The Real Es­tate Re­port

Shed­ding light on the stats, facts and sub­tleties of Lower Main­land real es­tate

BC Business Magazine - - Rennie Group -

You need only lis­ten in on the chat­ter at your lo­cal mi­cro­brew­ery to get a sense of the role that real es­tate plays in our lives in B.C: as a topic of con­ver­sa­tion, it’s se­cond only to the weather. Econ­o­mists men­tion how much it con­trib­utes to em­ploy­ment and gross do­mes­tic prod­uct; the plan­ners talk about is­sues re­lated to zon­ing, land use, and den­sity; the engi­neers cite the associated need for ser­vices and in­fra­struc­ture above and be­low the ground; and the real es­tate agents and devel­op­ers col­lect data on cur­rent per-square-foot val­ues. And ev­ery­one else talks about it in terms of com­mu­nity.

It is these no­tions of real es­tate—the land, the build­ings, and the in­fra­struc­ture that sup­ports it all—that knit us to­gether into what we call a com­mu­nity. From the lo­cal mi­cro­brew, cof­fee­house, com­mu­nity cen­tre or park, real es­tate is one of the bind­ing fac­tors in our com­mu­nity in­ter­ac­tions. Con­sid­ered more broadly, real es­tate also re­flects our na­tional char­ac­ter as it ties not only our lo­cal neigh­bour­hoods to­gether, but our cities and re­gions to­gether.

Is­sues re­lated to real es­tate can also cause great ten­sion. In the Lower Main­land, where 59 per cent of the prov­ince’s pop­u­la­tion lives on less than two per cent of the pro­vin­cial land base, hous­ing ac­ces­si­bil­ity, af­ford­abil­ity and suit­abil­ity are among the top con­cerns.

This fea­ture, with Bcbusi­ness part­ner­ing with Ren­nie’s In­tel­li­gence team, was sparked over a lunch be­tween Canada Wide Me­dia founder Peter Legge and Ren­nie Group. The goal is to pro­vide in­sight into the cur­rent state of the mar­ket with an ex­am­i­na­tion of some of the press­ing is­sues con­cern­ing hous­ing, den­si­fi­ca­tion, rentals and own­er­ship.

Myth-bust­ing: The Flight of the Mil­len­nial Data show the net out­flow is in fact Gen-xers—and it has been go­ing on for decades

Spec­u­la­tion that Van­cou­ver’s high hous­ing prices are forc­ing young peo­ple out of the city seems to make sense. Af­ter all, who but only the high­est in­come earn­ers and those well es­tab­lished in their ca­reers can pos­si­bly af­ford to live in the city?

Sur­pris­ingly, Canadian cen­sus data show that the truth is stranger than fic­tion in this hous­ing-de­mo­graphic nar­ra­tive. An ex­am­i­na­tion of this nar­ra­tive us­ing the most re­cent cen­sus data on pop­u­la­tion by age group re­veals which seg­ments of the pop­u­la­tion grew and which de­clined. But this can be con­sid­ered in two dif­fer­ent ways: first by the change in the num­ber of peo­ple in an age group over the last five years; and se­cond by track­ing each five-year age co­hort over a five-year pe­riod. For ex­am­ple, track­ing 30- to 34-year-olds in 2011 who then be­came 35- to 39-year-olds in 2016.

In Greater Van­cou­ver, the data show all of the un­der-45 age groups saw net growth when con­sid­ered on a co­hort ba­sis, in­di­cat­ing pos­i­tive net in-migration to these age groups. Con­versely, all of the 45-plus co­horts de­clined be­tween 2011 and 2016, re­flect­ing a com­bi­na­tion of net out-migration and mor­tal­ity for these older groups.

This is sim­i­lar to other Canadian metro re­gions; in ad­di­tion to Greater Van­cou­ver, mil­len­ni­als con­tinue to flow into Mon­treal, Ottawa-gatineau, Toronto, Calgary, Ed­mon­ton, Vic­to­ria and Kelowna, among oth­ers. For Greater Van­cou­ver, this is also a pat­tern that is re­flected his­tor­i­cally if pre­vi­ous cen­sus counts are con­sid­ered.

With the change in hous­ing prices over the last cou­ple of years—which varies widely across these re­gions— the uni­for­mity seen in the pat­tern of mo­bil­ity both his­tor­i­cally here in Greater Van­cou­ver and re­cently be­tween other metro re­gions in Canada could lead to the con­clu­sion that home prices have not sig­nif­i­cantly in­flu­enced the re­gional pat­tern of mo­bil­ity.

So what about the city of Van­cou­ver? If the truism were to ring true, we would ex­pect that co­hort changes at the city level would dif­fer sig­nif­i­cantly from the re­gional pro­file. In­deed, the data con­firm this, with al­most all of the un­der-30 co­horts show­ing net gains (save for the un­der-five co­hort, which de­clined slightly) be­tween 2011 and 2016 in the city. In other words, net out-migration of the city of Van­cou­ver’s pop­u­la­tion is seen be­gin­ning at the 30- to 34-year-old co­hort—much younger than the re­gional pat­tern where it be­gins with the 45- to 49-year-old co­hort. With home prices that well ex­ceed the re­gional av­er­age, this pat­tern of change could be seen as sup­port for the no­tion that prices are push­ing mil­len­ni­als from the city.

