I always enjoy chatting with Vancouver journalist Kerry Gold. Below are excerpts from a recent article she had published in storeys.com about the outlook for housing prices in Vancouver. At the end of a longer article, https://storeys.com/vancouver-average-home-price-detached-two-million-2022/ I shared five reasons why I had to agree housing prices will continue to rise in 2022, and some thoughts on alternative ways to make housing a bit more affordable for some households.
Detached house prices in Metro Vancouver will go up
by 15% in 2022, predicts realtor Bryan Yan, whose
end-of-year predictions in past years have held up. The general industry
feeling is that prices will keep rising due to another COVID wave, as well as
low interest rates, a general fear of missing out, and the fact that sellers
are making so much money that they’re either buying up or downsizing.
“It’s a rising tide lifting all boats — everyone is making so much money
on their other stuff they sell it to buy something, or they downsize,” says
Yan. “They sell something for $8 million and buy something else for $5 million.
Basically, what we are seeing is multi offer situations. Prices are going to
come up, if they don’t do anything about interest rates they will come up 15%
this year.”
Royal Lepage recently caused a stir with a New Year forecast that said the median price of a Metro
Vancouver detached house would increase year-over-year in 2022
by 12%, to $1.893 million. The report cited lack of inventory as the key cause.
Bryan Yan thinks that figure is conservative, particularly on the east
side of Vancouver. Part of the popularity of the east side is that
single-family lots are more easily densified, and the market is strong for
townhouses and duplexes. City council recently voted in
favour of rental buildings on major arterials that can go as
high as six storeys (with a share of below-market units), as well as rental
buildings up to four storeys that would replace houses on nearby side streets.
Yan says this change for more rental density will most impact the east side and
help elevate land prices, bringing the average detached house to $2 million.
But, he adds, the detached house market is strong throughout the entire
region.
“A house in Richmond had 34 offers, and that was a couple of weeks ago.
Can you imagine? This stuff is moving like toilet paper.”
Developer and urban planner Michael Geller, who in the 1970s managed the
social housing program at Canada Mortgage and Housing Corporation, says housing
prices in Metro Vancouver are a snowball that will only get bigger. Lack of
affordable housing will continue to plague the region as demand grows due to
immigration.
“I think they’ve doubled in the last six or seven years, and it is
crazy,” says Geller.
He cites five reasons why prices will remain high: low interest rates
that will stay low, parents financing their adult children with several hundred thousand dollars
for down payments, high municipal fees that are tacked onto each
project, climbing construction costs, and lack of adequate supply. He doesn’t
believe we can simply build our way to affordability because housing demand in
markets such as Vancouver and Toronto will stay insatiable. That means the
solutions are in the hands of policy makers who can create housing models that
are specifically designed for affordability.
“When immigration gets going and students come back, and as we try to
make cities more attractive, we are going to start seeing increased demand. And
the line I agree with all the time is we aren’t creating the right supply. I agree
with that.”
Geller, who has given frequent talks on affordable housing, cites five
solutions. Those include giving developers breaks on having to build pricey parking and
building better transit options instead, the creation of financing models that
already exist in Canada and other countries, government support of the
non-profit housing sector, faster permitting approvals times, and freeing up swaths
of land that is available to densify but is being wasted as parking lots
instead. We could also add onto existing one-storey buildings where possible
and create density without tearing everything down.
In terms of financing models, he cites the shared-equity home ownership
programs common in the UK, where banks provide mortgages to non-profit housing
groups. For example, a person purchases one-third of a condo from a non-profit
developer and property manager who retains ownership of the remaining
two-thirds. Over time, through rent, they acquire more of the unit until they
own it outright.
It’s better known as “stair-casing,” because you are climbing the stairs
to ownership.
Another model is the shared appreciation mortgage (SAM), whereby a
person shares the appreciation of the property with the lender upon selling, in
addition to paying off the mortgage. This arrangement works for buyers who
can’t afford the upfront cost of the down payment. Typically, homebuyers pay a
reduced interest rate on the loan.
“The interesting thing is that this is a model most developers use when
they create developments. With only a couple of exceptions, all of the projects
I did were developed with other people’s money. I paid a higher interest rate,
but they didn’t get [their money] back till the end, and I gave them a
percentage of the profits. You can do the same thing with homebuyers.
“If a family member came to me, I might say, ‘I will lend you $300,000,
and you don’t have to pay interest now, but it will accumulate, and in five
years, when you sell it, it will be worth more, and you will pay me the
interest plus a percentage of the increased value. That is happening. It’s
quite common in the states.”
