Vancouver’s real estate market fundamentals remain strong. When discussing “Fundamentals”, one needs to analyze the two sides of any market, “Supply” and “Demand”.
The Canadian market, particularly the Vancouver market, has suffered from a severe lack of supply for decades. In their June 2022 report, The Canadian Mortgage and Housing Corporation (CMHC) indicated that Canada needs 3.5 million additional homes than currently planned to keep up with demand, and that “two-thirds of the 3.5-million-unit gap are in Ontario and British Columbia”.
The gap in construction activity that began during COVID-19 is only widening as developers pause projects. This will exacerbate the supply shortage issue as the construction industry is not agile enough to respond to supply shocks with enough elasticity. The ramp-up time will be significant when the environment improves and we expect to see further erosion of housing stock, putting pressure back on prices.
Another very real issue that will plague supply in the years to come, is the continued deterioration of the labour force as baby boomers exit the workforce in droves. The industry needs to recruit 309,000 new construction workers over the next decade, driven predominantly by the expected retirement of 259,100 workers, which makes up 22% of the current labour force (Financial Post). In British Columbia, the construction industry is expected to lose 25,000 in the next 5 years (Stats Canada). “BuildForce estimates that by 2027 we will be short approximately 5,600 workers in the province, considering retirements and new entrants into our market. With so much construction activity going on, we are facing a labour challenge the likes that we have never seen.” (Construction Business).
In the medium term, the supply crunch will push prices back up at an even more accelerated pace once the uncertainty around rates and inflation subsides and investors seek the safety of inflation-protected assets, such as physical real estate. In the interim, pockets of the market that have an even more severe shortage of inventory can benefit, as they will do comparatively better in terms of absorption rates.
From a demand standpoint, the Vancouver market again remains startlingly hopeful. The Federal Government has committed to and continues to press on the immigration targets.
Canada continues to attract immigrants at a far higher rate than even the United States. A record 55,000 immigrants are expected for Metro Vancouver in 2022 (Rennie Marketing), equivalent to the population of Coquitlam. These new immigrants are highly skilled, typically of family age at 28 years or older, and are predominantly of economic class.
In summary, continued supply pressures exacerbated by the pandemic and later the interest rate uncertainty, coupled with robust demand buttressed by continued and increasing population growth that is fuelled by immigration, will lead to higher prices of housing, which will have an undeniable and direct positive impact on land values.