With the provincial economy looking bright, higher development costs are just one obstacle to meeting housing demand, a new report argues
The game of supply and demand is alive and well in B.C.’s real estate market. While Vancouverites search for housing, don’t expect 2019 to provide much good news on that front. In its latest market intel report, real estate services firm MLA Canada highlights rising development costs, longer construction timelines and interest rate hikes as barriers to new housing in B.C., especially Metro Vancouver.
However, the provincial economy is showing a marked improvement over 2018. With gross domestic product projected to expand by 2.7 percent in 2019 (up from 2.4 percent last year) and employment estimated to grow 1.4 percent (versus 0.6 percent in 2018), the report indicates a bright outlook. In another encouraging sign, BC Stats’ and Statistics Canada’s migration forecasts show that 50,000 newcomers will arrive in 2019 alone.
Finding homes for those people is another question. “B.C.’s fundamentals remain stronger than elsewhere in the country. This means pressures on our housing market will continue, particularly with population increasing and housing starts declining,” Cameron McNeill, executive director and partner with MLA Canada, says in the report. “We must be progressive in our solutions to provide housing—the long-term viability of our cities depends on it.”
Adding to those mounting pressures are climbing interest rates. Although the key rate is 1.75 percent, it’s expected to increase to as much as 2.5 percent and possibly higher, with the first hike expected in the spring.
New B.C. real estate developments face their fair share of speed bumps, too. Wait times are getting longer, helping cause a slowdown in the housing sector. MLA’s intel shows that rezoning timelines across the Lower Mainland vary from 14 to 24 months. These delays could be worsened by the recent municipal elections as politicians create new obstacles to development, the report says. All of this adds up to a wait of at least a year before a new project can begin construction, MLA estimates.
Combined with the increased timelines, higher materials costs are also putting a damper on development. With construction almost 50 percent more expensive than it was five years ago, consumers end up footing the bill. These inflated costs can mean the difference between an affordable home and one beyond most purchasers’ reach, the report argues.
“Development is becoming increasingly difficult in our city,” Anthony Hepworth, president and CEO of Vancouver-based Pennyfarthing Homes, says in the report. “The costs associated with construction and land, coupled with lengthy city delays, costly fees and taxes, combine to create a very challenging proposition worth the risk.”
However, there’s a silver lining for residential property in 2019, according to MLA. With the unsustainable sellers’ market of 2017 long gone and the transition period of 2018 out of the way, this year will see a return to balance, the report predicts.