Metro real estate in for a wake-up call
Douglas Todd
The Vancouver Sun
More condominiums and houses are under construction in Metro Vancouver than ever before.
But who is going to buy them — let alone live in them — in an era mutated by COVID-19? Who will come forward when a global lockdown has pummelled the three key factors that fuel housing demand in Canada?
A record-breaking 44,000 “homes” are being built across Metro Vancouver. Almost 37,000 are condominiums or apartments. Planned years in advance to serve a once-fiery market, their construction has not been stopped by lockdown measures.
Judging by the trend of the last decade, developers of new Metro properties would expect about four in 10 of their dwellings to be snapped up by people who don’t actually live in them — so-called investor-owners, who leave the “homes” vacant or rent them out. (The real-estate market is similarly vulnerable in Toronto, where a record 73,000 units are under construction.)
But who are these houses and condominiums to be sold to at a time when the pandemic is causing double-digit unemployment, has pushed household debt and default into uncharted territory and thrown nerve-wracking unpredictability into population-growth forecasts based mostly on offshore in-migration?
A record 44,000 housing units are being built in Metro Vancouver, plus another 73,000 in Greater Toronto. Source: CMHC / Steve Saretsky
Metro Vancouver and Toronto are not alone, especially among desirable cities, in seeing their real-estate foundations cracked by the novel coronavirus, which has already caused the volume of sales to plummet.
Prices are set to be next. Various analysts have forecast housing values in Great Britain, Australia and the United States to drop by 10 to 20 per cent over the next year or two.
Predictions about the future of Canada’s housing prices are all over the proverbial map, to an almost comical degree (although few are laughing). Stephen Punwasi, of Better Dwelling, has compiled the wildly diverging Canadian housing forecasts of a dozen big-time analysts.
They range from TD Canada Trust and Scotiabank over-optimistically prophesying, at least for public consumption, that prices will rise six to 12 per cent over the next two years. That contrasts with credit agencies such as Moody’s and DBRS Morningstar more quietly predicting they will drop 10 to 30 per cent. The Canada Mortgage and Housing Corporation (CHMC), for its part, is looking at declines of nine to 18 per cent.
Meanwhile, the Canadian Real Estate Association has simply decided to not make its usual quarterly prediction. That leaves Punwasi musing: “CREA’s mom must have told them if they can’t say anything nice, don’t say anything at all.”
Right now, in the havoc-filled short term, it’s prudent to take the forecasts of self-interested mortgage-holding banks far less seriously than the more impartial credit and housing agencies. Their predicted price drops could hurt over-leveraged owner-investors, but end up being good news for working people who have withstood COVID-19 and might be able to buy a first home or move into something better suited to their needs.
It’s grim out there, though. Virtually no one is blind to the first COVID-19 factor set to hammer prices: That it has cost more than three million Canadians their jobs, at least temporarily. The second crisis, of growing household debt, is also clear: CMHC president Evan Siddall said this week that 20 per cent of Canadian mortgages could go into arrears.
When it comes to the third COVID-19 factor threatening housing sales, only a few industry specialists talk about how migration patterns, which are changing dramatically because of the pandemic, will hit housing demand across Canada and especially Toronto and Metro Vancouver (the latter with a population of 2.6 million).
More than four out of five people who have moved into Metro Vancouver (and Toronto) in recent years are foreign-born. Many are immigrants, but an unusually large portion — 35 per cent — are non-permanent residents, such as international students, guest workers and refugees, says B.C. housing analyst Steve Saretsky.
Not only have COVID-19 precautions virtually shut Canada’s borders to newcomers, they’ve led to many of the more than one million international students and guest workers in Canada (about 180,000 in Metro Vancouver) returning to their homelands. That’s hitting housing, especially the rental markets of Vancouver and Toronto, which have the highest immigration rates per capita in North America.
No province in Canada relies more than B.C. on in-migration to expand its population, which creates more demand for housing. Citing data from Capital Economics, Saretsky wrote in his April report: “In B.C. we are particularly vulnerable to a reduction of migration flows. Net immigration was 14 times as large as the net natural increase (ie. net births less deaths) — versus fives times for Canada as a whole.” (See chart.)
One politician paying attention to these many ways COVID-19 is affecting the region’s mammoth housing industry is Vancouver city councillor Colleen Hardwick.
The daughter of the late University of B.C. geographer Walter Hardwick (who also served on Vancouver council) has a motion asking why the city has a housing strategy focused on building far more units that it actually needs.
Hardwick’s motion — set to be debated next week, with supportive presentations by several B.C. housing scholars — says that in light of “post-pandemic realities,” City of Vancouver politicians and staff should be re-examining why it is targeting to build 72,000 new dwellings over the next decade.
The city of Vancouver, population 680,000, has been growing by one per cent a year mainly because of offshore migration, says Hardwick’s motion. At that growth rate, the city really needs only 30,000 new housing units over the next 10 years.
And given that “there’s no question COVID-19 is going to have a major impact on housing” and migration flows, Hardwick said in an interview she wonders why so many officials have been creating a “scarcity narrative” to justify increased zoning densities and intense surges in housing supply.
In order to plan housing effectively, Hardwick is urging city staff to provide better data and a more credible construction target, one that will meet the needs of ordinary people who live and work in the region, not necessarily serve luxury buyers, many of whom spend foreign-sourced capital.
Along with some other savvy municipal politicians in Metro Vancouver’s suburbs, Hardwick is aiming for a more healthy way forward in a region where many developers have for years been erecting dwellings largely to satisfy the desires of owner-investors and speculators.
© 2020 Vancouver Sun
