More Vancouver residents spending less income on housing: census

Peter Mitham
Western Investor

Renters most likely to spend more than 30 per cent of income on shelter A greater proportion of Vancouver residents are spending less than 30 per cent on shelter costs, according to census data. | Chung Chow photo
High housing costs have repeatedly won Vancouver top spot among the least affordable cities in Canada. The status was solidified in the most recent RBC Economics report, which indicated the average household in Vancouver required 82 per cent of its monthly income to buy a home. (An apartment was the most affordable option, requiring just 44.7 per cent of monthly income.)
But census data released this week shows that a lower percentage of homeowners and renters are spending more than 30 per cent of their income – the standard threshold when it comes to affordability – on shelter costs.
Within the city of Vancouver, fully two-thirds of households spent less than 30 per cent of their income on shelter in 2021, up three percentage points from 2016.
Provincially, 74.5 per cent of households spent less than 30 per cent of their income on shelter, up 2.5 percentage points from 2016.
This isn’t to say housing is within reach. Census data indicates that home ownership is more expensive in Vancouver, averaging $2,084 a month versus the national average of $1,498. This compares to $1,660 a month for rented accommodation.
But surprisingly, just 26.3 per cent of Vancouver homeowners spend more than 30 per cent of household income on shelter compared to 39.4 per cent of renters.
Rents are so daunting that the census estimates that nearly 26 per cent of tenant households are in “core housing need.” This is more than twice the proportion of homeowners in a similar predicament.
Statscan defines “core housing need” as when “a private household’s housing falls below at least one of the indicator thresholds for housing adequacy, affordability or suitability, and would have to spend 30 per cent or more of its total before-tax income to pay the median rent of alternative local housing that is acceptable.”
The challenges facing renters is even more severe in Metro Vancouver as a whole, with more than 27 per cent of tenant households in core housing need. The national average is 20 per cent.
While the challenges facing first-time homebuyers are well-known, rental housing remains a stubbornly entrenched issue. Starts peaked in 2016 at 6,841 units, according to Canada Mortgage and Housing Corp. statistics, a positive shift from 1,277 units in 2012 but not yet matched.
Despite the strong market for purpose-built rental units and the interest developers such as Adera Development Corp., Cressey Development Corp. and Mosaic Homes – which recently launched a dedicated rental division – have taken in building rental, starts last year totaled 6,683 units.
This year could come close, however, with 5,644 units started through the end of August.
Nevertheless, significant hurdles exist as projects face lengthy approval processes and opposition from communities. This has slowed the delivery of units, leaving many builders hoping for stronger measures on the part of government to encourage new rental units.
“Demand is far and away outstripping supply, and that’s affecting both rental – below-market and market housing,” said Ron Rapp, CEO of the Homebuilders Association Vancouver (HAVAN).
Government intervention could improve conditions, however, assisting affordability across the housing spectrum.
Hani Lammam, executive vice-president with Cressey, recently told Western Investor he expects the federal government will step in with incentives.
Ottawa recently pledged $1.4 billion to support construction of 3,000 rental homes at Squamish Nation’s Sen̓áḵw development at the south foot of the Burrard Street bridge, for example. The low-interest loan is from a five-year-old fund managed by CMHC aimed at building 71,000 rental units nationwide.
“We think the province will take the necessary steps to grease the wheels on the municipal front, make approvals easier,” Lammam added.

© 2022 Western Investor

Homeownership slips despite increase in household incomes

Shantae Campbell
other

7.7 acres of Langley agriculture land sells for $4.1 million

Western Investor Staff
Western Investor

Flat Agricultural Land Reserve land with highway exposure has future potential close to golf course.

Varing Marketing Group | Homelife Advantage Realty Co. Ltd., Abbotsford, B.C., for Western Investor

 

Type of property: Agricultural land

Location: 24680 Fraser Hwy, Langley, B.C.

Property size: 7.77 acres

Zoning: ALR (Agricultural Land Reserve)

Sale price: $4.13 million

Brokerage: Varing Marketing Group | Homelife Advantage Realty Co. Ltd., Abbotsford, B.C.

