Glut of New Home Supply Coming to Market

[misher]

https://m.huffingtonpost.ca/2019/01/13/h...tiwdkz83gze&utm_campaign=mw_entry_recirc


I think everyone knows that Metro Vancouver is having a ton of developments reaching completion just as sales have fallen drastically. This is being seen across the country.

The above article discusses how we are gambling on whether new immigration will take up this housing, or if we will reach a state of oversupply with many developments sitting unsold or selling for bargain prices (assuming the developer doesn’t go bankrupt).

With the construction and real estate industries making up a large portion of our job industry and GDP what’s happening is going to be a very important outcome.

Basically two ways things could go one of them will result in lower home prices but a weaker economy, and the other will likely maintain home prices (of course we may fall somewhere in the middle).


Even with the fall in sales home prices appear to be remaining resilient so perhaps we will be playing a game of who blinks first https://dailyhive.com/vancouver/royal-lepage-metro-vancouver-housing-report-january-2019


It’s also possible but unlikely the BC NDP will have to take action should the economic outlook and taxes be affected too greatly.

[Changing City]

Originally Posted by misher

https://m.huffingtonpost.ca/2019/01/13/h...tiwdkz83gze&utm_campaign=mw_entry_recirc


I think everyone knows that Metro Vancouver is having a ton of developments reaching completion just as sales have fallen drastically. This is being seen across the country.

The above article discusses how we are gambling on whether new immigration will take up this housing, or if we will reach a state of oversupply with many developments sitting unsold or selling for bargain prices (assuming the developer doesn’t go bankrupt).

With the construction and real estate industries making up a large portion of our job industry and GDP what’s happening is going to be a very important outcome.

Basically two ways things could go one of them will result in lower home prices but a weaker economy, and the other will likely maintain home prices (of course we may fall somewhere in the middle).


Even with the fall in sales home prices appear to be remaining resilient so perhaps we will be playing a game of who blinks first https://dailyhive.com/vancouver/royal-lepage-metro-vancouver-housing-report-january-2019


It’s also possible but unlikely the BC NDP will have to take action should the economic outlook and taxes be affected too greatly.

The article's somewhat confusing, because it's presenting a scenario as if it's a prediction. The data in the article shows about 1,500 unsold units under construction, and suggests that could increase to about 5,000 in a couple of years time.

Unless I'm misunderstanding how things work, the fact that there's a record number of homes under construction isn't related to how the number of unsold homes under construction might go up. All but about 1,500 of the homes under construction have already got buyers.

One way that number could go up, is if buyers walk away from an already purchased property. They'll lose their deposit, and it would be a pretty drastic move on their part.

The other way the number could go up is if developers start construction of projects that only have a modest level of pre-sales. Not too many developers have that option - most borrow financing to build (even big developers like Concord), and most lenders require a proportion of pre-sales before they'll release the funds. That's presumably why projects like the Avani Centre in Surrey are offering big discounts to current buyers, to try to get the project past their threshold. If projects like that are pulled from the market (which happened quite a few times several years ago, when the 2008/9 market slowdown happened) then the number of unsold units actually goes down.

CMHC data a month ago suggested there were now around 2,300 unsold new properties in Greater Vancouver in total, and half of those are single family homes. Only 800 or so were apartments. Over 16,000 new homes had been 'absorbed' in the first 11 months of 2018 - more than in the equivalent period of 2017.

[whatnext]

I thought you were one of those arguing more supply was needed? I guess we will find out how many buyers were expecting to quickly sell these new units for a profit pretty soon. Might be a good time to take advantage of some desperation selling.

[misher]

Originally Posted by whatnext

I thought you were one of those arguing more supply was needed? I guess we will find out how many buyers were expecting to quickly sell these new units for a profit pretty soon. Might be a good time to take advantage of some desperation selling.

It definitely is! Especially among rentals.

What I fear happening is that the current drop in sales stops development which we end up paying for in 5 years once we need more supply again.

It may lead to an annoying cycle where we need more supply, it arrives, we stop needing it and development stops, then we need it again.

I was hoping strong sales (at least those we had previously) would push supply and a bunch of investors would buy condos to rent out leading to lowering rents. Now few are purchasing condos to rent out, most are purchasing to live in them which is bad for the rental market. Its going to hit renters doubly hard if the economy goes down the crapper too which may or may not happen.

At least that my opinion.

[Galaxy]

I wished that the foreign buyer's tax was not applied to the new supply of condos as this would have allowed for the liquidity in the overall market to allow the funding of construction of new units during slow periods in the overall economy. The tax should have not also applied to the rental investment market because the added capital from foreign investor class could have funded a lot more projects if the returns were attractive enough.

