supply and ease the urgency in the market. We can’t have a conversation around affordability without talking as much about supply as demand. Municipalities should be held more accountable for the slow pace with which supply is being added to the market.
It’s not just about getting more new developments approved, it’s also about submitting building permits for projects that have already been approved and sold out. At Urban Analytics, we’re hearing from some developers that it’s taking up to a year to obtain an excavation permit for a new condominium project. Municipalities are collecting hundreds of millions of dollars in development fees from developers. Why are these funds not being used to hire more staff to process development and permit applications faster?
Michael Ferreira is the managing principal of Urban Analytics, a Vancouver-based research company that has become a trusted source of industry data for developers, planners and financial institutions in the Vancouver and Calgary real estate markets. Go to www.urbananalytics.ca for more information.
