You want affordable, green/legacy residency

Saturday, December 29th, 2007

Stronger presence of ‘end-user’ purchaser slowing price appreciation, construction pace

Jennifer Podmore and Julia Smith

In 2007, the Lower Mainland real estate market continued to earn its stripes as the past 12 months marked yet another year of unprecedented growth. New development market values continued to rise, overall absorption remained strong and B.C. remained an attractive investment from both oversea and national markets.

While we did start to see changes in the market, as a whole it remains incredibly healthy. Some might scoff at the notion that our market is healthy, and refute this with affordability issues, the rising cost of construction or major delays due to a skills shortage. But the truth of the matter is that as our market continues to grow and shift, so do our perceptions and expectations of it.

For example, if we compare today’s market to 2004/2005, there is an obvious difference in the percentage price increase. In 2004/2005, the market increased by more than 20 per cent annually, whereas the 2006/2007 market experienced increases of approximately 10 per cent. The difference here is that residences in 2006/2007 were priced higher. As a result, 10 per cent represents a similar price increase.

So what happened in our market in 2007?

Still strong, but slower

Recently, Canada Mortgage and Housing Corp. released its preliminary statistics for building starts in 2007. Its research indicated that while housing starts in Vancouver remained strong, they were slightly lower than the level set in 2006. Its report also stated the pace of housing construction in Canada will slow next year, even in Alberta and B.C., as demand for new homes eases.

Over the last year, end-users have begun to play more of a role in our market. MPC Intelligence’s research indicates this trend will continue, resulting in longer timelines to sell homes, consumers having more time to shop around and prices increasing at a slower pace. The research also indicates that despite the apparent slowdown, prices are most certainly going up.

With end-users in the drivers’ seat, certain factors are becoming more important. One of these is the “Green Factor.” The media have prompted and encouraged end-users to pursue green products, such as homes with alternative heating options, reduced parking requirements, E-glaze windows, overhangs and dual-flush toilets. Add to this, baby boomers and thirty-somethings are now of the mindset where they want to create and leave the world a better place for their children and grandchildren. Simply put, the consumer is thinking green.

Another consideration is affordability. Affordability impacts the decisions that end-users make. What can they afford? What are they willing to pay each month? What do they care about in a home? What are they willing to sacrifice to get it? The reality is that Vancouver is not a small city any more. Its overall growth, combined with the strains on space and available land, have driven and continue to drive the cost of single-family homes to a level that is unaffordable for many. In order to keep up with the market, end-users have to change their expectations, following in the footsteps of many other major cities and their flight towards urbanization and the efficiencies that it brings.

Vancouver has reached a tipping point where families now live in condominiums. In fact, many argue that condo or “urban” living enhances lifestyle. It cuts down on long commutes and allows for more time to spend with friends and family, cook, exercise, read, and garden (albeit on a deck). It also leaves less of an ecological footprint on the environment.

Urban living is becoming a popular option in major cities and people are opting for the convenience of having restaurants, shopping, transportation, and recreation at their fingertips.

In Vancouver, urban living is a well-established trend, which continues to grow in popularity.

The city is lucky that people have gravitated towards this trend because Vancouver no longer has the luxury of ample land. In fact, building high-density living spaces is becoming one of the only options the city has left.

Urban living also directly affects prices. With more people wanting to cut down their commute times, homes closer to the city go up in demand and value. Remarkably, prices in the Fraser Valley are also affected by this trend.

Not everybody has bought into “urban living” and many still want their own front door and backyard. To achieve this, consumers are chasing a price point that can only be found in suburban areas, which in turn drives the price and value up further.

Others are looking for a real “community” and will venture and pay more to find that. Developments in Fort Langley and Pitt Meadows can attest to premium buyers willing to pay for a home in a special place.

The owner-occupant factor

What is interesting is that condos in the city, single-family homes in the burbs and homes in quaint-community settings all fall under the umbrella of real product created for real people. They are now being built for a consumer who actually intends to live there.

A market driven by end-users is changing the face of development. Developers are now building with “curbside appeal” to attract end-user buyers. Product is slower to arrive on the market and homes are being built and released in tempo sales campaigns. Timing and phasing have become the new future for development. In fact, moving into 2008, we will witness an upsurge of “Coming Soon Columns.” Currently, there are more homes coming soon than ever before.

In 2008, there will also be a growing need to differentiate market speculators from investors within the market. Investors are motivated by mid-to-long-term goals of holding real estate for parking money, future use and/or investment for adult children, whereas market speculators are focused on income from property turnovers.

Real buyers will eventually be required to purchase speculators’ investments and this will potentially create competition for future development. As a result, we will likely see slower — but still healthy — absorption rates in 2008. Because homes will take longer to sell, there will be a slight increase in available inventory of new development product. As of Sept. 30, the availability of new inventory increased to 21 per cent or 4,782 units.

Increased dependence on the end-user will frame the year ahead, generating strength and security in the marketplace. As we continue to meet and not exceed housing demand, the only visible changes will be a slower pace of sales in markets, offering multiple purchasing options. This is good news for consumers because they now have more time to make large purchasing decisions. However, although the clock is not ticking as fast, it is still ticking. MPC anticipates real estate values will continue to go up, albeit with more moderation.

Areas like Richmond, New Westminster and Burnaby prove that strong demand and limited supply of product results in the sharpest inclination of value. Alternatively, some areas in the Fraser Valley gauge success on gradual increases to value. In these markets, accelerated success is a direct result of developers tailoring their product to meet specified demand. Additionally, more emphasis is being placed on managing construction processes and costs, properly anticipating marketing efforts and sales timelines, and exercising discipline and appropriate timing for sales launches.

So, there you have it, the Lower Mainland market is currently being fuelled by end-users and this trend will continue well into the New Year. Because it’s a consumer’s market, it’s a market of choice. Consumers will have the time and opportunity to choose homes that fit their lifestyle.

Do they want their own backyard in the suburbs or are they going to opt for the convenience of urban living and purchase a condo in downtown Vancouver?

Anyway they look at it, it will be a win-win situation because prices are still going up. The bottom line is, our market has stabilized and remains healthy. Happy house hunting in the New Year.

The MPC Intelligence Web site is located at


© The Vancouver Sun 2007


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