Vancouver real estate is booming. Vancouver real estate is struggling.


Just as governments appear more aligned on a desire to dramatically boost housing construction, other factors seem to be conspiring to grind it to a halt

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Residential real estate development in Metro Vancouver is booming. Residential real estate development in Metro Vancouver is struggling.

Construction began on more than 33,000 homes last year in the Metro region, a record level and a 28 per cent increase over the previous year, “contrary to popular rhetoric that homes are not being built in British Columbia,” announces the newest publication from B.C. real estate services firm Rennie.

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Only a few weeks earlier, Rob Blackwell struck a much more pessimistic tone at a Metro Vancouver board meeting.

“The industry, in terms of new home-building, is not in a good place right now,” Blackwell, an executive vice-president at Anthem Properties, told Metro’s board of directors. “That’s the reason I’m here today. Because we’re worried. We’re scared.”

It was the best of times, it was the worst of times, as another long-winded newspaper journalist wrote a long time ago. It was the spring of hope, it was the winter of despair.

These seemingly contradictory statements from representatives of Rennie and Anthem, two prominent figures in Vancouver’s real estate world, speak to the speed of change right now and the degree of uncertainty in the market. Just as the governments of Canada, B.C., and many of the province’s biggest cities, including Vancouver, appear more aligned than at any time in recent memory on their desire to dramatically boost housing construction, other factors, including some outside of governments’ control, seem to be conspiring to grind it to a halt.

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Blackwell provided a familiar list of the woes making homebuilding challenging now: high interest rates, rising construction costs, tight labour markets, and the global economy. Blackwell, whose company has a decades-long track record and more than 20,000 homes completed, or in development, appeared at the Metro Vancouver meeting last month to make a last-ditch plea for the board to reconsider one thing the regional government can control: major fee hikes for new residential construction.

Metro’s plan to jack up development fees by as much as 255 per cent had shocked local developers, and even got the attention of federal Housing Minister Sean Fraser. In an unusual step, Fraser reached out directly to Metro leadership last year urging them to pause the fee hikes, warning that such dramatic escalation could endanger the viability of badly needed housing projects.

“Projects will stop,” Blackwell told Metro. “There’s a formula, and that formula allows for projects to be built and a certain amount of fees can be built into that. But it’s past the tipping point. And I think what you’re going to see — because I know it because I’m dealing with it — is projects getting cancelled.”

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VANCOUVER, BC - April 17, 2024 - Terrace House under construction at 1250 West Hastings in Vancouver, BC, April 17, 2024. (Arlen Redekop / Postmedia staff photo) (Story by reporter) [PNG Merlin Archive]
Terrace House, a property where construction has stalled, at 1250 West Hastings in Vancouver on April 17, 2024. Photo by Arlen Redekop /PNG

Distressed developments, delayed projects

It may seem like “a disconnect,” said Ryan Berlin, Rennie’s head economist, “between, ‘We’re starting a bunch of new homes, this is pretty good,’ and then developers saying, ‘It’s really tough to build.’”

But both things can be true at once, Berlin said. The explanation is time: Most of the homes that began construction last year in Metro Vancouver were multi-family projects that would have been planned, financed, approved and, in the cases of condo projects, largely sold several years ago in a totally different environment.

“This record number of homes, they will be added to the stock and they will be available for people to live in. So that is good,” Berlin said. “But how far out can you extend that into the future and feel good? Probably not that far right now.”

Coming off last year’s record levels of construction, federal government economists expect this year to slow down.

The Canada Mortgage and Housing Corporation’s housing market outlook, released earlier this month, reflects the worries expressed by developers about the profitability of their future projects: Housing starts are expected to decline this year with “tight financing conditions expected to impact activity in 2024.”

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Even the housing agency’s most optimistic forecast — depending on factors such as interest rates and how recent and future government policies affect conditions — shows Metro Vancouver’s housing starts dropping by five per cent this year, followed by a rebound next year. The CMHC’s most pessimistic outlook expects Metro Vancouver housing starts could decrease by 22 per cent this year, declining even lower by 2026.

Some will write off doom-and-gloom statements from developers as just another industry lobbying for governments to make their work easier and more profitable. But the noticeable uptick over the past year of struggling real estate companies entering creditor protection and development sites going through court-ordered sales suggests the challenges are real.