Broker: Joe Varing

 

© 2022 Western Investor

Net-zero home retrofits would cost up to $6.3 billion per year: study

Frank O’Brien
Western Investor

Study from CD Howe Institute says Ottawa would need to retrofit more than 500,000 homes per year to hit 2030 net-zero target

 How a typical house needs to change to meet net-zero use of fossil fuels by 2030. | Efficiency Canada

A federal government plan to reduce greenhouse gas emissions from Canadian homes to zero within eight years would cost up to $6.3 billion annually and require the refrofitting of more than 500,000 homes every year, according to a startling new study.

“Federal targets for reducing greenhouse gas emissions from Canadian homes face major challenges,” says the new report from the C.D. Howe Institute.

In Only Hot Air? The Implications of Replacing Gas and Oil in Canadian Homes, authors Charles DeLand and Alexander Vanderhoof provide a reality check on Ottawa’s plan to bring down 2030 building emissions in Canada by 42 percent compared to 2019, with the entire economy producing net-zero emissions by 2050.

Canadian homes emit about 6  percent of Canada’s total greenhouse gas (GHG) emissions. Under the federal government’s 2030 Emissions Reduction Plan (ERP), residential emissions should fall from about 44 MT (megatonnes) in 2019 to 25 MT in 2030, note the authors.

To assess the target, the authors examined current sources of emissions from Canadian homes and present a scenario in which homes using gas or oil to heat air and water are retrofitted with electrical heat pumps.

“Our modelling finds that Canada would need to retrofit over 400,000 dwellings per year to fully electrify all dwellings by 2050 and meeting 2030 targets requires even more aggressive action: over half a million retrofits would be required per year,” said DeLand, C.D. Howe Institute associate director, research. “Even in an extreme scenario where no new emitting buildings came on the market after 2022, emissions only fall by about 26 percent to 2030, still not enough to meet government targets.”

To further put the federal government’s 2030 targets into perspective, the number of retrofits needed each year alone is more than the entire housing stock of Saskatchewan, according to the authors.

DeLand and Vanderhoof determine that to meet the 2030 reduction target of 42 percent, not only would no zero new emitting homes need to be built after 2022, but the annual rate of retrofits would need to rise to 516,000 per year.

On a Canada-wide basis, they find that meeting the 2050 target will cost between $4.5 billion to $6.3 billion per year, roughly equivalent to two or three modern hospitals. On a cumulative basis from 2018 to 2050, this represents a total of $143 billion to $203 billion (in 2022 dollars).

“Numbers like these show that other emissions-reducing measures will have to bear more of the burden,” says DeLand. “These include energy efficiency improvements to homes, building code revisions, and combining heat pumps with traditional natural gas furnaces.”

The goal of a net-zero residential buildings sector is ambitious and won’t be cheap, concludes DeLand. “Federal and provincial governments need to acknowledge and understand the very real costs and trade-offs needed to achieve their ambitions with minimum harm to Canadians.”

 

© 2022 Western Investor

Vancouver investment deals strong in Q2 as headwinds increase

Peter Mitham
Western Investor

Cap rates set to rise as values reset following interest rate hikes

 The 115 Place housing co-op on Cardston Court in Burnaby ranked among the largest property deals of the second quarter at $85.5 million. The two towers sold to the Community Land Trust as part of a portfolio deal worth $140 million.Photo: Jennifer Gauthier

Metro Vancouver commercial real estate sales were down just 2 per cent in the second quarter versus a year ago, Altus Group data reveals, but recent interest rate hikes by the Bank of Canada could dampen activity in the latter half of the year.

“It’s pens down,” says Colin Johnston, president of research, valuation and advisory with Altus. “Do you want to buy in this market, knowing that maybe next month you can buy something cheaper? Do you want to sell in this market knowing that you may not get the price that you wanted?”

Johnston believes people are taking stock of the situation, with the result that less capital will be placed this fall while parties wait to see how things shake out.

“We’ve got this period of price discovery that’s going to happen for a few months,” he said. “[It’s] akin to the early days of the pandemic, where people didn’t know what was going on and it was hard to get some metrics because nothing was trading.”

According to Altus, the uncertainties will deepen in the coming months.

“With core inflation remaining elevated, ongoing geopolitical volatility and further interest rate hikes from the Bank of Canada continuing to push up financing costs, investor confidence is likely to erode with investment activity in the [Vancouver market] resultantly slowing substantially through the back half of 2022,” it said.

But that wasn’t the case in the second quarter, where $4 billion worth of properties changed hands in 671 transactions. This was a minor decline from $4.1 billion worth of deals in 678 transactions a year earlier.