How­ever, a closer look at the data shows that this net out­flow oc­curs not for the mil­len­ni­als (those born af­ter 1984), but for the Gen-xers (born be­tween 1965 and 1983). So it ap­pears that it is Gen-xers who we should be con­cerned about.

Fur­ther to this, the unique pat­tern of co­hort change for the city of Van­cou­ver has been re­mark­ably sta­ble for more than two decades, a pe­riod span­ning years of both rapid home price in­crease (2014 to 2016), and rel­a­tive stag­na­tion (1981 to 1987, and 1994 to 2002).

So what is driv­ing this pat­tern? While prices will cer­tainly have an im­pact, the pat­tern is more likely ex­plained by Van­cou­ver’s unique mix of hous­ing, both in terms of its form and ten­ure. For ex­am­ple, Van­cou­ver has the sec­ond­high­est share of dwellings in high-rise apart­ment for­mats in the re­gion at 29 per cent, with New West­min­ster first at 32 per cent. Present-day Gen-xers, along with their ear­lier coun­ter­parts, may sim­ply be leav­ing the city in search of hous­ing that can bet­ter ac­com­mo­date the needs of their grow­ing fam­i­lies.

Sim­i­larly, the city has the great­est share of rental ac­com­mo­da­tion in the re­gion, at more than 50 per cent of all house­holds. This pat­tern sim­ply may be a prod­uct of grow­ing fam­i­lies seek­ing home own­er­ship and need­ing to look out­side of the city. In some senses, this no­tion is sup­ported by the re­gional pro­file that shows net gains up to the age of 45, as some of these movers would po­ten­tially be those mov­ing out of the city into sur­round­ing mu­nic­i­pal­i­ties in search of hous­ing op­por­tu­ni­ties not found in the city.

The num­bers re­veal the plight of fu­ture gen­er­a­tions as they likely as­pire to ground-ori­ented, owner-oc­cu­pied hous­ing forms within the older core of this re­gion. And this high­lights the need to fo­cus on de­vel­op­ing ef­fec­tive lo­cal land use, zon­ing and hous­ing poli­cies to en­sure a broad di­ver­sity of hous­ing types, tenures and prices are added within the city.

The De­mands of Hous­ing Sup­ply in the Lower Main­land Re­gion will need to build 22,000 net ad­di­tional homes each year to 2021

If hous­ing is fun­da­men­tally about peo­ple, then hous­ing-mar­ket dy­nam­ics are about sup­ply and de­mand. From price in­creases and mul­ti­ple-of­fer sce­nar­ios to rents, ren­ovic­tions and va­cancy rates, many as­pects of the hous­ing mar­ket are in­flu­enced by the in­ter­play be­tween how much hous­ing is avail­able and how much is needed.

The Lower Main­land is home to 2.86 mil­lion peo­ple liv­ing in 1.11 mil­lion homes. Though the re­gion has grown each year— av­er­ag­ing 34,500 ad­di­tional peo­ple and 14,900 ad­di­tional oc­cu­pied dwellings an­nu­ally be­tween 1997 and 2016—this growth has been un­even, with an av­er­age of 26,400 peo­ple added in the early-2000s com­pared to 36,100 added each year in the past half-decade.

An­nual im­mi­gra­tion to Canada cur­rently sits at just over 300,000 peo­ple, and is ex­pected to edge up slightly from this level be­tween 2017 and 2021. In part based on this na­tional out­look, to­tal pop­u­la­tion growth in the Lower Main­land re­gion that stretches from Squamish to Hope is ex­pected to av­er­age more than 47,000 an­nu­ally over the next five years.

To ac­com­mo­date the needs of our grow­ing and chang­ing pop­u­la­tion, the re­gion will need to build 22,000 net ad­di­tional homes each year to 2021. This ad­di­tional de­mand would be 14 per cent higher than any five-year pe­riod in the past two decades.

Rel­a­tive to this level of de­mand, hous­ing starts and com­ple­tions can help shed some light on the sup­ply that is ex­pected to come to mar­ket in the com­ing years. For ex­am­ple, in 2017 there will be an es­ti­mated 26,700 hous­ing com­ple­tions which, given the cur­rent num­ber of starts, is ex­pected to fall to­ward 24,200 by 2021. This re­lates to 21,700 net ad­di­tional units de­manded in 2017, in­creas­ing to 22,400 by 2021.

