Vancouver house prices hitting new highs because of short supply

In a frenzied Vancouver real estate market where eye-popping prices are now as predictable as cherry blossoms in March, the latest sales statistics contain some truly remarkable figures that show just how difficult it has become to buy even a modest condo in the city.

Last month's Multiple Listing Service (MLS) sales data, analyzed by research firm Snapstats, reveals by the end of the month sales of downtown Vancouver condos and townhomes just under $600,000 were dramatically outpacing new listings. The same was true for attached properties at the $700,000 mark on Vancouver's east side. In other words, the pool of available homes is draining faster than it's being replenished.

The B.C. Real Estate Association says it has been seeing this trend — over 100 per cent sales ratios — throughout Vancouver for many months now, and has even coined a special term for the phenomenon — an "accelerated" market. In comparison, a traditionally hot "sellers" market is defined at a sales ratio of 21 per cent or higher.

While much of Vancouver's real estate conversation has focused on extreme sales in a handful of west side neighbourhoods, all of these "accelerated" condo and townhome sales were units priced under $1 million.

Offshore money, absentee landlords and even the latest villain, so called 'shadow-flippers', all get blamed for putting home-owning dreams out of reach.

But what if the answer is much simpler — what if there simply isn't enough housing to meet a steadily growing population?

'Looking for a villain'

The Urban Development Institute — a non-profit association representing the development industry and related professions — argues that while a great many factors contribute to rising prices, lack of supply — both in type of house and location — is a major problem.

But it's not a bogeyman that can be easily unmasked and banished. People don't hold rallies about increasing supply of homes, and there is no #BuildMoreMultifamilyHomes trending on Twitter.

"The answer," said institution president Anne McMullin, "is to increase density and people don't want that. They're looking for an easy answer — let's blame others."

The pace of new home construction in Vancouver has remained virtually unchanged over 15 years, averaging under 4,500 new completed units a year according to CMHC data. Compare that to the population growth that B.C. saw in 2014 — 55,000, mainly through immigration and in-migration.

McMullin says many more of those people want to live in the city of Vancouver than in other parts of the province, so prices will naturally climb.

"When I was in my 20s I was renting on the west side and I wanted to buy a west side home. A 33-foot lot was $350,000. It was out of the question. It was outrageous then and it's still outrageous but it has gotten worse because there's a lot more people than were here 20 years ago, but the supply has not changed."

Interestingly, the data shows of the approximately 4,500 new homes completed last year, about 1,300 were single family. But since there is no new land, most of those were simply replacing existing older homes — in other words they didn't add additional stock. To make matters worse, McMullin says in 2015 only 80 family-friendly townhomes were built in the city of Vancouver. "What do you think will happen to prices?"

An added factor, according to the B.C. Real Estate Association, is that Vancouver is still, in a way, recovering from the leaky condo crisis of the 90s. Both buyers and sellers were scared away from condos for years, and supply took years to catch up.

A dying dream

Still, that argument isn't accepted by many who see foreign cash as the single biggest reason why sales are off the charts and home ownership is a dying dream.

South China Morning Post Journalist Ian Young has become something of a folk hero for those who subscribe to that view.

"You're not going to tame the dragon of house prices by increasing supply," argues Young.

He estimates that up to 1,400 wealthy immigrants arrive in B.C. each year — allowed into Canada because they're rich — have contributed to a trickle-down effect where others are edged out.

"If granny on Cambie Street sells her house for $3 million [to a wealthy immigrant] what does she do? She doesn't leave the market. That money goes into a townhouse in Kitsilano and three condos for her kids."

According to the B.C. Real Estate Association, though, more than 50,000 homes changed hands last year in Metro Vancouver and the Fraser Valley. Can 1,400 wealthy immigrants really cause a rarely seen "accelerated" market for condos and townhomes in Vancouver?

The need for rezoning

UBC Sauder School of Business associate professor Tom Davidoff, who proposed a property surcharge on vacant homes as a solution that might slow demand, agrees much more needs to happen on the supply side at Vancouver's city hall to create multi-family homes.

He characterizes the city's rezoning practices as "moronic" because density is not politically popular, and the public at large simply "stink at economics."

"Having single family (homes) at these property values is ridiculous," he said. "And who does it benefit?"

Speaking about a public 'town hall' on housing held last week, Davidoff said people are asking for the impossible: "We want low density and affordability. We want affordable single family homes."

And in this "accelerated" market, that's not going to happen.