It added up to a 26 per cent increase during the first half of the year versus 2021, with nearly $9 billion in assets trading during the period.

Residential land deals led the way, increasing 68 per cent in the second quarter versus a year ago, and 152 per cent in the first half of the year. Retail and industrial assets also performed well, with retail sales up 29 per cent in the quarter while industrial sales increased 4 per cent.

While industrial activity slowed, it was due to a lack of product rather than a lack of demand.

“Industrial assets were most desired by investors with more than $1.65 billion disbursed for 292 properties in the first half of 2022,” according to an Altus Group analysis.

Demand is driven by strong rental growth and a shift in institutional allocations away from retail and office assets. Metro Vancouver office assets saw a 32 per cent drop in sales value in the second quarter, and acceleration from the first quarter for a total decline in the period of 14 per cent.

“Ongoing discussions around hybrid work and a slow and cautious implementation of return-to-office mandates continue to project an aura of uncertainty around office assets in the estimation of some investors, which is applying a hindering effect on transactional momentum,” according to Altus Group.

Suburban office space is outperforming more central office properties, according to Johnston, because people are returning to offices but avoiding commutes where possible. The closer a workspace is to where workers live, the better for occupancy and in turn market value.

But he expects uncertainties around what those values might be until interest rates, occupancies and the economic environment as a whole stabilizes.

“I wouldn’t be surprised to see, November, December, a few deals happening, but in the next six weeks I don’t expect to see a lot of activity,” he said. “I think the fall will be quiet, but the real estate market continues to surprise me with its ability to rebound and I do know that people want to place capital.”

CBRE Ltd.’s recent second-quarter cap rate report indicated little change year-to-date on cap rates, but forecasted increases for later this year.

“Vancouver is well positioned to outperform through this transitional economic period,” Jim Szabo reported. “Despite this strong foundation, we expect cap rates will begin trending towards the high side of our ranges, and likely beyond, should interest rates continue to rise.”

The more recent analysis by Altus Group, based on a Canada-wide survey of 126 commercial real estate leaders as well as recent sales data, reinforces this prognosis.

Sixty per cent of survey respondents “indicated that they had adjusted both their cap rate and internal rate of return (IRR) expectations as a result of interest rate increases by the Bank of Canada.”  

“Capitalization rates and internal rates of return are going to have to increase, just because between 2017 and 2022 they fell consistently. So they just have to go up,” Johnston said.

 

 

© 2022 Western Investor

Canada’s inflation rate falls again

Fergal McAlinden
other

Annual price growth has now declined for two consecutive months

Canada’s annual inflation rate was down again in August, falling to 7% as gas prices posted a noted decline.

Figures released by Statistics Canada on Tuesday showed that last month’s decrease in the inflation rate was even greater than economists, who expected the rate to hit 7.3% on average, had anticipated.

Gas prices plummeted by 9.6% in August on a month-over-month basis, although food prices saw a 10.8% spike compared with the same time last year.

The national statistics agency said that multiple factors had contributed to that surge in the cost of food including extreme weather, the Russia-Ukraine crisis, higher input costs and supply chain snarls.

Read next: Economists weigh in on BoC’s future rate hike path

StatCan’s announcement marks the second consecutive month that Canada’s inflation rate has fallen, having hit its highest rate for 40 years (8.1%) during the summer.

Core inflation – which does not account for items like food and energy – also fell compared with July, from 5.4% to 5.2%.

The news comes just two weeks after the Bank of Canada announced a fifth consecutive interest rate hike aimed at bringing inflation down, with the central bank having now increased its trendsetting rate by a full three percentage points since March.

While inflation has been the Bank’s foremost concern throughout the year to date, the news that it has fallen for two consecutive months appears to be a vindication of its rate-hiking path so far in 2022.

 

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How are Canadians coping with plummeting housing affordability?

Fergal McAlinden
other

Homes are now less affordable than at any point in over three decades, research shows

 Among the many challenges facing new buyers in the Canadian housing market in recent years, one of the most prominent has been affordability, and the increasing difficulty of keeping up with runaway home prices.

While property values have dipped notably in many markets this year to date, they remain substantially higher than pre-COVID levels, with the onset of the pandemic having helped precipitate a housing market boom in Canada.

In August, the Bank of Canada’s Housing Affordability Index showed that homes were now less affordable for Canadians than at any point during the previous 30 years, a stark indication of how far out of reach homeownership has become for many prospective buyers.