While com­ple­tions may ap­pear to be high when com­pared to ad­di­tional de­mand over the 2017 to 2021 pe­riod, a cou­ple of points must be made. First, com­ple­tions should on av­er­age ex­ceed net ad­di­tional oc­cu­pancy de­mand, as there will al­ways be units built to sat­isfy re­place­ment de­mand, or the re­build­ing of homes that have reached the end of their func­tional life. While these units will ap­pear in the starts and com­ple­tions data, they are sim­ply re­plac­ing old dwellings and thus are not adding to the stock of avail­able hous­ing and ful­fill­ing ad­di­tional de­mand.

Se­cond, there are pe­ri­ods when com­ple­tions have fallen well be­low ad­di­tional de­mand. Over the past 20 years, the Lower Main­land’s hous­ing mar­ket has gone through two dis­tinct phases of un­der- build­ing. The most re­cent spanned 2012 to 2016, a pe­riod that co­in­cided with rapidly ris­ing prices and his­tor­i­cally low va­cancy rates, a con­se­quence of those ba­sic sup­ply and de­mand dy­nam­ics we learned about back in Econ 101. How­ever, with the num­ber of starts hit­ting 20-year highs in both 2015 and 2016 (an av­er­age of 26,700 units in each of those two years), sup­ply is ex­pected to ex­ceed ad­di­tional oc­cu­pancy de­mand in the next cou­ple of years and will, we hope, ease some of the price and va­cancy pres­sures that have de­vel­oped in the re­cent past.

So You Want to Buy a Condo Greg Zayadi has some sound ad­vice when it comes to Lower Main­land con­dos

Greg Zayadi is the se­nior vice-pres­i­dent of Ren­nie Group’s De­vel­oper Ser­vices divi­sion. We caught up with him to get his per­spec­tive on the condo and pre-sale real es­tate mar­ket in the Lower Main­land—and the no­tion that lo­cal buy­ers are be­ing ex­cluded.

The new-condo mar­ket in the Lower Main­land is ex­cep­tion­ally ro­bust right now. What are the most pop­u­lar ar­eas for de­vel­op­ment?

The sim­plest an­swer is any­where that you see good plan­ning pol­icy meet­ing rapid tran­sit. Our mar­ket has been un­de­ni­ably changed over the past decade to the point that we can now say we are cer­tainly an ur­ban­ized re­gion.

Some ar­eas of the re­gion have trans­formed faster than oth­ers—the city of Burn­aby, as an ex­am­ple, fo­cused on the growth of key city cen­tres. Metro­town, Brent­wood and Lougheed have all evolved rapidly into new ur­ban nodes be­cause of that proac­tive plan­ning and vi­sion. New West­min­ster has ex­pe­ri­enced steady growth be­cause they were able to fo­cus their plan­ning ef­forts around the [Sky­train] sta­tions in their city, and the Brew­ery District is an ex­cel­lent ex­am­ple of how new neigh­bour­hoods can be in­tro­duced.

What ar­eas are also on your radar?

Per­son­ally, I am ex­cited about North Van­cou­ver—first and fore­most be­cause it is one of the only ar­eas north of the Fraser that will be de­liv­er­ing new town­home

com­mu­ni­ties to the re­gion in 2018. Ad­di­tion­ally, we will see mul­ti­ple low­er­den­sity con­do­minium de­vel­op­ments in­tro­duced. These hous­ing forms are re­ally im­por­tant to the re­gion be­cause they of­fer a more ground-scale form of hous­ing that many want. If you ask the peo­ple com­ing into our sales cen­tres, we find peo­ple like the feel of these neigh­bour­hoods. The form al­lows more peo­ple to stay within the com­mu­ni­ties they grew up in, but it also al­lows their par­ents an op­por­tu­nity to re­main in an area that they built their roots.

More specif­i­cally, an area that I think we will look back on for years to come and say, “that was the right thing to do, that worked,” is Moodyville, which is a new com­mu­nity plan east of Lonsdale on Third Street. North Van­cou­ver had the vi­sion a few years ago of en­abling the trans­for­ma­tion of the area by a com­mu­ni­ty­wide re­zon­ing. What is spe­cial is that they didn’t trans­form to high-den­sity forms; they en­abled these mod­er­ate heights on a grander scale. In less than three years, 150 (mainly older) homes have been pur­chased and are in the process of rede­vel­op­ment to cre­ate about 500 homes. These are fam­ily homes. It’s hous­ing that suits a lot of needs, which is what com­mu­ni­ties need.

Down­town Van­cou­ver is al­ways an area we will have on our radar. It demon­strates the sheer trans­for­ma­tion of our wider re­gion and what is in­ter­est­ing for us to watch is the num­ber of Boomers com­ing into the down­town core—it proves to us that the prom­ise of ur­ban life is now cer­tainly a re­al­ity.

