Housing markets in desirable cities have proven impervious to the effects of the pandemic, Vancouver included. Royal LePage released its quarterly house price survey last week that showed the median price of a two-storey detached house in Greater Vancouver had gone up 8.8 per cent by the end of 2020.
That hypothetical two-storey house will now cost you $1,507,279. A bungalow in the region will take you back $1,265,285, and a condo $662,120. The company has forecasted that prices will climb even higher by spring.
Vancouver is not an outlier in Canada – 64 per cent of all regions surveyed showed year-over-year median-price increases of more than 10 per cent for two-storey houses. Others have reported similar numbers.
Since May, multiple offers have been common for sales of detached houses, says Randy Ryalls, the general manager for Royal LePage Sterling Realty in Port Moody. He points to low inventory and anxious millennial buyers for fuelling the market. While many service-industry workers lost their jobs because of the pandemic, the market is strong because it’s the older, higher-income bracket that is driving it. Millennials, in particular, are buying, now that many have reached peak earning potential and have families.
“[The pandemic] has probably persuaded some of those people that are paying $2,500 or $3,000 a month in rent to start thinking about buying something, and so those people have moved into the marketplace in significant numbers.
“The millennial demographic plays a huge role in our real estate market, and they are the biggest group demographically in the real estate market now. They are all at that time in their lives where they are starting to have families and they have better jobs and can afford to buy something, and they are out there doing that,” Mr. Ryalls says.
“Some of them are buying $700,000 or $900,000 homes – or $1-million houses further out.”
Over all, the Vancouver market has gone up around 10 per cent, mostly since May, Mr. Ryalls says. Surrey has gone up around 14 per cent, as purchasers snap up houses. The condo market, which had slowed considerably in the past year, also seems to be gaining traction. Investors are returning to the market.
A three-unit house in Vancouver’s Riley Park recently sold for $202,000 over asking, demonstrating the strong appeal of investor properties. The house at 719-723 E. 29th Ave., had an asking price of $1.599-million and sold for $1.801-million after 12 days on the market. The sale closes Feb. 9. Listing agent Cheryl Davie of Re/Max Crest Realty received ten offers.
The property actually comprises three separate units: a 1,965-square-foot detached character home built in 1908 and fully remodelled, with ground level and upstairs suites, and a two-level laneway house built in 2017 and renting for $2,200 a month.
“The Fraser area of East Vancouver has seen a lot of development over the past decade, and there is the possibility this parcel could be bought and redeveloped in the future,” Ms. Davie said.
Ian Watt, a downtown realtor, says he had an investor buyer put in an offer on a downtown one-bedroom condo recently that went into multiple offers. All offers, he says, came from investors.
“I have a feeling this year will be a crazy year because a lot of people are back out there and looking to buy,” Mr. Watt said.
At the outset of the global health crisis, nobody could have predicted that housing prices would actually go up. Mr. Ryalls from Royal LePage says he had braced for the worst, and the buoyant market has shocked him. At this rate, he doesn’t see the Lower Mainland ever going back to prices considered affordable to the average income earner.
“In March, we were all wondering how much longer we would be in business,” he says. “I can appreciate that it sounds very self-serving from the real estate industry, but if you look back, every 10 years the prices have doubled in the Lower Mainland. That goes back historically for decades. We have a pretty resilient real estate market here.”
It strikes urban designer, professor and author Patrick Condon as noteworthy that the housing market would thrive amid a pandemic. Prof. Condon says the situation underscores the fact that housing prices, and rents, too, remain disconnected from the jobs market.
“Somehow, when people all over the world are losing heir jobs, the value of housing has inflated rather than crashed. So how do you explain that?”
Prof. Condon just released a book, Sick City, in which he does just that. While Sick City focuses on the U.S. housing situation, and growing inequality in that country, there are many parallels with what’s happening in Canada, says Prof. Condon, who’s from Massachusetts.
The beneficiaries of rising land prices fall into two categories, he says. There are the older homeowners who have been lucky enough to buy into the market before the outrageous inflation, and whose equity has grown significantly; they have the advantage of borrowing against that equity or adding significant value to their properties by building infill. And then there are the speculators, who have driven prices up on their way to reaping capital gains. The smart ones purchase land near new transit or some new improvement. That behaviour has pushed up prices not just for homeowners, but for renters, too.
Going back to the 1990s, Prof. Condon says that urban land became a class of assets that went beyond the rate of inflation in desirable cities such as Vancouver, Sydney, London, New York and Singapore. When properties became an asset for global wealth and speculation, they became disconnected from incomes. That decoupling lead to the lack of affordable housing we see today.
“It had nothing to do at all with the wages of people who are basically competing for that, and it influences not just housing costs, but also the cost of rent, as the value of the land under the rental buildings gets bid up and up and up.”
Land has always made a sound investment; however, in the new environment, the returns are higher than ever.
“If you are going to invest, you’re smartest to invest in urban land in this host of cities and you don’t care how much it will cost – because you know it will go up for sure, 8 to 12 per cent.”
Prof. Condon also disagrees with prevailing policies that call for more supply as the answer to the affordability crisis, as if we can build our way to healthy, thriving cities where residents are properly housed and no one is displaced. Instead of lowering housing costs, rezoning for more density only increases the price of the land. Price is based on the buildable square feet that zoning allows.
“In the long run, it prevents access to affordable housing for the average wage earner, because it all ends up being absorbed in the price of urban land.”
That’s why he’s long argued for taxing new developments, along the Broadway Corridor, for example. It’s a cost that would have to be included in the purchase price of the land, thereby lowering land costs. He cites parallels to the Vienna model. Decades ago, the Austrian capital’s rent controls and taxation on land reduced land prices, which gave the city a chance to develop much of the rental stock. Today, Vienna has a considerable amount of publicly owned housing and co-ops.
“It’s the land market that needs to be disciplined. It’s not the developers that are the problem – it’s the land speculators,” Prof. Condon says. “Tax at the full value of that increased land value, and take the lion’s share of that money and use it to build non-market housing that would be permanently affordable.”
Sick City by author Patrick Condon is freely distributed on a creative commons license. It can be downloaded here.
More resources are available here.
Your house is your most valuable asset. We have a weekly Real Estate newsletter to help you stay on top of news on the housing market, mortgages, the latest closings and more. Sign up today.