New census data released last week shed light on whether high house prices are simply the result of a lack of housing supply.
Many industry pundits and policy advisers have long argued that supply is not keeping up with demand, hence the skyrocketing property prices.
But new census data – released every five years – shows that from 2016 to 2021, the supply of new housing in Vancouver has more than kept pace with population growth. The city’s population increased by 4.6%, while the number of housing units in the city increased by 5.8%. That’s a net population gain of 30,762 and a net housing increase of 18,929, according to analysis by Andy Yan, director of the municipal program at Simon Fraser University.
Meanwhile, it was a banner year for real estate. The benchmark price for all residential properties rose 17.3% in the area from a year earlier, according to the Real Estate Board of Greater Vancouver.
The information is in broad strokes, and only the first batch of census data to be released this year. But experts say it shows there is a need to focus on more than building flat-to-market housing. A balance must be found.
Otherwise, we could exacerbate the housing affordability crisis, says Steve Pomeroy of Focus Consulting. Mr. Pomeroy is an urban planner with 38 years of housing research behind him, including his work at Canada Mortgage and Housing Corporation. He has advised governments and national associations on housing analysis, and is a fellow of the School of Public Policy & Administration at Carleton University.
“If you don’t diagnose the problem correctly, you end up with the wrong solution. Census data provides concrete evidence that the insufficient supply argument is incorrect and has been overstated, including this week with the release of the Ontario Housing Affordability Task Force report,” said Ms. Pomeroy.
“I believe demand factors are the biggest culprits – the combination of strong income growth and very low interest rates is dramatically improving borrowing capacity and is augmented by accumulated equity in current homes. . And three-quarters of buyers are existing owners,” he adds.
Mr Pomeroy said the census also showed that around 8% of Canadian homes, or 1.3 million, are not used full-time by ‘usual residents’, although it is unclear how they are used. We can only assume that short-term rentals play a role, or that landlords are wealthy enough to leave houses empty part or all of the time.
None of this is to say we don’t need more housing, Pomeroy adds.
“I’m saying we need more supply, but if we’re not directing the kind of supply we want and making sure it’s priced or rented moderately, that helps- does it?”
BC housing minister keen to boost supply
Mortgaged until I die? For many it is
The question becomes, why are government officials and members of the real estate and development industry so focused on building a market rate offer?
The 2021 British Columbia government-funded ‘Opening Doors’ report said, “A growing number of homes available to buy or rent will reduce upward pressure on prices and provide tenants and buyers more options.” And the report of Ontario’s Housing Affordability Task Force just released argues for much more supply.
Mr. Pomeroy takes us back to 1975, when the Federal Housing Action Program was put in place to stimulate residential construction to ensure an adequate supply of housing for low- and middle-income households. One of the key elements of the program was to incentivize developers to build rental units at modest market rents through the Assisted Rental Program.
He says the main difference between the housing discussion then and now is the emphasis on increasing houses built at market price, lifting zoning regulations and encouraging intensive development around public transport.
“It is understood that such increased supply will cause new home prices to freeze or reduce,” Mr. Pomeroy wrote in a recent article. “I would say, based on the evidence of recent building activity and associated prices and rents, that it is not enough to simply stimulate supply in any form.”
Instead, he argues, policy must ensure that the extra supply translates into affordable housing.
“We’ve had a massive increase in the level of rental supply,” he says. “For work completed since 2016, depending on what part of the country you are in, rents are typically 140-160% of average market rent. So yes, we are building a lot more new rentals, but we are commissioning new rentals that cost between $2,000 and $2,400 per month. It doesn’t really help the affordability issue.
In addition, institutional investors and others have purchased “underperforming assets,” that is, older homes that have been remodeled or refurbished. Pomeroy said that between 2011 and 2016, around 60,000 affordable rental units (under $750) were lost each year, either demolished or converted to more expensive units.
“This is particularly a problem with municipal intensification policies, as older, more affordable rentals tend to be in downtown neighborhoods, which are more likely to undergo intensification.
“We look at the trees but not the forest,” says Pomeroy.
Based in Toronto, Robert Palter is a senior partner at McKinsey & Company and co-head of McKinsey’s real estate practice. McKinsey is an international management consulting firm for business, government, non-governmental organizations and others, and conducts extensive housing research.
Palter says census data doesn’t paint the full picture. For example, in Toronto, private dwellings grew by 7% and population by 4.6%. If the accommodation is for groups of people, this may be sufficient, but not for single-person households, which are on the increase. There is a need for more information on persons per household and type of housing under construction.
“Let us remember that the denominator of the population is twice the denominator of the houses. If you think the vast majority of those people we added were one-person households, there weren’t enough houses. If you look at it and say, “no, the vast majority of the people we added came in families of four or five, and they all lived in one house,” you would say, “yes, maybe we we added enough houses”. ”
Mr. Palter says the increase in housing construction alone cannot lower prices because of the higher and better land use. Whether it is a house or an apartment building, the buyer pays the price as well as the cost to renovate or build new. The building will be “priced to the max” for what is most profitable, and that is the challenge.
“I may be in the minority here, but I’m not entirely convinced that just a significant increase in supply will lead to significant moderation in prices, because… with the exception of derelict parts of towns, real estate is valued to its highest and best use,” Mr. Palter said.
“Here is an analogy: in the United States, there are all these ghost shopping centers, on the outskirts of cities. And most of the retailers have gone bankrupt and the owners are losing money. People keep asking, ‘why aren’t they being refurbished?’ Because when they were built, it [mall] was the most valuable use of that land in that space, and any deal the landlord gets for that mall is less than what that building is worth today.
What does it take to strike a balance between building market rates and helping those at the bottom of the income scale?
“I don’t believe you can make all the pieces fit together economically without causing some kind of distortion somewhere, because for that to work there has to be some kind of subsidy. If you take a purely libertarian view of the problem, there would be no subsidies or government intervention, and all you would have would be insanely expensive condominiums and super high-end retail businesses. And that doesn’t make for a very interesting, inclusive and sustainable city.
“If you go to the other extreme, very regulated, very subsidized, you run the risk of a hodgepodge of poorly developed real estate, almost uninteresting because the developer is doing his best to make money but also responding to regulatory needs… That’s not great either. So the question is, ‘How do you find common ground on this one?’
Your home is your most valuable asset. We have a week Real estate newsletter to help you stay up to date with housing market news, mortgages, the latest closings and more. Register today.