And you can­not have a dis­cus­sion about our re­gion with­out fo­cus­ing on South of the Fraser and the mul­ti­ple dif­fer­ent com­mu­ni­ties such as Cloverdale, White Rock and Cen­tral City ( just to name a few). These ar­eas are pro­vid­ing some of the af­ford­abil­ity for our re­gion and, through the con­nec­tion of rapid tran­sit, Cen­tral City is be­com­ing a very de­sir­able op­tion for not just area res­i­dents who have long sup­ported the city’s vi­sion, but also for those com­ing from north of the Fraser who are now aware of the liv­abil­ity these ar­eas of­fer. We are re­ally ex­cited to watch that area of our re­gion as more con­nec­tiv­ity through tran­sit is in­tro­duced to con­nect neigh­bour­ing ar­eas like Guild­ford and New­ton.

What other trends are you see­ing?

Peo­ple are think­ing through their hous­ing op­tions dif­fer­ently and think­ing about own­er­ship dif­fer­ently. For some, this means that they are look­ing out­side of the re­gion for op­tions of own­er­ship and choos­ing to rent the hous­ing they re­quire in town.

We hear con­stantly from Ren­nie Ad­vi­sors (our Real­tors) that some clients are turn­ing at­ten­tion to Van­cou­ver Is­land, Kelowna, Whistler or south of the bor­der for recre­ational prop­er­ties that they can own as legacy as­sets. This shapes what we need to build as a re­gion; it means that fam­ily hous­ing (rental and con­do­minium) will see the same growth of de­mand in the next few years as we have seen for the last few.

So watch for con­tin­ued dis­cus­sion around liv­abil­ity of ur­ban form op­tions, de­mand for rental hous­ing and de­mand for bed­rooms.

Condo devel­op­ers have to ad­dress these chang­ing needs, such as flex space and dog-wash­ing sta­tions. How are they do­ing it?

Stor­age is be­com­ing as valu­able as park­ing through the re­gion. Devel­op­ers have to keep up with the change that seems to now be con­stant. A per­fect ex­am­ple is the im­pact on­line shop­ping has had on the de­sign of con­do­minium units. We now talk about the “Ama­zon room” that is re­quired to in­take and store the grow­ing vol­ume of pack­ages be­ing de­liv­ered on a daily ba­sis. And we are al­ready think­ing about in­creased de­liv­ery of food and gro­ceries and how to ac­com­mo­date that.

Devel­op­ers are at­tuned to the chang­ing trends and de­mands and are driven to re­spond fast enough to mar­ket needs, whether that would be more cre­ative op­tions for cre­at­ing ad­di­tional bed­rooms or de­sign­ing build­ings with no one-bed­room op­tions in ar­eas where fam­i­lies are the pre­dom­i­nant group de­mand­ing homes.

There's a lot of talk of Baby Boomers down­siz­ing. How is this af­fect­ing the mar­ket?

Over the last while, age has be­come al­most ir­rel­e­vant. It’s more about life­style choice. You have peo­ple in their twen­ties who are happy to move out­side the city in or­der to have more space and live in a qui­eter neigh­bour­hood. And, yet, you have those in their six­ties want­ing a much more ur­ban life­style: they bike all the time, they go out to restau­rants more. Stor­age is con­sis­tently im­por­tant, as is hav­ing rea­son­able liv­ing space. In some cases, with a 1,200-sq.-ft. unit, you don’t need three bed­rooms. You’re build­ing a two-bed­room and den. For the down­sizer, they don’t need three bed­rooms but they want space and they’re happy to pay for it. One of the most in­ter­est­ing things is the amount of eq­uity that the Baby Boomer has: the num­ber of mort­gage-free, clear-ti­tle homes that the over-50 buyer has and the im­pact of this. What’s hap­pen­ing is they’re sell­ing that sin­gle-fam­ily house, and it’s cre­at­ing

two or three more house­holds. They’re tak­ing some of their eq­uity and help­ing their chil­dren buy a prop­erty. That has a huge im­pact on our mar­ket.

Have pre-sales of con­dos ramped up?

With sup­ply of new hous­ing as con­strained as it has been for the past few years, we have now en­tered a re­al­ity where pre­sale is in nearly ev­ery mar­ket as the only al­ter­na­tive for those look­ing to pur­chase a new home. In fact, ac­cord­ing to in­dus­try an­a­lysts, of the more than 20,000 new homes com­plet­ing in our re­gion this year, only 50 units will be un­sold.

What this means is that we are see­ing the preva­lence and fre­quency of pre-sale cam­paigns across our re­gion at a level that sur­passes all pre­vi­ous records. Ev­ery­one from the first-time buyer to the empty nester to the in­vestor is ad­just­ing to this new re­al­ity and it re­quires, for most, that one thinks fur­ther ahead about their needs for hous­ing. Take what we have, and will see, along the Ev­er­green Line as an ex­am­ple—mar­kets in Burn­aby, Co­quit­lam and Port Moody are not new to pre-sale cam­paigns, but what has changed is that we have gone from see­ing 50 to 60 per cent of a pro­ject be­ing sold at the launch of a com­mu­nity to the to­tal sell­out of com­mu­ni­ties be­fore the com­ple­tion of even the parkade.

