Have Policy Changes Killed Demand for Vancouver Real Estate?
No. No, they haven’t.
On the off chance you’ve been living remotely, off the grid somewhere, Vancouver Real Estate Prices are a hot topic of conversation. In fact, this conversation is almost impossible to dodge for Vancouverites. And how could we avoid it? Policy makers at all levels are levying a constant attack against what has proven to be an insatiable demand for Vancouver homes. Sometimes it seems like every headline reads the same: Policies change. Prices continue to soar. Repeat.
But why do prices keep rising? Isn’t that the million-dollar question?
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Prices rise when the demand for something exceeds its supply. We see this principle in action every year around the holidays. There’s a new, hot toy. The manufacturer underestimates demand. People lose their minds. They fight each other in stores, miss out on the privilege to buy the hot toy at the regular price and pay much more online. Vancouver Real Estate is this hot toy. And every day is Christmas.
And here’s the thing about Vancouver: it’s awesome. Like, really awesome. We are consistently ranked as one of the top cities in the world for liveability. We’ve got an Ocean. We’ve got Mountains. And we’ve got access to all the amenities of a world-class city. From 2011 through 2016, the population of the lower mainland grew by 30,021 people per year on average. That’s a lot of people looking for places to live.
A study conducted by the Canada Mortgage and Housing Corporation (CMHC) concluded that 75% of the drivers of lower mainland housing price increases are attributed to your usual suspects: higher disposable income among consumers, population growth in the market and low borrowing costs. We know interest rates have been at or near historic lows for the better part of a decade. We know we have a surge in demand to buy homes. And we’ve seen housing prices increase to a level that many people simply aren’t willing or able to pay.
The two-million-dollar question is how we solve this issue. It’s not something that will happen overnight. There isn’t one solution that will be a magic fix. But the focus on stifling demand needs to be matched by a plan to increase the supply of homes in a meaningful way to local buyers.
Municipal Governments have looked at vacancy taxes to punish those that use Vancouver homes as a mattress to hide their money under. The BC NDP doubled down this week on the Liberal’s 2016 Foreign Buyer’s tax, increasing it from 15% to 20%. They’ve also added in a speculation tax that will impact those that are strictly using Vancouver Real Estate as a commodity. The Federal Government has consistently made it more difficult for borrowers to get approved for mortgages; the most recent of these changes being a stress test that requires borrowers to qualify at a rate two percent above the contract mortgage rate.
But have all these changes amounted to anything meaningful when it comes to curbing demand? If it has, we haven’t seen it yet. And with population growth continuing along with an increase in wages, we’re very likely going to continue to see demand for homes in the Lower Mainland rise.
None of this is to say I oppose the changes these Governments have made. I may not agree with all of them. But I do feel like the focus needs to shift from fighting demand to finding ways to increase the supply of homes to help match that demand. And I’m not talking more million-dollar condos. I’m talking the kind of home that the average Vancouverite can and will pay for.
I don’t profess to have all the answers. But I’d sure like to see the dialogue change from “Prices Continue to Soar” to “Vancouver Market Achieves Balanced Growth.”
Ray Macklem is a Top-Producing Mortgage Broker in Greater Vancouver. Find out more about Ray HERE or call Ray directly at 778-968-5278.