Residential outlook 2018: Owners to fare well, others not so much

Frank O'Brien - Western Investor

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Despite record housing construction and punitive measures against residential investors, B.C. home prices and sales are forecast to increase in 2018. | Business in Vancouver

Despite the spectre of higher mortgage rates, a decline in foreign investors and tighter lending restrictions, the residential market is poised to deliver another record-breaking year in 2018 for investors in metro markets and small-town British Columbia.

For the 30 per cent who don’t own residential real estate, the outlook is much more grim.

Multi-family rental investors will benefit from higher rents, higher demand and quickly appreciated assets that have already turned many mom-and-pop landlords into millionaires. The average price per door for aging apartment blocks in Vancouver has reached $536,000, and an equally unprecedented $339,000 in the suburbs.

These prices are up 6 per cent and 25 per cent from a year earlier and appear on a similar trajectory into 2018.

Older properties with development potential routinely sell for eye-popping prices. A recent example is a 40-year-old, three-storey walk-up on Telford Avenue in Burnaby that sold for $1 million per suite, as did a similar old apartment building beside it.

The total dollar volume for rental apartment buildings in Metro Vancouver soared 35 per cent to $1.69 billion during the first nine months of 2017, compared to the same period a year earlier, despite building sales dropping by 25 per cent.

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Landlords need not fear a profusion of new rental competition will have any effect on vacancy rates, according to David Goodman, multi-family specialist with HQ Commercial and publisher of the respected Goodman Report on Metro Vancouver’s rental market.

Goodman noted that if all the rentals proposed for Metro Vancouver were actually built (442 units have already been cancelled), the 16,000 units would not complete until 2022. Meanwhile, official projections say 150,000 more people will move into the Metro region by then. The region is not near to building enough rentals to reduce the current 0.7 per cent vacancy rate, Goodman noted.

Developers

Residential developers can also look forward to record-shattering demand and prices for their condominium and townhouse projects.

Studies show that Metro areas with the highest housing starts also have quickly-rising resale prices.

A prime example is Burnaby, which has the second-highest strata starts in Metro this year. In the Brentwood area where the most new condos are being built, the benchmark price of a resale condo is Burnaby’s highest at $763,400.

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A record level of 28,000 strata units is now under construction in Metro Vancouver, but the inventory of new and unsold condos has plunged to just 500 units, according to the BC Real Estate Association, which predicts that provincial strata starts will soar 50 per cent next year.

The supply-as-the-answer debate will face a litmus test in 2018, because starts of multi-family homes in Vancouver have plunged 54 per cent as of October of this year from a year earlier, to 3,026 units. If more supply is the panacea, city condo prices should rocket above current levels that are often north of $1,100 per square foot.

Homeowners can rest easy into 2018. Despite unprecedented government intrusion – the foreign-homebuyer tax, two rounds of mortgage rate hikes and tighter lending regulations – the average price of a Lower Mainland home is up 14 per cent from a year ago and increasing by $7,000 a month, with sales up 34 per cent. There is little evidence of a slowdown.

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The other 30 per cent

For those who don’t own a home, 2018 looks pretty grim, however, characterized by even tighter rental vacancies, escalating rental rates, tougher mortgage qualification rules and record-high housing prices.

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