Where this is more pro­nounced is in how we sell town­homes. Tra­di­tion­ally, the home buyer was not will­ing to pur­chase a town­home more than three to six months in ad­vance. Now, again a di­rect re­sult of con­strained sup­ply, we see pur­chasers will­ing to wait a year or more for de­liv­ery of their home.

With so much de­mand and lim­ited sup­ply, how can a po­ten­tial buyer nav­i­gate this pre-sale mar­ket?

There’s no magic or trick to it. It’s more a case of be­ing con­fi­dent in what you’re look­ing for, of hav­ing done some re­search, know­ing the size and the price points so that when you en­ter into a pre-sale pro­gram that may be over­sub­scribed or in high de­mand, you’re able to con­fi­dently make a quick de­ci­sion. Af­ter that, it re­ally does de­pend on the neigh­bour­hood and the prod­uct type you’re look­ing for.

That said, there are few things you need to make sure you do: make sure that you are reg­is­tered with the build­ings and com­mu­ni­ties that you are in­ter­ested in. If you have a Re­al­tor that you like to work with and trust, then make sure they are on top of this, too. Af­ter that, you need to make sure you are fol­low­ing up and that you es­tab­lish a two-way com­mu­ni­ca­tion with the sales team in the com­mu­nity you are in­ter­ested in.

Some peo­ple be­lieve that devel­op­ers mar­ket ex­clu­sively in Asia and that lo­cal buy­ers don't get a chance to buy units that are sold off­shore. How do you an­swer this?

The off­shore buyer sim­ply is not as preva­lent in the new-home mar­ket as the me­dia would sug­gest, and that is for a few sim­ple rea­sons.

First, devel­op­ers will not and can­not get fi­nanc­ing if they have a mean­ing­ful level of for­eign in­vest­ment. Fi­nanc­ing re­quire­ments are very clear and rigid when it comes to whom devel­op­ers sell to and even how many units they sell to one pur­chaser. With lit­tle ex­cep­tion, Van­cou­ver devel­op­ers need to as­sume con­ven­tional fi­nanc­ing with one or more of the large Canadian lenders and so that alone re­stricts the amount of par­tic­i­pa­tion for­eign pur­chasers have in the new home mar­ket.

Van­cou­ver is one of the most di­verse, mul­ti­cul­tural pop­u­la­tions in North Amer­ica and the pre-sales that we en­ter into no doubt rep­re­sent that di­ver­sity. My hope is that we can start hav­ing more of a con­ver­sa­tion about the fact that the de­mand for hous­ing lo­cally con­tin­ues to out­pace sup­ply and, if we can ad­dress that fact, then we can then ad­dress how we bet­ter re­spond to the needs within the re­gion.

How much hous­ing do we need to sup­port the pop­u­la­tion growth in the Lower Main­land?

Most es­ti­mates in­di­cate that we will have to build 530,000 new homes be­fore 2041 to ac­com­mo­date this growth. To put it into per­spec­tive, we need to ac­com­mo­date an­other Burn­aby, New West­min­ster, North Shore and Van­cou­ver into the area be­tween the coastal moun­tains, the U.S. bor­der and English Bay to Abbotsford.

Rental Re­nais­sance Today’s fast-ris­ing rents are the re­sult of an apart­ment-build­ing slump be­tween 2003 and 2012. But re­lief is on the way as rental devel­op­ers play catch-up

Con­ver­sa­tions about hous­ing, par­tic­u­larly here in Greater Van­cou­ver, tend to re­volve around the cost of own­er­ship: how long can prices keep ris­ing? How much will in­ter­est rates go up? Where is ev­ery­one get­ting their down pay­ment from? But with rental hous­ing rep­re­sent­ing more than a third of homes in this re­gion, this more flex­i­ble (and of­ten less ex­pen­sive) form of ten­ure is an im­por­tant cog in our hous­ing mar­ket, if not at high-end din­ing es­tab­lish­ments.

If we start by look­ing at the sup­ply side of the rental mar­ket in Greater Van­cou­ver, pur­pose-built rental apart­ment starts have ac­counted for an av­er­age of 15 per cent of all apart­ment starts since 1990—not an in­signif­i­cant num­ber. Hav­ing said this, rental has played a vary­ing role over the past two-and-a-half decades, rang­ing from a high of 46 per cent of apart­ment starts in 2001 to a low of only four per cent in 2007. Fur­ther­more, dur­ing an ex­tended pe­riod from 2003 to 2012, the re­gion ex­pe­ri­enced be­low-av­er­age in­vest­ment in its rental apart­ment stock, with rental apart­ment starts av­er­ag­ing only eight per cent of to­tal apart­ment starts. Even in ab­so­lute terms, the 735 rental apart­ment units started on av­er­age each year be­tween 2003 and 2012 was 47 per cent be­low the 1990-2016 av­er­age of 1,375. As the re­gional pop­u­la­tion con­tin­ued to grow over this pe­riod, the con­se­quences of this un­der­build­ing are re­flected in the cur­rent state of the rental mar­ket in this re­gion.

