VANCOUVER—Metro Vancouver housing starts were down sharply in 2018, but analysts say the decrease marks a return to “normal” market conditions as the region’s overheated real estate market slows.
Housing starts for 2018 are down 11 per cent for Metro Vancouver overall, according to the Canada Mortgage and Housing Corporation. In Vancouver, housing starts dipped 26 per cent compared to 2017 numbers, and are down 27 per cent in Surrey.
Bucking that trend, new rental unit construction is up by 40 per cent, a figure that includes new buildings, secondary suites and laneway houses.
“The market is going to appear to be slower, but some of that appearance is just in comparison to the much more frenzied conditions that were present earlier,” said Matthew Boukall, vice president of product management at Altus Group.
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“So when we are seeing slower sales, we think sales will be down, modestly, compared with 2018, but when we look at more of a 10-year trend we think it’s a return to a normal sales pace.”
Remnants of that building frenzy are still present in the market: In August 2018, CMHC reported a record number of units under construction at the same time, at 43,600 units. The blistering pace of building has put pressure on construction labour and costs, said Eric Bond, a CMHC market analyst. Construction costs have risen by 16 per cent between 2016 and 2018.
In 2016 — a year that saw an extraordinary spike in housing prices, with prices rising by as much as 40 per cent in some markets — 27,900 housing units were started, according to CMHC. In 2017, there were 26,000 housing starts, and in 2018 that fell again to 23,000.
But the inventory of completed but unsold new housing units is up, Bond said. In the past couple of years, the number of completed but unsold units hovered around 400; now there are between 800 and 1,000 unsold homes.
“We’re now seeing that pace moderate a bit in the marketplace and normalize as buyers have more choice,” Bond said.
“And inventories have started to increase because of the record numbers of new units over the past few years.”
The Metro Vancouver market has slowed following stricter mortgage qualifying rules, higher interest rates, and a slew of taxation policies aimed at stemming speculation in the real estate market.
Boukall said that for new condo buildings, it’s a much different situation now than in late 2017, when lineups for condo presales were common, projects quickly sold out, and developers were able to raise prices during the sales period.
“The one thing we have seen in the last couple months in 2018 is that the consumers are becoming more price-sensitive,” Boukall said.
“That doesn’t mean they aren’t buying product, but there are projects that are either higher priced than the competition or trying to push the price higher, they’re not seeing the same sales results.”
Whether the slowdown in housing starts means demand may outstrip supply in the future, Bond said housing starts have outpaced household formation over the past few years and the strong demand seen over the past few years was coming both from “resident and non-resident buyers.” He said household formation projections indicate that housing start numbers are roughly in line with the region’s need for housing.
But Boukall believes Metro Vancouver’s low unemployment rate and inability of employers to find enough workers — in part because of the high cost of housing — means that much more housing needs to be built.
“There needs to be more housing in the market to bring more affordable supply in the region,” Boukall said.