As our cities grow, the only place remaining to create new housing is up. While we might go all misty-eyed over the North American suburban dream of the single-family house or townhouse with a back, and a setback front yard, that dream is now firmly a thing of the past. At least in metropolitan cities it is, where the whole world is seemingly congregating. Planners have realized that suburbia has done more harm than good, and essentially bankrupt cities through inefficient land usage. The time for condo-living is here, and it is here to stay.
That stark realization now brings us to new future realities. Constriction in options will inevitably lead to us choosing between the type and size of condo/apartment, instead of choosing between the type of property in future. Single family homes will of course still be available, but given the paucity of new stock, and skyrocketing land values, most home buyers will be priced out of this segment entirely. A large section of buyers might also be priced out of the townhomes market, which will be the next best thing for people looking for, but unable to find single family units. Moreover, given high construction, and land acquisition costs, developers will look to maximize the potential of the available land, inevitably prioritizing high-rise condo towers. That phenomenon might have some strange effects on the condo/apartment market going forward, something that we will try and explain in this piece.
Less immigration won’t mean less buyers.
Given the current tightening of immigration, Canada is going to see less new residents in the immediate future. While that might have an impact on the rental market in the short term, with rents stabilizing to an extent, that is not going to cool the demand for new housing. The borrowing rates are gradually being scaled back, and interested parties who had hit pause on their aspirations a year back are slowly warming to the idea of purchasing a home again. Added to that are young professionals who are unhappy with high rents and would rather “pay for their own mortgage than someone else’s”. Hence, with such high demand, developers will keep building. The vast majority of these will be presales, given their relative commercial viability for the developer.
There are going to be more “lower end” apartments
Thus far, we have seen an almost exclusive focus on high end, luxury condos in Vancouver, Burnaby, and Surrey presales. However, that is likely to change. With condo living becoming more the norm, and competition from other forms of housing reducing, there will be reduced pressure on condo developers to “entice” potential buyers to their offerings. Instead, there will be greater focus on catering to a more diverse economic demographic. In fact, we might see certain developers focus exclusively on building “no-frills”, budget condos and apartments to cater to this market.
Re-development, brownfield, and greenfield….in that order
I think we can all agree that Metro Vancouver has spread out as much as it possibly could. As stated earlier, the cities constituting the Metro Vancouver region are now firmly focused on densification. There is hardly any spare land left to develop from scratch anyways. Earlier brownfield projects like Coal Harbour, New Westminster waterfront and to an extent Whalley were primarily focussed on rejuvenation and gentrification. However, we are close to maximising the potential of such sites and hence, almost all future projects in Metro Vancouver will be re-development and densification of existing residential neighbourhoods. Given that re-development, while necessary and welcome in the long run, causes serious local disruption of life in the short term, many re-development projects might find greater initial opposition to them. That is bound to escalate costs.
What can we infer?
Having discussed these three points, let us then try and peer into the near future. As a new owner of a luxury presale, you will have two primary concerns.
- Whether you will get possession in time?
- Whether your investment will appreciate as expected?
Let us say you have purchased a presale from an established developer like Allure, in a sought-after project like SkyLiving in Surrey, BC. That should becalm any nerves regarding project timelines. Any good developer will ensure that presales follow a strict timeline, because delays cost the developer money. With that out of the way, we are left with trying to gauge the valuation of the presale three, four or even ten years down the road.
We have already discussed how densification attempts of existing neighbourhoods is easier said than done. One can safely say that NIMBYism will have a big impact on the timelines of future projects. The speed at which the industry and the various local governments want to build to end the ongoing housing crisis can only be achieved under “ideal conditions”. But we do not operate in “lab conditions”. The reality is and will always be messier. This will negatively impact the timelines of many future projects, and consequently keep housing prices high. Hence, all the luxury Surrey presales that are coming up now, will keep growing in value.
Secondly, with growing versatility in the condo space in Lower Mainland, luxury condo developments, with a raft of amenities and comforts, will be seen as the “aspirational choice” for future buyers. While there is a chance that lower end apartments might see a stagnation or even a downturn in valuation after a point due to increased supply, luxury condo developments should retain their premium prices as the most sought-after homes in that space.
Lastly, what many do not know is that many of the midrise apartments that dot the Metro Vancouver landscape today, especially in and around efficient transit, are market rentals, with the units owned by various hedge funds and investment firms. Owners of such spaces have little incentive to redevelop in the immediate future. Thus, the scope for large scale redevelopment that can compete with the luxury developments around Surrey Central is rather limited. In terms of location, barring Metrotown, Brentwood, and Downtown Vancouver, few current developments, if any, give buyers the advantages that Surrey presales currently being developed in and around Whalley accord. This further prevents any negative impact to the future value of the luxury condo you have or are contemplating purchasing in this area.