Let’s take a closer look. The re­gion’s rental va­cancy, while not quite at an all-time low, threat­ens to get there. Hav­ing de­clined for five con­sec­u­tive years, it now sits at 0.7 per cent. (Only 2008, at 0.6 per cent, was lower.) Within the re­gion, 11 mu­nic­i­pal­i­ties are at or be­low the re­gional av­er­age va­cancy rate, with Delta and UBC hav­ing vir­tu­ally no va­cancy what­so­ever. The North Shore isn’t much bet­ter, with West Van­cou­ver and the two North Vans rang­ing be­tween 0.2

per cent and 0.3 per cent. At the “high” end of the va­cancy rate spec­trum is Co­quit­lam, at a mere 1.8 per cent. Again, this is largely a func­tion of a lack of ad­di­tional sup­ply in the face of con­tin­u­ally grow­ing de­mand.

A knock-on ef­fect of low and de­clin­ing va­cancy rates is ris­ing rents. With the av­er­age monthly cost of be­ing a ten­ant in Greater Van­cou­ver hav­ing risen steadily since 1990, the lat­est data from Canada Mort­gage and Hous­ing Cor­po­ra­tion ( CMHC) show av­er­age rent (for all bed­room types and all years of con­struc­tion) of $1,236 in 2016. This re­flects an in­crease of al­most 20 per cent over the last five years, and of 41 per cent over the last decade. Across the re­gion, the av­er­age rent varies con­sid­er­ably, with ar­eas such as UBC, West Van­cou­ver and the District of North Van­cou­ver rank­ing at the top. Sur­rey, White Rock and Maple Ridge land at the bot­tom, at nearly half the rent of the UBC area. (Note that CMHC’S av­er­age rent data do not nec­es­sar­ily re­flect true mar­ket rents for newly built and/or newly avail­able units, in part due rent-con­trol pol­icy and in part due to their ex­clu­sive fo­cus on pur­pose-built rental struc­tures.)

Per­haps not sur­pris­ingly, given the decade-long dearth of rental ad­di­tions, the most re­cent year-over-year change in av­er­age rent in Metro Van­cou­ver reached 6.4 per cent, mark­ing the high­est rel­a­tive in­crease in the past 25 years. Within the re­gion, five mu­nic­i­pal­i­ties saw av­er­age rents in­crease at a faster pace than this re­gion-wide av­er­age, led by the District of North Van­cou­ver, while only Pitt Mead­ows saw its av­er­age rent de­cline (by 4.4 per cent). Com­pared to the past 25-year av­er­age an­nual rent in­crease of 2.8 per cent, and the pre­vi­ous fastest yearover-year in­crease of 4.6 per cent (in 2007), it’s clear that a lack of sup­ply is driv­ing the cost of rent­ing up­wards.

So where do we stand today in terms of sup­ply? Well, if we un­der­built rental apart­ments in the decade lead­ing up 2012, we’ve been play­ing catch-up since, with the num­ber of rental apart­ment starts in each of the years 2013 to 2016 ex­ceed­ing the pre­vi­ous 25-year high of 2,535 in 2001. More specif­i­cally, rental apart­ment starts over the past four years have av­er­aged 3,730 per year, reach­ing a peak of 6,177 in 2016. Thus far in 2017 (through Au­gust), we’ve started 2,577 rental apart­ments, al­ready above the pre-2013 high. No­tably, this rise in rental con­struc­tion hasn’t been driven by in­creased con­struc­tion ac­tiv­ity over­all: com­pared to an av­er­age of 15 per cent go­ing back to 1990, re­cent rental apart­ment starts have been above this av­er­age, ac­count­ing for be­tween 17 and 25 per cent of to­tal apart­ment starts in Metro Van­cou­ver.

As these re­cent starts be­come com­ple­tions and avail­able for oc­cu­pancy, we would hope to see some mod­er­a­tion in the ten­sion in the rental mar­ket as mea­sured by rents and va­cancy rates. That said, to the de­gree that this above-av­er­age num­ber of com­ple­tions is just play­ing catch-up for more than a decade of un­der­build­ing, the ten­sion may per­sist for a few years yet.

Chang­ing Sky­lines, Chang­ing Lot Lines Canadian cities con­tinue to grow and ac­com­mo­date more res­i­dents, but not in the way they used to

The sky­lines and lot lines of many of Canada’s metro re­gions have shifted sig­nif­i­cantly since the early 1990s. A grow­ing share of the new hous­ing that has been added over that time is in for­mats other than that of the tra­di­tional sin­gle­fam­ily, de­tached house. As of Au­gust this year, more than 86,400 new multi-fam­ily units were started in Canada, more than dou­ble the num­ber of tra­di­tional de­tached homes. The lion’s share of these mul­ti­fam­ily units was in high-den­sity for­mats, with apart­ments ac­count­ing for 72 per cent of the new multi-fam­ily starts and the re­main­der be­ing semi-de­tached and rowhomes.

