Another plot twist was added to the Vancouver housing market. Yesterday the BC Government announced it has decided to reverse the decision to allow landlords the ability to increase rents by 4.5% (inflation + 2%) in 2019 back down to 2.5% (inflation). The controversial moves comes amidst strong political pressures to appease households struggling to maintain the cost of living amidst a housing crisis which has spread across the province. Since 2004, provincial regulations have allowed landlords to increase rents annually by inflation plus an additional 2%. Ironically, the move to end that policy comes at a time when rent prices appear to be flatlining and housing starts are beginning to roll over, both signs of a real estate cycle on its last legs. While the decision to cap rents at inflation has created a divide amongst developers, landlords, and renters, studies on rent controls show “rent control increased renters’ probabilities of staying at their addresses by nearly 20%. Landlords treated by rent control reduced rental housing supply by 15%, causing a 5.1% city-wide rent increase.” Unsurprisingly this has prompted developers of purpose built rental projects to threaten to pull the plug on new rental projects as stricter rent controls jeopardize

A key leading indicator for the economy is flashing red. Housing starts, which are historically a strong indicator of the health of the economy, are beginning to roll over. “The national trend in housing starts continued to decline in August from the historical peak that was recorded in March 2018,” CMHC chief economist Bob Dugan said. Housing starts are also slowing in Metro Vancouver. As of August 2018, the 12 month sum of housing starts sits at 26,565 units as per Stats Canada. This is slightly higher than August 2017, but off by 4% from its recent peak in March 2018. A slowdown in housing starts suggests homebuilders perceive risks ahead or simply can’t  make new projects feasible due to elevated land prices and construction costs, which is typical at this stage of the cycle. This does not bode well for future economic growth considering housing and the consumption that goes along with it (renovations, furniture, etc) are a big driver of the economy. In Canada, household consumption and residential investment as a percentage of real GDP is nearly 65%. While it’s certainly possible housing starts could rebound, it seems highly unlikely given how extended this current expansion is. The labour

The city of Vancouver has approved a new zoning policy that will permit the construction of duplexes in 99% of single family neighbourhoods. The change will mean about 67,000 single family lots which comprise approximately 52% of Vancouver’s landmass, are now eligible for duplexes. According to local data analyst Jens Von Bergmann, there will only be 576 lots remaining in the city of Vancouver which will remain a part of the single family zoning. While typically up-zoning increases the value of the land, it’s unlikely to spark a speculative fever in the city’s detached housing market, where home sales have tumbled to record lows through the first eight months of the year. Building duplexes from an investment or speculative perspective is simply not profitable in today’s environment. For example, with the typical costs of a teardown home on the West side currently hovering around $2M, and a minimum buildable cost of $300 per square foot, this would put your typical 1/2 duplex at (back of the paper math) $1.8M after factoring in all costs, including property taxes, realtor fees, and a developers lift (typically 15-20% net profit). In simpler terms, in order for a developer to speculate on buying up land

The residential property market in the province of BC continued its downwards momentum in August. Following fewer sales and rising inventory, there appears to be little sign of  resurrecting a market bogged down by tighter lending conditions and a swath of government tax policies. Home sales in the province dropped 26% year-over-year in the month of August. There were just 6748 sales in BC, a six year low for the month. The slowdown was rather daunting in the Fraser Valley where sales slid an eye watering 39.5% in August. Greater Vancouver sales fell 37%, Victoria by 21%, and the Okanagan-Mainline by 20%. Regardless of how you slice it, the trend was rather ominous. Despite the rather gruesome numbers, BCREA’s chief economist Cameron Muir preferred to take the more optimistic approach. Suggesting, “The downturn in housing demand induced by the mortgage stress-test is now largely behind us. The BC housing market is evolving along the same path blazed by Ontario and Alberta, where the initial shock of the mortgage stress-test is already dissipating, leading to increasing home sales.” Buyer sentiment disagrees. BC home buyers spent 27% less on residential real estate this August. Mortgage credit continues to contract, while simultaneously foreign buyers

