Politicians talk about the problem, but real estate has only become more expensive, says CBC News columnist Mark Ting.
This column is an opinion by Mark Ting, a partner with Foundation Wealth who helps clients reach their financial goals. He can be heard every Thursday at 4:50 p.m. on CBC radio as On the Coast’s guide to personal finance. This column is part of CBC’s Opinion section.
Since peaking in March, sales and listings of Lower Mainland real estate have cooled and prices have flattened. However, based on the recent sales-to-active-listing ratio data, most areas in the Lower Mainland still fall in the “seller’s market” category.
While the heightened FOMO — or fear of missing out — activity that we saw in March has dissipated, there are still plenty of people willing to buy and are waiting for inventory. If we see a surge of new listings in the fall, expect the market to move to a “balanced” or possibly a “buyer’s” market.
According to a TD Bank economist, a minor real estate correction is in the works for the remainder of 2021 and into 2022. I tend to agree with this assessment, but I expect the correction to be short lived and that over the medium- to long-term, prices will continue to rise.
When compared against the Lower Mainland’s average salaries, it’s unfortunate but I don’t think Vancouver real estate will ever be affordable.
Consider the replacement cost of a home. Back in 2010, I built a single-family home at a cost of $100/square foot. Today, a similar build would be $325-$400/square foot and that’s just the building cost — land is extra.
Adding to this is the shortage of quality trades people which is resulting in wage inflation. For example, a couple years ago my electrician was charging $50/hour compared to his current rate of $100/hour. These extra costs add up, get passed along to the end buyer and result in a trickle-down effect where buyers who cannot afford expensive new homes turn to used homes, townhouses or condos which increases demand and prices across the entire real estate spectrum.
If housing is unaffordable then who is buying all the homes?
Few people can buy a home by simply saving for a down payment. That process takes a long time, so many would-be buyers end up being priced out of the market. Today’s first-time buyers, mainly local but also some foreign, often need financial help from a parent or an inheritance.
For those who already own a property, many are using the equity from their current home to buy a revenue property or are selling their home and buying another one.
Now that a federal election is on the horizon it will be interesting to see how the various political parties plan on tackling housing affordability. Some policies being discussed include bolstering the regulations on short-term rentals, increasing the tax payable on flipped properties, rent-to-own initiatives, building more affordable housing and banning non-resident foreign buyers.
Only so much policy can do
I’m a bit cynical when it comes to government polices on housing affordability. This issue has been around for several elections and, from an affordability stance, things have gotten worse, not better.
Governments also have to balance housing affordability with other governmental “real estate friendly” mandates such as maintaining historic lows interest rates, funding COVID relief programs and settling 1.2 million immigrants over the next three years.
At the federal level, steps can be taken to help with housing affordability, but they aren’t nearly as impactful as the policies made at the provincial or municipal level.
If I were a potential buyer, I wouldn’t be counting on the federal government to suddenly “fix” the housing crisis, however there might be some new programs to help with affordability. I’d be more interested in seeing if TD’s prediction of a softening market into 2022 plays out. And whether the trend of selling downtown condos to buy homes in the suburbs will reverse now that city centres are becoming more vibrant and workers are being recalled to the offices. I think it will.