While the 1990s saw al­most 332,000 new apart­ments built Canada-wide, this num­ber grew by 74 per cent to 576,000 dur­ing the 2000s, and since 2010, 627,000 new apart­ment units were started in Canada. De­spite the per­cep­tion of a con­struc­tion boom—given the num­ber of con­struc­tion cranes that cur­rently dot the sky­lines of our ma­jor metro re­gions—the cur­rent rate of apart­ment growth is not the fastest on record. In fact, the great­est boom in apart­ment ad­di­tions was ac­tu­ally way back in the late 1960s and early 1970s. In 1969 alone more than 104,000 apart­ments were started in Canada, a level that has not been achieved since (the clos­est in re­cent his­tory was the 93,000 units started in 2012).

The in­crease in apart­ment con­struc­tion dur­ing the late 1960s and early 1970s was in part driven by the first baby boomers com­ing of age and leav­ing home, in part by grow­ing lev­els of im­mi­gra­tion to Canada—es­pe­cially fol­low­ing changes to im­mi­gra­tion pol­icy in 1967 and adop­tion of the of­fi­cial mul­ti­cul­tur­al­ism pol­icy of 1971. In­ter­est­ingly, it was also a time when fed­eral tax poli­cies were favourable to rental hous­ing, which saw a num­ber of these apart­ment ad­di­tions hit the rental mar­ket.

If this pe­riod rep­re­sented the high point of apart­ment de­vel­op­ment in Canada, the early 1990s rep­re­sented the low point: in the last decade of the 20th cen­tury, only 33,000 apart­ments were started on av­er­age each year (this dur­ing a pe­riod of rel­a­tively ro­bust to­tal starts of 124,000 per year). This was also a pe­riod of only mod­er­ate im­mi­gra­tion to Canada and a time when many of Canada’s boomers had tran­si­tioned from apart­ment liv­ing to fam­ily rear­ing.

These Canada-wide trends are cer­tainly re­flected in English Canada’s two largest metro re­gions. In 2016 a to­tal of 18,900 apart­ments were started in the Van­cou­ver metro re­gion, the largest sin­gle-year num­ber on record (the clos­est were the 13,000 units started in 2007 and 2008, and then the 12,000 in 1969). A sim­i­lar sit­u­a­tion is seen in Toronto with a record 29,617 apart­ment starts in 2012, fol­lowed closely by the 25,825 started in 2015 (by way of com­par­i­son in 1968 Toronto saw al­most 29,000 apart­ment starts).

Just as with the late-1960s boom, the cur­rent resur­gence in apart­ment con­struc­tion is in part be­ing driven by the pull of de­mo­graph­ics. On the one hand, we have a large and grow­ing younger pop­u­la­tion: in­deed, there are now more baby busters (those born 1966 to 1985, 9.7 mil­lion) and mil­len­ni­als (1986 to 2005, 9.5 mil­lion) than there are boomers (1946 to 1965, 9.3 mil­lion). Given this, you could say that the busters are the new boomers (in­so­far as ag­gre­gate size is con­cerned). That said, it is also be­ing driven by a grow­ing co­hort of re­tirees and emp­tynesters look­ing to down­size, a segment of our pop­u­la­tions that will see the great­est rel­a­tive growth in the com­ing years.

Un­like the late-1960s and early-1970s boom, how­ever, the apart­ment trend is also be­ing pushed by in­creas­ingly con­strained ur­ban land­scapes in our metro re­gions. Sup­port­ing ev­i­dence of this comes by way of the most re­cent cen­sus, which showed that of the 25 ma­jor mu­nic­i­pal­i­ties in the Lower Main­land that stretch from Hope to Squamish, 21 of them (fully 84 per cent) saw a de­cline in their stock of sin­gle-fam­ily hous­ing be­tween 2011 and 2016.

The tra­di­tional lot lines of many sin­gle­fam­ily neigh­bour­hoods are be­ing re­drawn to ac­com­mo­date our grow­ing, ag­ing, and chang­ing pop­u­la­tions. From the pull of de­mo­graph­ics to the push of ur­ban land eco­nomics, these trends will con­tinue to see the multi-fam­ily seg­ments of our hous­ing mar­kets grow in im­por­tance as the im­age of the tra­di­tional, large-lot, sin­gle-fam­ily home with a white picket fence fades from our rear-view mir­rors.

The Power of Eq­uity It isn’t just mi­grants and out­siders push­ing up home prices. Con­sider the role of ex­ist­ing res­i­dents’ ris­ing home eq­uity

When it comes to un­der­stand­ing ris­ing home prices, the driv­ers cited typ­i­cally range from im­mi­gra­tion and for­eign in­vest­ment to spec­u­la­tors, shad­owflip­pers, and the un­der­ground econ­omy. What is not com­monly cited in these dis­cus­sions about prices is the po­ten­tial im­pact that the re­gion’s ex­ist­ing res­i­dents may have on prices and af­ford­abil­ity.