That index, which measures the disposable income required for housing-related expenses, surged to 42.8% in the first quarter of this year – and had ballooned to 48.2% by Q2.

Banking giant National Bank has sounded an even more alarming note on Canadians’ declining ability to afford a home purchase, saying in August that Canada had experienced its “worst deterioration” of affordability for 41 years in the year’s second quarter.

With affordability having posted a sixth successive quarterly decline in Q2, National Bank estimated that 63.9% of income was now required to service a mortgage on a representative home in Canada, a level not seen since 1982.

Read next: No ‘one-size-fits-all’ solution for mortgage clients, says VP

That trend was spurred by rising interest rates, National Bank said, and also contributed to a significant slowdown in the resale market, which saw home sales slide 12.8% below their 10-year average.

Toronto, Victoria, and Vancouver all witnessed sizeable deterioration in the second quarter, according to National Bank, with Edmonton, Calgary and Quebec registering the most modest declines in affordability of 10 markets covered.

That said, the bank also noted that falling home prices, and stabilization of the benchmark five-year mortgage rate, were likely to improve affordability before 2022 comes to a close.

Royal Bank of Canada (RBC) economist Robert Hogue predicted last week that Canadian home prices were likely to hit their lowest point in spring, at around 14% lower than their February levels. Perhaps unsurprisingly, Ontario and British Columbia – which saw some of the most dramatic home price appreciation during the pandemic – are likely to account for especially significant price declines.

Mounting obstacles on the affordability front have seen many homebuyers explore the option of securing a co-signer for their mortgage, according to a prominent broker based in Toronto.

Drew Donaldson (pictured top), founder and CEO of Donaldson Capital, told Canadian Mortgage Professional that while traditionally viewed as an unconventional option, the co-signing route had grown in popularity as a means of getting around steep affordability challenges.

“When you get a co-signer, that helps the mortgage industry as a whole,” he said, “because as much as it’s not fun to get parents to co-sign or a friend to co-sign, if that gets you into the market, [it’s worth it].

Read next: What should a mortgage holder do if they lose their job?

“We have to think about the lending side as well: That’s going to reduce the risk on their side. Not only are they loaning to you, a first-time homebuyer who’s got one income, one job. If you lose your job tomorrow, but you’ve got a co-signer on the file, that co-signer is going to step in and make the payments for you. The lender at least has additional security over somebody else.”

Buyers are also increasingly relying on the so-called “Bank of Mom and Dad” to get a leg up in the homebuying process, with Canadian Imperial Bank of Commerce (CIBC) revealing near the end of last year that nearly 30% of new buyers had relied on help from family members when purchasing a home.

New entrants to the market who have not yet built up equity in an existing property face some of the biggest hurdles in putting together the money required for a down payment.

The average gifted amount also surged as prices spiked upwards, hitting $82,000 in 2021 compared with $52,000 in 2015. Two-thirds of new buyers that received a financial gift used that as the principal source of their down payment, while over $10 billion was provided in gift payments in the 12 months prior to the CIBC report’s publication.

Over 5% of relatives who provide gift payments do so through debt, according to that CIBC report, with the figure unsurprisingly climbing in the most expensive markets of Vancouver and Toronto.

 

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Whats’ behind the rise of credit unions in Canada?

Fergal McAlinden
other

Loan originations by those lenders posted a noted increase this summer
Credit unions and private lenders accounted for just 3.7% of Canada’s mortgage origination activity in 2021 – but the popularity of the former appears to be on the up.
Those lender types saw their market share rise to 6.7% by May, RATESDOTCA data showed, with originations by credit unions posting a marked increase over the summer (4.1%) between March 31 and June 30, according to Canadian Credit Union Association data.
That trend is developing as borrowers face greater challenges qualifying for a mortgage at the bank thanks to higher interest rates – and credit unions have demonstrated their ability to continue cutting into larger lenders’ market domination while maintaining a low level of risk, according to an author of a recent study on the challenges facing credit unions.
Marc-André Pigeon, director and strategic research fellow at the University of Saskatchewan’s Canadian Centre for the Study of Co-operatives, co-authored the C.D. Howe Institute’s recent report on how to build resiliency for Canada’s large credit unions alongside Murray Fulton, professor emeritus at the same university’s Johnson Shoyama Graduate School of Public Policy.

