With a mission to inform, empower, celebrate and advocate for British Columbia's current and aspiring business leaders, BCBusiness go behind the headlines and bring readers face to face with the key issues and people driving business in B.C.
Issue link: http://digital.canadawide.com/i/1468031
Would office workers ever return to the office? Would shoppers return to the malls? Many of the fears and expectations back in the spring of 2020 turned out to be unfounded, but the pandemic's impact on the sector is nonetheless profound. Here we separate some of the myths from observed trends, to give the investor a sense of where things are headed. F U L L H O U S E Early on in the pandemic, there was a notion that, fearing infection and enabled by telework, people would f lee urban density for more socially distant sub- urbs and beyond. It seemed to be borne out for a while, as big-city apartment vacancies increased and condominium prices soft- ened. Yet today, following the outbreak's second anniversary, prices are up for virtu- ally all residential property types across the province. What gives? COVID put a lot of new demands on the home. It had to be a school, an office, a gym. People wanted outdoor space for entertaining, with its own external gate. "All of a sudden, your house has become all these different things and you need a bit more space," says Brendon Ogmundson, chief economist for the British Columbia Real Estate Association. And since people weren't spending money travelling or eat- ing out and interest rates had dipped even lower than before, many buyers had more money to reach for it. But in an already high- priced market like Metro Vancouver, how that plays out triggers a ripple effect of opt- ing for the next best, more affordable thing. That thing, in the heady days of last spring when the number of home sales in B.C. set all-time records, was a single-family house in the Fraser Valley. The median price for this property type in this location (close enough to Metro Vancouver for a hybrid remote/in-office work arrangement) rose more than 40 percent in 2021. The next best thing after that turned out to be suburban Metro and Valley townhomes, then single detached homes farther away, in Victoria, for example (up 28.3 percent year-over-year as of March), Powell River (41.8 percent) or even the Kootenays (27 percent). Now even condo prices have taken off. Have we forgotten what we were looking for in the first place? Or was the flight-from-density narrative flawed all along? As Braden Batch, Vancouver market analyst for Canada Mortgage and Housing Corp., puts it, the region is a one-way gate: seen in terms of net migration, it attracts residents from out of province, both inter- provincial migrants and immigrants, and loses them to the rest of B.C. When the onset of the pandemic caused mortgage rates to drop, urban condo owners took the oppor- tunity to move up to single detached houses in Surrey, Langley and the Fraser Valley. "It's not because people wanted out of the downtown core" for fear of contagion, Batch says. Like Bullied and Ridington, they upgraded their housing outside the city because they could. Now, as the apprecia- tion in Fraser Valley houses ripples through the B.C. market, Batch expects it to spur matching price increases in other locations and property types over the next five years, eventually rolling back to support urban highrises. He doubts you'll see any one seg- ment significantly outperform all the others in the long term. If it feels as if the real estate market avoided the toll the pandemic took on the economy, Ogmundson says, it's because of who homebuyers are. Since the start of the pandemic, the number of high-wage jobs in B.C. has actually increased 10 percent; these also tend to be the most portable. Middle-income jobs, by contrast, have only just recovered to pre-pandemic levels, and low-wage jobs are still down 5 percent from the start of 2020. So if there's lingering weakness in the housing sector, it's mostly in rental, exac- erbated by the closure of international borders that cut off the flow of immigrants and foreign students. This should concern investors who rely on renters for their income. As borders reopen, though, migra- tion is expected to return to normal. If you're looking for long-term, secular trends in real estate, consider the twin peaks in B.C.'s demographic profile: in the 30-35 and 55-60 age brackets. "There are a bunch of 30-year-olds that really need housing," Ogmundson says. They're form- ing households, often making good money and will move up the housing ladder any way they can. The problem is the other group, whose nests are emptying but are still in the workforce and in many cases have no intention of moving. "People are kind of set." The new housing supply could T H E N E V E R - E N D I N G B U B B L E WAT C H It seems like the predictions of a great Canadian housing crash are less reliable than a broken clock–they haven't been right in 20 years, let alone twice a day. But as economist John Maynard Keynes mused in the depths of the Great Depression, markets can stay irrational longer than you can stay solvent. The same head-scratching longevity can apply to booms in asset values as it does to busts. In October, Vancouver moved up to sixth among global cities on Swiss bank UBS's Global Real Estate Bubble Index tracking dangerously overvalued property markets. Before you sign that offer sheet, take a moment to consider the worst-case scenario and how you'd deal with it. –M.M. 32 BCBUSINESS MAY/JUNE 2022 SUHARU OGAWA