Ac­cord­ing to the 2011 Cen­sus there were an es­ti­mated 2.4 mil­lion res­i­dents in Metro Van­cou­ver liv­ing in 909,500 homes (the 2016 data has yet to be re­leased). Of these homes, roughly 591,600 units were owned and the re­main­ing 317,800 were rented. The cen­sus also re­ported that 41 per cent of those in the re­gion who were home­own­ers had no mort­gage—that is, 240,000 house­holds lived mort­gage-free. While only 17 per cent of own­ers un­der the age of 45 had no mort­gage, 53 per cent of those 45 and older also did not. The pro­por­tion for these older age groups ranged from al­most a third of own­ers aged 45 to 54 (30 per cent) to fully 83 per cent of those 75 and older.

The cen­sus also gives us an es­ti­mate of the value of these mort­gage-free homes. In 2011, the av­er­age value of mort­gage-free homes in Metro Van­cou­ver was $771,257. House­holds led by those aged 55 to 64 had the high­est val­ues, at $818,000, with val­ues fall­ing off slightly through the older age groups to $706,000 for mort­gage-free own­ers aged 75 and over. Look­ing at this data, it’s pos­si­ble to es­ti­mate the to­tal cur­rent amount of mort­gage-free eq­uity in Metro Van­cou­ver.

Be­tween 2011 and Au­gust 2017 the re­gion’s bench­mark price in­creased by 64 per cent, which would have trans­lated into an in­crease in value of the av­er­age mort­gage-free dwelling to $1.27 mil­lion. Con­sid­er­ing the de­mo­graphic pro­file of the mort­gage-free homes and their associated val­ues re­sults in an es­ti­mate of $355 bil­lion in mort­gage-free eq­uity in the re­gion today. Of this amount, slightly more than half is held by the baby boomer gen­er­a­tion (those aged 55 to 74) with a fur­ther one-fifth be­ing held by those over the age of 75.

There’s a di­rect im­pact on prices of this older pop­u­la­tion trad­ing up the hous­ing value lad­der and be­ing able to ben­e­fit from the in­creas­ing value of their homes, years of pay­ing down their mort­gages, ris­ing in­comes and fall­ing in­ter­est rates that we have seen since the 1980s. These fac­tors have fa­cil­i­tated the Boomers move­ment up the hous­ing value lad­der, mul­ti­ple rungs at a time.

An­other im­pact on prices can be seen as this gen­er­a­tion helps their chil­dren get into the hous­ing mar­ket. For ex­am­ple, a 25- to 34-year-old cou­ple that has a house­hold in­come in the range of $75,000, qual­i­fies at an in­ter­est rate of 4.64 per cent, and af­ter meet­ing all other lend­ing cri­te­ria could af­ford a home in the range of $350,000 with a five-per-cent down pay­ment. Of in­ter­est, there have been more than 8,000 sales in Metro Van­cou­ver this year that this cou­ple could af­ford, rep­re­sent­ing 18 per cent of all sales year-to-date.

But con­sider the im­pli­ca­tions of one set of par­ents of­fer­ing to help boost the kids’ down pay­ment. Rate­hub stats show that for all first-time home buy­ers in B.C., 42 per cent re­ceived down pay­ment help from their par­ents (and 45 per cent of first time buy­ers who put down 20 per cent or more had parental help).

If the young cou­ple gets parental as­sis­tance to­ward a 25-per-cent down with an ad­di­tional $95,000, they have two op­tions. First they could pur­chase the same $350,000 condo that their cur­rent in­come could sup­port and sig­nif­i­cantly re­duce their mort­gage to $235,000 from $330,000. Or they could add the $95,000 to their ex­ist­ing pur­chase price and con­sider a pur­chase in the neigh­bour­hood of $445,000 (there have been 13,590 sales in the Lower Main­land this year that were no more ex­pen­sive than this, which rep­re­sented 30 per cent of all sales year-to-date).

This means the cou­ple’s buy­ing power is now al­most 30 per cent higher than it oth­er­wise would have been, thereby push­ing home prices up at the mar­gin. Put slightly dif­fer­ently, their pur­chase price is 30 per cent higher than what the cou­ple could oth­er­wise af­ford based on their in­come (but note that here, their mort­gage pay­ment has not changed at all).

There are cur­rently 250,000 boomer house­holds in Metro Van­cou­ver (144,000 of which are mort­gage-free) and more than 570,000 chil­dren aged 20 to 34. With the cen­sus show­ing that 220,000 of them are still liv­ing at home, the power of eq­uity will con­tinue to play a role in push­ing prices. ■

POP­U­LA­TION BY 5-YEAR AGE GROUPS | CITY OF VAN­COU­VER Data (right) show the net out­flow pop­u­la­tion in Greater Van­cou­ver oc­curs not for mil­len­ni­als but the Gen-x gen­er­a­tion 2016 2011 NET CO­HORT CHANGE

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