[misher]

Originally Posted by Galaxy

I wished that the foreign buyer's tax was not applied to the new supply of condos as this would have allowed for the liquidity in the overall market to allow the funding of construction of new units during slow periods in the overall economy. The tax should have not also applied to the rental investment market because the added capital from foreign investor class could have funded a lot more projects if the returns were attractive enough.

A reasonable proposal. We were looking to improve affordability and it’s not like those looking to buy at the lower end were the ones buying the super expensive new condos.

An addition to this, perhaps the tax could be waived on old condo purchases if the condo is rented out for the next 5 years?


I feel like your proposal would have dropped rents immensely.

[goldenboi]

Development shouldn't stop if prices lower. You don't need to sell million dollar condos to make money. Many other cities with lower land values still have lots of development. Unless building costs are astronomically higher in Vancouver (which I believe they are), in which case we should be having a discussion about how to lower building costs, rather than worrying about prices falling.

One of the most effective measures that we could take to alleviate the housing crisis would be to make it easier for small developers to build missing middle housing types. I cannot emphasize this enough. Eliminate parking minimums - San Francisco is doing it. Allow rowhouses in every neighbourhood - Minneapolis is doing it (well kind of). Get rid of the excessive restrictions that cripple architectural creativity and make it possible for only the largest developers to operate in Metro Van. Does anyone else feel like the real estate market is exhibiting some frightening oligopolistic characteristics?

Yikes

[misher]

Originally Posted by goldenboi

Development shouldn't stop if prices lower. You don't need to sell million dollar condos to make money. Many other cities with lower land values still have lots of development. Unless building costs are astronomically higher in Vancouver (which I believe they are), in which case we should be having a discussion about how to lower building costs, rather than worrying about prices falling.

One of the most effective measures that we could take to alleviate the housing crisis would be to make it easier for small developers to build missing middle housing types. I cannot emphasize this enough. Eliminate parking minimums - San Francisco is doing it. Allow rowhouses in every neighbourhood - Minneapolis is doing it (well kind of). Get rid of the excessive restrictions that cripple architectural creativity and make it possible for only the largest developers to operate in Metro Van. Does anyone else feel like the real estate market is exhibiting some frightening oligopolistic characteristics?

Yikes

It’s a combination of construction costs, taxes, development fees, etc which left a slim margin of profit for developers when things were going good and haven’t decreased since things started going worse.

I’ve always found it pretty hillarious how the city with the housing crisis has the longest approval times and strictest building code.

[fredinno]

Originally Posted by goldenboi

Development shouldn't stop if prices lower. You don't need to sell million dollar condos to make money. Many other cities with lower land values still have lots of development. Unless building costs are astronomically higher in Vancouver (which I believe they are), in which case we should be having a discussion about how to lower building costs, rather than worrying about prices falling.

One of the most effective measures that we could take to alleviate the housing crisis would be to make it easier for small developers to build missing middle housing types. I cannot emphasize this enough. Eliminate parking minimums - San Francisco is doing it. Allow rowhouses in every neighbourhood - Minneapolis is doing it (well kind of). Get rid of the excessive restrictions that cripple architectural creativity and make it possible for only the largest developers to operate in Metro Van. Does anyone else feel like the real estate market is exhibiting some frightening oligopolistic characteristics?

Yikes

Should we eliminate parking minimums? Is the car ownership (not just usage rate) actually low enough to justify that?

But yeah, we should allow rowhouses everywhere, which is more or less taking place in the outer suburbs, where older SFH are being upzoned into medium-density. The irony is that the outer suburbs, removing the land reserves and parks, are actually becoming more dense than the inner suburbs.

But honestly, it's largely something that's going to take time. People still want SFHs because they still have an Americanist mindset of everyone having a wide lawn, and people still use cars enough to make even dense developments require tons of parking.

Originally Posted by misher

It’s a combination of construction costs, taxes, development fees, etc which left a slim margin of profit for developers when things were going good and haven’t decreased since things started going worse.

I’ve always found it pretty hillarious how the city with the housing crisis has the longest approval times and strictest building code.

Mostly just the COV, not the rest of the reason. But the COV is big enough that the spillover is causing everyone else to pay with higher prices.


This is why I wish the COV could balkanize back into Point Grey and South Vancouver. Each section is as culturally distinct as Coquitlam is from Anmore and from the City of Langley. Why are the wealthy residents of Shaughnessy helping dictate the future of Downtown, or East Van?

[WarrenC12]

In my experience, when a project completes that is 100% sold out, about 30% of those units are flipped in the first 6 months. I expect that market is dried up. So what do the new owners do? Rent? Buying property to rent out at current sale and rental rates is not a good investment. Many people who didn't plan to live in the new units will either be forced to, or be sitting on a mediocre investment property. Can't AirBNB it either (in Vancouver, I'm unaware of other city regulations).

Also worth noting that you don't need to qualify for a mortgage to buy a pre-sale, that comes at the time of completion. Many of these units will be completing under much higher interest rates and tougher qualification rules than when they were bought as pre-sales.

