Rising interest rates may be temporarily cooling B.C.’s hot housing market, but the province is still faced with a critical lack of housing supply.
Data from the B.C. Real Estate Association shows there were 19,618 units for sale in March 2022. BCREA chief economist Brendon Ogmundson said inventory has never been this low heading into the spring — a traditionally busy period for home sales.
The lack of housing inventory has led to dramatic imbalances between supply and demand, particularly on Vancouver Island. The lack of supply across B.C. has driven average sales prices of single-family homes to just under $1.1 million, up 15 per cent from this time last year.
“The story of the B.C. housing market is one where we haven’t been very good at getting new supply into the market and then we get caught in times where there’s a real surge in demand,” Ogmundson said. “That’s what causes rapidly accelerating prices.”
B.C.’s issues in getting supply to market are many and options to fix them face hurdles every step of the way. Many markets across the province are primarily zoned for single-family residential homes, which makes it difficult, expensive and time-consuming to rezone parcels to create multi-family homes or condos.
“If a developer has a piece of land they’d like to develop it takes a really long time — especially for an apartment building. That can be up to a five-year process. Meanwhile, a lot can happen in five years on the demand side.”
Ogmundson said the province has a lot of people aged 55 to 60 and a lot of people in their 30s. Those in their 50s and 60s are more likely settled in their “forever homes” and aren’t looking to move, while people in their 30s are struggling to break into the housing market for the first time.
“When we look at the problem of supply in the market the only thing we can really do is build more and build it faster so we don’t have this mismatch of supply and demand all the time.”
The recently passed federal budget contained new measures such as the ban on foreign investors, but some analysts are skeptical of the impact, as foreign investors made up only 0.3 per cent of buyers in B.C. over the past year.
An “extraordinarily ambitious” goal on the fed’s radar is to double the number of completes over the next decade.
“We ran that simulation in our models and if we had done that from 2010 to 2019, it would have probably flattened out prices,” Ogmundson said.
The provincial government has strongly encouraged municipalities to speed up development permitting processes and even threatened to override municipal authority on housing developments. Meanwhile, municipal governments have argued building pace is set to provide enough housing to fit local communities.
Ogmundson said that the increase in interest rates will have a real slowing impact on housing demand in B.C., which may cause governments to lose focus on supply issues.
He predicted that listings will get somewhat “back to normal” over the next year and a half from record heights seen during the pandemic, but he warned that if more supply doesn’t make it’s way to market, British Columbians will be back in a hot market bubble in the future.
“Once we’re back in a new cycle with interest rates falling and demand surging we’re going to be right back in a situation of very low supply and high demand if we don’t have a longer-term fix on the supply side.”
With civic elections expected in the fall, analysts expect housing supply will no doubt be a focal point for voters.