This column is an opinion of Mark Ting, a Foundation Wealth partner that helps clients achieve their financial goals. It can be heard every Thursday at 4:50 p.m. on CBC Radio as part of the On the Coast guide to personal finance. This column is part of the Opinion section of CBC. For more information on this section, please read our Faq.
Since peaking in March, real estate sales and listings in the Lower Mainland have cooled and prices have flattened. However, based on recent data on the sales to active listings ratio, most areas of the Lower Mainland still fall into the “sellers market” category.
As the heightened FOMO activity – or fear of running out – that we saw in March has dissipated, there are still plenty of people ready to buy and waiting for inventory. If we see a wave of new listings in the fall, expect the market to move into a “balanced” or possibly “buy” market.
Compared to the average wages in the Lower Mainland, it’s unfortunate, but I don’t think real estate in Vancouver will ever be affordable.
Consider the cost of replacing a house. In 2010, I built a single family home at a cost of $ 100 / square foot. Today, a similar construction would cost between $ 325 and $ 400 / square foot and that’s just the cost of construction – the land is extra.
Added to this is the shortage of quality tradespeople leading to wage inflation. For example, a few years ago my electrician was charging $ 50 / hour compared to his current rate of $ 100 / hour. These additional costs add up, trickle down to the end buyer, and lead to a trickle-down effect where buyers who can’t afford expensive new homes turn to used homes, townhouses, or condos. which increases demand and prices across the real estate spectrum.
Who is buying?
If housing is unaffordable, then who buys all the houses?
Few people can buy a home just by saving for a down payment. This process is very time consuming so that many potential buyers end up being shut out of the market. Today’s first-time buyers, mainly local but also some foreigners, often need financial assistance from a relative or an inheritance.
For those who already own a property, many use the equity in their current home to buy an income property or sell their home and buy another.
Now that a federal election looms on the horizon, it will be interesting to see how different political parties plan to tackle housing affordability. Some policies under discussion include strengthening regulations on short-term rentals, increasing taxes payable on returned properties, option-to-buy rental initiatives, building more affordable housing, and the ban on non-resident foreign buyers.
Only politics can do
I’m a little cynical about government policies on housing affordability. This problem has been around for several elections, and from an affordability perspective, things have gotten worse, not better.
Governments must also balance housing affordability with other ‘housing-friendly’ government mandates such as keeping interest rates historically low, funding COVID relief programs, and installing 1.2 million immigrants over the next three years.
At the federal level, measures can be taken to help affordable housing, but they do not have as much impact as policies adopted at the provincial or municipal level.
If I were a potential buyer, I wouldn’t be counting on the federal government to suddenly “fix” the housing crisis, but there might be new programs to help affordability. I’d be more interested in seeing if TD’s prediction of a market slowdown through 2022 comes to fruition. And if the trend to sell condos downtown to buy houses in the suburbs will reverse now as downtowns become more dynamic and workers are called back to offices. I think it’s okay.