With BC’s property market cooling, home sales declined 24% in July to a six year low, it appears interest from foreign buyers is also fading. At least according to official BC Government data. While the numbers likely don’t capture the full extent of the madness,  land title registrations for July show foreign buyers accounted for just 1.49% of all residential transactions in the province of BC. Foreign buyers haven’t been this scarce since August 2016, just after the introduction of the BC Governments foreign buyers tax. As the percentage of transactions from foreign buyers declined, so too did the dollar volume. Of the $9.9 billion spent on BC residential Real Estate in July 2018, foreign buyers accounted for a mere $201 million. This was a 49% decline from July 2017. Meanwhile, in the city of Vancouver where detached home sales are at a 27 year low and rent prices are flatlining, interest from foreign buyers has faded. Foreign buyers as a percentage of total residential transactions for the month of July 2018 trickled in at just 1.83%. With China continuing its attempts to stabilize foreign exchange reserves by mandating stricter capital controls, and a global credit cycle nearing an end, the

It appears Vancouver rent prices have finally stabilized, and like all real estate cycles, could be on a path towards declining. Recent data from local data scientist Louie Dinh of Quantitative Rhetoric, shows rent prices were essentially flat year-over-year in August. Year-Over-Year Beds Median 2017 Median 2018 Pct Change 1 $1950 $1950 %0 2 $2600 $2700 %3.8 3 $2950 $3000 %1.7 Adjusted for inflation, one bedroom and three bedroom rent prices actually turned negative. This is quite the change from the 10-12% rent price growth Vancouver has been experiencing over the past couple of years. Meanwhile, August rental listings saw a surge in volume. The number of unique listings increased 10% from July to 5872, which was good for a 17.6% gain from August 2017. Flatlining rents and a rising number of listings should come as little surprise to those who are familiar with real estate cycles. In the early stages of the cycle vacancy rates tend to fall and rent prices increase. However, as the real estate market begins to slow, while simultaneously new construction ramps up (currently at all time highs in Vancouver), vacancy rates increase and rent prices begin to fall as an abundance of new supply overwhelms

With a stagnant and declining detached house market, it was only a matter of time until panic buying began to fall out of favour and the slowdown spread into the condo market. Vancouver condo sales dropped 30% year-over-year in August, ticking in at a six year low for the month. With August 2008 and August 2012 just barely surpassing this year as the slowest on record. With condo sales cooling off, inventory has begun to increase. The number of Vancouver condos for sale increased by a whopping 51% year over year. Despite the increase, inventory levels remain below historic norms, however, the quick jump in inventory combined with falling sales is a concerning trend. Expect condo inventory to swell in the coming months and even years ahead, as a record number of new construction apartments near completion. There are currently a record high 43,024 units under construction and a plethora of housing starts also underway. In other words, there’s a pipeline of supply coming and the demand might not be there to meet it. This could create liquidity issues in Vancouver’s pre-sale condo space. Speculators who were once hopping to flip the contract prior to completion are running short on

It was another quiet month for Vancouver’s detached housing market. Sales are already tricking in at their lowest count in recent history, and the month of August didn’t fare any better. There were just 116 home sales in the month of August, that was down 30% from a year ago. Sales were even lower than August 2016, when home sales crashed after the BC Government abruptly introduced a 15% foreign buyers tax. The count was also lower than August 2008 when liquidity had seized up across the world, just months prior to the collapse of Lehman Brothers. While volumes sit at record lows, inventory has been slowly creeping higher. Total homes for sale edged higher by just 1% from a year prior. However, inventory for the month of August hasn’t been this high since August 2012. While prices remain incredibly sticky, as they always are in a real estate downturn, there is no doubt they are sliding lower. This is particularly the case in Vancouver’s west side where many detached homes are trading back near 2015 prices, erasing a good portion of the bull market run-up. The Real Estate Board’s official MLS benchmark now shows a 6.5% decline year over