Pigeon told Canadian Mortgage Professional that larger credit unions’ aptitude for loan underwriting meant their loan loss ratios were usually better than banks in the small business lending space.
“Credit unions have shot their lights out,” he said. “They’ve grown their market share and they’ve done it without taking on a lot of risk. If you look at big empirical studies of credit unions – also elsewhere, but especially in Canada – their members tend to pay back their loans even if they’re struggling, and it’s partly because they have an attachment to the credit union.”
Read next: Credit unions, private lenders on the rise amid rate increases
That’s also because credit unions tend to have more of a local focus than major banks in Canada, with closer proximity to decision-making and better knowledge and information of the local region as a result.
“Decisions get made [locally], not in Toronto,” he said. “If the loan’s being made in Saskatoon… they don’t have to send it up the line – they’re not constrained by what Toronto does. They have better on-the-ground intelligence, and there’s a huge literature that backs this up.”
In fact, CFIB (Canadian Federation of Independent Business) member surveys commonly show that credit unions are able to manage lower loan losses as they grow their market share, Pigeon added.
In RATESDOTCA’s May analysis, Toronto-based mortgage broker Sung Lee noted that credit unions can offer more favourable conditions than traditional lenders. “With credit unions, they offer more flexibility, where you could qualify at just your five-year contract rate or in some cases, if it’s a variable, like a contract [rate] plus 1%.”
By the end of 2021, Canadian credit unions held nearly $280 billion in assets outside of Quebec, according to the C.D. Howe survey, which reviewed the practices of board composition at several of the country’s largest credit unions and made recommendations for improvements and better practice.
Read next: Could mortgage delinquencies increase as rates rise?
That said, despite a recent uptick in origination activity by credit unions, it’s important not to get carried away with their growth, Pigeon cautioned. While their loan volume has indeed increased, seasonal variation could be at play – and the figures may also be skewed somewhat by credit unions’ disproportionate popularity and market shares in Manitoba and Saskatchewan, and to a lesser extent Alberta, compared with other provinces.
“These are commodity play provinces that are not suffering like Toronto and Vancouver,” Pigeon said. “They’re not seeing the same price dynamics in housing. It’s a different economy, and they have big market shares here. And so those aggregate numbers may be a reflection of that.”
Credit unions may also have compared favourably to banks in recent months because the latter have taken something of a beating on the investment banking side, with the cash infusion that usually generates good bottom-line results for ROA (return on assets), efficiency, and capital somewhat weaker than it has been historically.
“So I’d say this is more of a pattern that I think is consistent with dynamic long-term perspectives,” Pigeon said. “Credit unions’ market share has been very stable – [but] I’d be surprised if it was changing dramatically, notwithstanding what we saw last quarter. I think it’s really dangerous to make too much of that.”

Copyright © 1996-2022 Key Media, Inc.

Home sales plunge by 32% since March rate hikes Scotiabank

Micah Guiao
other

Which Canadian cities are seeing home prices fall the fastest?

Micah Guiao
other

“It’s abundantly clear where the worst spots are,” says BMO economist

Real estate prices have been falling in almost every market, but Toronto is bearing most of the brunt as its surrounding cities and regions experience a correction like never before, according to BMO Capital Markets.

After prices peaked in March, the typical home price fell 12.4% to $760,400 in August. Southern Ontario was the hardest hit based on the February peak in the national benchmark price.

“Home prices are correcting across the country, but the speed and depth varies,” Robert Kavcic, senior economist at BMO, said. “It’s abundantly clear where the worst spots are – suburbs and exurbs of Toronto, where prices are now officially off nearly 20% in some areas. These markets were also the first to break (speculative psychology was arguably the worst in these areas).”

Read next: Economists highlight the Toronto housing market’s 2022-23 prospects

Select markets nearing a 20% price fall include Oakville, Kitchener-Waterloo, and London, while Hamilton and Barrie fall within the 10-15% range. Earlier this year, the Bank of Canada found that Toronto’s suburban real estate price surge had far surpassed the city, which could explain the significant pain concentration in Ontario.

Meanwhile, select markets with moderate price gains like Montreal and Ottawa are “correcting in an orderly fashion,” Kavcic said, as they experience slower price drops. Homebuyers in the quieter parts of Canada are also less affected by the rate hikes.

“Keep in mind that a market like Calgary had already struggled for a number of years before COVID, so prices there never really got stretched,” Kavic said.

 

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