As a tight provincial election reveals a deeply divided electorate, the pace of new home construction is stagnant, pointing to significant challenges, and choices, ahead for the next ÎÚÑ»´«Ã½ government.
Despite promises and assurances by the previous BC NDP government, experts say housing supply growth hasn’t ramped up.
Many factors, including interest rates, inflation, land costs, development cost charges, construction costs, population growth, bank financing and municipal permitting challenges have combined to create a particularly challenging environment.
“What strikes me is, we are now on target to start the same number of homes in 2024 that we started in 2019, for all the talk about getting new home construction underway,” said Ken Peacock, chief economist with Business Council of British Columbia (BCBC).
“Against the backdrop of all the government’s talk about more homes and new rental products being built, it’s striking that we’re starting the same number [of homes] as five years earlier.”
ÎÚÑ»´«Ã½ lags other provinces in boosting housing starts
According to an analysis by Peacock, housing starts per capita in ÎÚÑ»´«Ã½ are at the lowest level in at least a decade, not counting 2020 when the province was in the throes of the COVID-19 pandemic.
As of September, there are projected to be 7.5 housing units per 1,000 people started in 2024, compared to almost 8.5 units per 1,000 people started in 2017, when the BC NDP came into power.
Housing starts are defined by ÎÚÑ»´«Ã½ Mortgage and Housing Corp. (CMHC) as the beginning of construction work on buildings where dwelling units will be located. CMHC examines population centres of 10,000 and over, adjusts its figures for seasonal patterns and then annualizes them.
Compared to the pre-pandemic year of 2019, ÎÚÑ»´«Ã½ housing starts per capita have actually fallen 1.1 per cent. Even looking at total (i.e., not per-capita) housing starts, ÎÚÑ»´«Ã½ is on track to have fewer units started in 2024 compared to 2019.
By contrast, Alberta’s housing starts per capita are up 3.4 per cent compared to 2019. Looking at the rest of ÎÚÑ»´«Ã½ during this period, housing starts per capita are also up slightly, compared to ÎÚÑ»´«Ã½’s decrease.
Various factors constraining ÎÚÑ»´«Ã½’s housing growth
ÎÚÑ»´«Ã½ is struggling due to factors including high land costs and development cost charges (DCCs) imposed by municipal and regional governments. Levied to fund liquid waste and water infrastructure, DCCs in Metro Vancouver can account for a quarter of the cost of a new condo.
With high construction and labour costs and elevated interest rates, the risk profile of new housing developments caused some projects to become economically unviable, resulting in them being postponed or scrapped.
“When projects get cancelled and less homes are being built, the price is going to be sticky and won’t go down,” said Rick Ilich, CEO of Townline Homes Inc.
Another factor in ÎÚÑ»´«Ã½’s housing starts is the Real Estate Development Marketing Act, which gives developers a limited window in which to secure pre-sales. Ilich said the audience for pre-sales has shrunk due to legislation targeting Airbnb operators and non-resident owners.
“As a rule of thumb, if I have a $100 million loan on a project, the bank is going to want to see close to $100 million of pre-sales in place [in order to unlock unconditional financing], which will often equate to 65 per cent of the number of homes,” he said.
“The likelihood of that happening under current marketing conditions over the last couple of years is zero. Consumers are worried about value, and there’s no question that jobs and incomes have not kept up with the rapid cost of construction. The mood’s off. Pre-sale campaigns are very slow. The amount of people coming through pre-sale centres is shockingly low, and so all of that equates to the industry slowing down construction, not starting more projects.”
Solutions could include tax holidays, deferrals and rollovers
According to Townline’s Ilich, the province “would be serving the public much better if they approached the owners of [new] homes and said, ‘Look, we’ll give you a property tax holiday and we will lobby the federal government to give you a GST deferral if you commit to a five-year rental program.’”
“That would put thousands of keys in renters’ hands immediately,” he said.
Another reform could be something akin to a “1031 rollover.” Named after section 1031 of the U.S. Internal Revenue Code, this is common south of the border. It postpones the payment of capital gains taxes if the proceeds are quickly re-invested into similar properties.
“It’s very challenging to attract investment capital into rental, but if we were able to build a rental building and sell it for a profit, and if [we were] able to take that dollar earned and re-invest it in a certain time frame into additional rental, that would incentivize industry to be more engaged and active in the rental market.”
Paul Sullivan, partner with property tax technology and software company Ryan, ULC, said the province should follow the example of Kelowna. There, a property tax holiday has helped create new rental projects, a higher vacancy rate and lower rents.
“Kelowna went down the road of incentivizing development of rental apartment buildings,” he said. “They provided a property tax holiday for up to 10 years on the cost of building new rental buildings. This approach caused a massive increase in new rental housing projects.”
He noted that Kelowna’s vacancy rate went from as low as 0.2 per cent in 2017 to 1.3 per cent in 2023, and predicted that it could soon surpass three per cent. Rents, meanwhile, are now down about four per cent year over year.
Boost in non-market housing also needed, says expert
On the non-market side, affordable rental homes are desperately needed for lower-income households, said Jill Atkey, CEO of BC Non-Profit Housing Association, an industry group for non-profit housing providers that performs research and advocacy.
In the next decade, 125,000 new rental homes are needed for households earning less than $50,000 a year, she said, noting that 40 per cent of all renter households in the province have a combined income of less than that amount. She said this would require about $2.5 billion of investment annually from the province.
The other pillar of the association’s work is protecting the affordable housing already in existence. “We’re … calling for expansion of the Rental Protection Fund and looking to protect an additional 2,000 homes each year for the next 10 years,” she said, adding that additional investment is needed to ensure assets in the not-for-profit sector remain in good condition.
“The median renter household income is less than $63,000 annually, and the market, the private sector, is not and cannot build new rental homes affordable to those incomes,” she said.
“What we’re seeing is a continued need for investment into the non-market sector, to make sure that when we build homes, they are affordable to people who need assistance with affordability. The majority of renters are not having their housing needs met by the market.”
During the heated election campaign, the BC Conservatives focused on market-based solutions, deregulation, tax credits and rebates.
Meanwhile, the NDP touted a raft of new measures including the speculation and vacancy tax, housing targets for municipalities, short-term-rental rules, historic zoning changes and a forthcoming home-flipping tax.
To address the top issue in the election, voters were given two very different plans for addressing housing supply and affordability: A laissez-faire approach, or a central-planning one.
Peacock said the challenges are significant but not impossible. Success will require coordination between all levels of government, as well as innovative thinking, in order to reverse the housing sector’s “lacklustre performance” of recent years.
“There’s a lot of work to be done in ÎÚÑ»´«Ã½,” he said.
