A theme found its way into nearly every keynote presentation, plenary and panel discussion when the commercial real estate industry gathered April 3 at the Vancouver Real Estate Forum: Canada’s population is booming and it’s causing some gain — and pain.
Just nine months after reaching 40 million, Canada’s population surged past 41 million late last month, according to Statistics Canada’s live population tracker.
Immigration and the country’s rising population impacts every commercial asset class and, typically, more people need more of everything, so it’s perceived as a good thing by the industry attempting to fill retail space, office buildings and industrial parks.
However, the situation is more complicated for those leading the development of housing inventory, who say the industry can’t keep up with the surging demand for homes, especially as they battle a tangle of high interest rates, development fees, land costs and construction prices.
“Multifamily fundamentals are primarily tied to the interrelated issues of immigration and population growth — and housing affordability,” CBRE chairman Paul Morassutti said in a national outlook presentation at the forum.
There are real supply constraints
To put things into perspective, between 1975 and 2015 immigration in Canada averaged about 180,000 per year, he said. Now, the average is closer to 600,000 per year.
“All of these newcomers need someplace to live,” Morassutti said. “That’s obviously the central problem.”
The CMHC has a target to build 3.5 million new homes in Canada by 2030, but he said the industry is nowhere near that number.
“The scale of the problem, which has been many years in the making, is massive and the inconvenient truth is that we are not going to hit those targets. We will likely not get anywhere close to those targets.”
It’s a well-documented concern among the development community that it takes most municipalities too long to approve and permit the development of a housing development.
“Even if we had approvals across the country to build thousands of units, we cannot physically build them because we don’t have enough trades (workers),” Morassutti said. The result is a continued, and likely worsening affordability crisis.
2024 expected to be slow year for condos
Moreover, slower economic conditions and high interest rates have sapped development momentum, he said. In Vancouver, condo pre-sales remain weak, which has caused projects to stall or be cancelled.
“We get more receivership calls about land than every other sector combined, and given the lagging effect of . . . higher interest rates, 2024 will be a tough year for condo sales as well,” Morassutti said.
”But don’t be fooled, that supply and demand imbalance . . . has not gone away.
“In fact, it’s only gotten worse, and fewer sales today means that prices will take off again once buyers return from the sidelines.”
Richard Weir, executive vice-president, acquisitions and asset management with Bosa Development, said during a separate panel that affordability is the biggest challenge the industry faces.
With more than a million people moving to Canada in the past year, “How many of them couldn’t afford to buy a one-bedroom apartment in North Vancouver?” he asked.
In the low interest environment prior to and during the pandemic, real estate price growth accelerated and now, with elevated rates, there’s not much more room for home prices to increase, Weir said.
“We’re probably caught between a rock and a hard place; cost and affordability,” Weir said. “I think land prices are the one thing that can give . . .
“As development slows, possibly processing delays start to ease (and) that may reduce some of the cost pressures. But, I think we’re looking at a multi-year adjustment process.”
“Where is the capital coming from?”
In October, CMHC estimated it would cost $1 trillion to ease the affordability crisis by the end of the decade by building those 3.5 million units. That would require massive investment from the private sector.
“Where is this capital coming from for this housing?” asked panelist Beau Jarvis, president and CEO of Wesgroup Properties. “We need to change our mindset on the implementation of policy in our country.
“Right now, policy around investment is resulting in capital leaving our country.”
In the fall, Metro Vancouver, which provides a layer of governance over all regional municipalities, approved new development cost charges (DCCs) that tripled the fees imposed on new construction projects.
Jarvis said those added costs will make it tougher for developers to convert recently purchased land into housing sites.
“I can identify four to six emergent policies that create as much uncertainty,” Jarvis added.
Demand isn’t going to fade
Morassutti said demand for homes in Vancouver and around B.C. isn’t going to soften, long-term.
“Severely unaffordable housing has also spread to smaller markets with the greatest deterioration in affordability taking place in Kelowna, Victoria and the Fraser Valley,” he said.
“Income inequality and housing affordability are very pernicious issues. If left unaddressed, the damage to our social and economic fabric will only worsen.”
Canada’s population is growing faster than any G7 country and at this rate would double in 26 years, Morassutti said.
“Now we can debate whether that’s too much or not, but the fact remains that population growth has a direct correlation with demand for all kinds of real estate.”