Should be interesting.

[Sheba]

Originally Posted by fredinno

Should we eliminate parking minimums? Is the car ownership (not just usage rate) actually low enough to justify that?

But yeah, we should allow rowhouses everywhere, which is more or less taking place in the outer suburbs, where older SFH are being upzoned into medium-density. The irony is that the outer suburbs, removing the land reserves and parks, are actually becoming more dense than the inner suburbs.

But honestly, it's largely something that's going to take time. People still want SFHs because they still have an Americanist mindset of everyone having a wide lawn, and people still use cars enough to make even dense developments require tons of parking.

[s211]

Originally Posted by fredinno

But honestly, it's largely something that's going to take time. People still want SFHs because they still have an Americanist mindset of everyone having a wide lawn, and people still use cars enough to make even dense developments require tons of parking.

That's rather reductionist. Suburbs are still a going concern in almost every other large city in Canada. Painting it as "American" exposes a built-in bias.

[WarrenC12]

New downtown/urban condos have approx 1 parking spot for each unit. When the building first opens and people move in, they are scrambling for parking options (assuming the street is controlled or pay). Many couples moving in have 2 cars, etc.

Give it 5-10 years, and suddenly there are tons of open spaces in the parkade, and nobody has trouble renting a spot if they need it. People adapt to the lifestyle and sell their cars, drop from 2 to 1 for a couple, etc.

It takes time, and you can't force it on anyone or it will backfire. I do think parking minimums should be removed, and let the market sort it out. Buildings that don't have adequate parking will be permanently "discounted", like ones that don't allow pets, rentals, etc. To what degree and whether it's worthwhile to build them cheaper, we'll see.

[GenWhy?]

Quick note so everyone knows and not to sidetrack the thread. Here's the latest to-be-further-updated City of Vans parking reduction plan. Up to 60% reduction. We're using it. Before it was about 40%.

https://vancouver.ca/files/cov/transportation-demand-management-for-developments-in-vancouver.pdf

[misher]

Originally Posted by WarrenC12

I do think parking minimums should be removed, and let the market sort it out. Buildings that don't have adequate parking will be permanently "discounted", like ones that don't allow pets, rentals, etc. To what degree and whether it's worthwhile to build them cheaper, we'll see.

Exactly let the market sort it out. Developers can likely just sell stalls instead of having one stall per a condo so buyers with no cars can get a discount. Stall prices in most CoV buildings are $50,000+

[WarrenC12]

Originally Posted by misher

Exactly let the market sort it out. Developers can likely just sell stalls instead of having one stall per a condo so buyers with no cars can get a discount. Stall prices in most CoV buildings are $50,000+

That sounds a bit high but close. When I see pre-sales, most seem to not include parking for studio and "Jr" 1 bedroom, around 500sf range. Everything else includes 1 spot.

It's always negotiable of course.

[WarrenC12]

Originally Posted by GenWhy?

Quick note so everyone knows and not to sidetrack the thread. Here's the latest to-be-further-updated City of Vans parking reduction plan. Up to 60% reduction. We're using it. Before it was about 40%.

https://vancouver.ca/files/cov/transportation-demand-management-for-developments-in-vancouver.pdf

Thanks for posting. I'm a little bit disappointed not to see something like public EV charging infrastructure on the list of items for "points". The city needs more help and encouragement to deploy charging. New building/wiring is the perfect time.

[whatnext]

Originally Posted by WarrenC12

Thanks for posting. I'm a little bit disappointed not to see something like public EV charging infrastructure on the list of items for "points". The city needs more help and encouragement to deploy charging. New building/wiring is the perfect time.

I agree. But this sounds like just another cash grab by the city:

-All large sites and development projects in the Downtown will be required to provide a contribution towards TDM monitoring in an amount equal to $2 per square meter of new gross floor area.
- City-wide, new development projects will be required to provide a contribution towards TDM monitoring equal to $280 for each vehicle parking space being relaxed.

[GenWhy?]

Originally Posted by WarrenC12

Thanks for posting. I'm a little bit disappointed not to see something like public EV charging infrastructure on the list of items for "points". The city needs more help and encouragement to deploy charging. New building/wiring is the perfect time.

It's essentially mandated in all new builds to have the wiring, so the points for that are moot. Some regional municipalities require a few fully functioning stalls. The TDM is for reducing the need for cars, also, and not simply a environmental initiative. So it fits, but doesn't quite fit.


Stalls are indeed into the $50k range.

[fredinno]

Originally Posted by s211

That's rather reductionist. Suburbs are still a going concern in almost every other large city in Canada. Painting it as "American" exposes a built-in bias.

The suburban mindset is generally viewed in as "Americanist". Canada is way more like its southern neighbour than a lot of people want to admit.