Canadian Inflation (April 2023) – May 16, 2023 Canadian prices, as measured by the Consumer…
In a recent news article it was reported that 1 million new Canadians came to Canada in 2021.
This is a record number and far surpasses average immigration numbers over the past decade which range between 250-300,000 new people coming to Canada.
In my view, this is a very very good thing for Canada for many reasons, but may well result in even worse housing shortages with skyrocketing rental and real estate prices due to a chronic lack of homes and new homes.
Politicians Control Supply & Demand in Canada’s housing market
Due to the nature of Canada’s constitution the federal government controls immigration, with a few exceptions. Immigration is the primary source of population growth in Canada. Population growth creates demand across the economy and particularly for housing.
Furthermore, the federal government also controls how easy it is to get a mortgage here in Canada by way of the department of finance and other bodies. How easy or difficult it is to get a mortgage has a huge impact on the demand for real estate in Canada.
So basically the federal government controls demand for housing.
Provinces and Cities typically control the creation of new housing.
Cities and to lesser extent, the provincial government control the creation of new housing in Canada. Cities control zoning which sets out what can and cannot be built with their borders. Cities also control changes to this zoning. Cities also control the permission to build or not within their borders.
So cities effectively control the supply of new homes in British Columbia.
Not enough homes – Chronically constrained supply
The BC government (until recently) and city governments particularly the former, have been completely in denial about the need and demand for new housing. For the last 40 years at, Cities have not been building enough housing across the Vancouver region and across British Columbia and have not kept up with the population growth in the region up to now. This situation endures.
This means currently, across the Vancouver region and British Columbia, we do not have enough market housing, rental housing, subsidized housing, supportive housing. Housing of all types is in short supply across British Columbia.
The result of this has been some of the highest real estate prices in Canada if not globally. Some argue this has also increased and exacerbated homelessness.
In my view this is negligence on the part of these governments and is the direct cause of the very high real estate prices we see in the region.
1,000,000 New Canadians = Enormous demand shock
1 million new Canadians is an enormous increase in demand across the Canadian economy. This also more specifically will create an enormous increase in demand for housing across Canada.
What does 1 million new Canadians mean for the real estate market?
A million more people looking for rentals and homes to buy.
The Vancouver regions real estate market can be characterized as being pretty much always a tight market. This means almost always more home buyers than home sellers. We very rarely see a buyer’s market in the Vancouver region. Basically it’s always a mild sellers market that is subjected to periodic demand shocks that create extreme seller’s markets. These demand shocks come in the form of influxes of people from elsewhere in the world with large amounts of money (somewhat slowed by the Foreign Buyers Tax) or liquidity injections like super low interest rates.
I’ve been a realtor in Vancouver since 2005 and I have seen hotter markets than we have now with interest rates not much lower than we’re seeing now.
One of the reasons why I got into selling presales is because in real estate booms in years gone by there would quite literally be no resale options available for my clients to purchase.
Anything that did hit the market would sell immediately in a multiple offer situation and ever at increasing prices.
The only supply of properties for my clients that was available was new construction or pre-sales. Over time the supply pre-sales also became tighter. There would be times when I would tell clients that quite literally there would be no one bedrooms available in the downtown real estate market.
Those prior booms will be child’s play compared to what is coming soon to the real estate market.
The Coming Property Price Surge
I would suggest that within the next 3 to 12 months the real estate market will start to heat up due to stabilizing or falling interest rates and continued extremely high level of immigration were experiencing now.
Expect the low levels of supply to decline further as all of the existing resale properties are snapped up and then anything new coming to market will sell in multiple offer situations at ever surging price points.
This has the potential to be extremely uncomfortable for the political class and others in this country.
Looks like the BCREA agrees!
What needs to be done?
In terms of the upcoming real estate boom quite frankly there’s nothing that cities across the region or across the province can do at this point.
Beyond that cities and the province would be advised to get ahead of housing demand by creating the conditions for excess supply to hopefully put some downward pressure on real estate prices overall going forward if that is possible.
This does not specifically mean increased government spending on housing (though this does need to happen to address homelessness).
What needs to be done is a dramatic increase in land and airspace to be made available for the development of new market housing by cities, which is relatively inexpensive for governments (can often be revenue province). Speeding up the development process to reduce red tape and cost for builders will also reduce the cost of housing if coupled with a dramatic increase in supply. Also, increased spending on infrastructure to make more land available for development such as bridges, Skytrain, roads should also be part of the solution.