Does the city have enough zoned land, and if so, why do prices keep increasing? Should we rezone more land along transit lines?
Affordability or price is the result of the interaction between supply and demand. If demand exceeds supply, then price has to go up.
Demand will be spurred by:
•a robust economy in B.C. – the province’s gross domestic product has increased annually since 2011;
•positive provincial net in-migration – interprovincial from January to June 2016 is 13,164; international for the same period is 18,565, an annual equivalent for total immigration of 63,458;
•increasing rental rates, which make home ownership a more logical alternative – according to University of British Columbia Prof. Tom Davidoff, “Between April and August 2016, rents for both one- and two-bedroom units increased 15%.” According to RentBoard.ca, the average city of Vancouver listed monthly rent for a one-bedroom unit is $2,006 and two-bedroom is $2,841;
•continued low mortgage rates – 2.66% fixed-rate for three years with CIBC;
•population growth – City of Vancouver states current population is 631,486, a 4.4% increase from 2011 census; and
•wealth transfer – $197 billion in equity for properties owned by those over 55 in Greater Vancouver.
Analysis from Urban Analytics Inc.’s Michael Ferreira showed that sales exceeded new units coming on stream in 2016 in all municipalities. Demand was always ahead.
The company also prepared an analysis of changes in supply and the effect on price first-quarter 2015 to first-quarter 2016 for townhouse, low-rise and highrise. Supply dropped between 63% and 80%. Price rises during that period were between 15% and 40%. Projects sold faster than supply was added, which caused a price escalation. Demand was increased by “urban refugees” moving east to find accommodation they could afford. Vancouver supply dropped by between 80% and 89%, depending on type and area.
A study of the number of units sold to determine a fall or rise in demand is impeded by any restriction on supply. Few units available; few sold. Evidence of rising price is a better determinant of demand.
In Vancouver for 2016, multi-family building permits were 462 per month, but encouragingly, the number is well above the five-year average (2010 to 2014) of 297 per month. In 2015, it was 479 per month. It is encouraging that for the first two months of 2017 the number was 701 per month. That said, a recent Goodman Report noted that “11,784 market rental units, making up 105 buildings, are under construction, approved or proposed throughout Metro Vancouver.” Hence a number of units processed by the city could be rental (no city data available) and will put further pressure on the city building permit approvers for condominium projects, potentially reducing the number of new condo buildings being approved.
Urban Analytics estimates that there will potentially be 3,500 units coming on stream in 2017 in the city, which is 292 per month, significantly below the last two years when demand exceeded supply.
Nineteen new condominium projects totalling 1,727 units were launched in 2016 on Vancouver’s west side. By the end of December more than 75% were sold. In East Vancouver, 99% sold out of 341 on the market, and in downtown 94% of 876 units released were sold.
A 25% drop in new listings for January-February 2017 (475 per month) compared with the same period in 2016 has further tightened the situation for new condominiums.
The average number of new Multiple Listing Service listings in each month for the city of Vancouver for 2012 to 2016 from the Greater Vancouver Real Estate Board was 692. The 2016 figures are skewed due to a significant fall-off after the announcement of the foreign-buyers tax.
The number of listings is falling. If demand continues or even drops slightly, the city still has an equilibrium problem. It is apparent from these statistics that there is insufficient supply, and that is why prices are rising. Currently zoned properties would permit 40,837 multi-family units to be built. Based upon projected city permits of 4,000 per year, this is 10 years’ supply. There are also a further 35,420 designated units yet to go through the rezoning process.
The city has, in theory, lots of supply, but it becomes supply only when it is built.
Supply availability assumes that:
•building permits are approved;
•zoned land owners want to sell;
•current use is no longer highest and best use; and
•there is demand for units in zoned areas.
Or, in a nutshell, there must be desired sites available. If not, supply will be restricted. Furthermore, if the city does not approve more permits annually, then supply will continue to fall behind.
The evidence points to insufficient available supply in Vancouver. Lack of supply and an imbalance with demand will continue to inflate prices. It is irrelevant what the capacity might be, if there are no appropriate sites available. Supply in the city is unable to meet demand, and hence the addition of more units, that are economically viable, is a necessity. Density on transit lines is an acceptable and sustainable model. It gives city residents many benefits and places the burden of cost on those who benefit. But regardless, city hall must approve more condominium units. •
Peter Austin is principal of Austin Real Estate Consultants, a company that specializes in property tax assessment reviews and appeals and appraisals.
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