Beau Jarvis, president of Wesgroup Properties, keeps a running list of Vancouver development site foreclosures, court-ordered sales, and receiverships, which he estimates could total close to 7,000 homes across dozens of different projects at last count.

Some of those distressed developments may eventually get built, but many will likely be delayed. Insolvencies can halt projects for years. Terrace House, a glitzy Downtown Vancouver luxury condo tower from developer PortLiving, was partway through construction when the project entered bankruptcy protection in 2020. The property was the subject contentious legal battles over the next two years. Solterra acquired it in 2022, and the company says it is “excited” to develop the landmark project. Today, the site is still being remediated, seven years after work first began on the property.

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vancouver housing
Terrace House under construction at 1250 West Hastings, seen here from the Pender Street side, in Vancouver on April 17, 2024. Photo by Arlen Redekop /PNG

Jarvis has also tallied another 3,000 or so homes in several Metro Vancouver residential projects that have been put on hold, some of them from established B.C. development companies — including his own.

“Today, the development environment is probably the most challenging it’s ever been in my career over 20 years,” Jarvis said. “There’s a huge amount of risk and the returns are absolutely not commensurate with that risk.”

Historically, banks and other lenders wanted to see a 15 per cent return on a real estate development, Jarvis said, and 10 years ago, Vancouver developers could consistently meet and often, “with a bit of luck,” exceed those margins. “Now, we’re down to single-digit returns. I have some developments that we should have put that money into a GIC … That’s the reality of where we are today.”

Those profit margins matter to lenders. In most cases, developers can’t build housing without financing from lenders, whether they’re banks, pension funds, or others. If profit margins are too thin and projects seem too risky, lenders will not lend, which means developers cannot build.

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B.C., like the rest of Canada, relies on the private sector to build the majority of its housing. Social housing makes up less than five per cent of Canada’s housing stock, according to OECD data, slightly less than in the U.S., and a fraction of countries like the U.K. (around 16 per cent) Denmark (more than 20 per cent), Austria (nearly 25 per cent), and the Netherlands (nearly 35 per cent).

A Coromandel Properties sign outside the company's development on Southwest Marine Drive in Vancouver.
A Coromandel Properties sign outside the company’s development on Southwest Marine Drive in Vancouver in 2023. Photo by Jason Payne /PNG

‘When the train hits the wall’

Lawyers, accountants and real estate professionals in Vancouver say they’ve seen a surge in the number of developers falling behind on their loans, leading to foreclosures and court-ordered sales of development sites.

In January, a 55-storey condo and rental project planned for Vancouver’s West End entered receivership. In March, the B.C. Supreme Court ordered the sale of a planned 22-storey condo project because the developer, which owed $37 million to lenders, had defaulted. There have been many such examples.

Perhaps Vancouver’s highest profile recent real estate insolvency case was Coromandel Properties seeking creditor protection last year, citing $700 million in outstanding debt on 16 prime Vancouver sites.

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The Coromandel situation is “indicative of what happens when the train hits the wall and you don’t have the cash to service the debt,” said Alan Frydenlund, a lawyer with Vancouver firm Owen Bird, which specializes in commercial foreclosures.

Frydenlund has seen upticks in foreclosures over his four-decade career, and says the past year or so in Vancouver has been busier in terms of big real estate insolvencies than any time since the early 1980s, including the 2007-08 financial crisis.

“It’s definitely not normal,” said Mario Mainella, a senior vice-president of the company MNP’s insolvency and corporate recovery group in Vancouver. “It’s busy.”

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So far, the local developers running into trouble tend to be highly leveraged companies that in some cases owned significant portfolios of properties, but without long track records of completed projects, Mainella said. “There’s a lot of good developers out there who are fine and don’t have any issues. But the higher interest rates really flushed out some of these companies that were highly leveraged.”

The biggest, deeper-pocketed development firms “are not going to go bankrupt, but they are going to watch what they bring to market. They’re going to be cautious,” he said. “And that affects supply.”

Since mid-2023, the Vancouver market has seen a glut of development sites for sale as owners look to offload them instead of building, said Rachel Lei, CEO of Keltic Canada Development, a Metro Vancouver developer that has been active for eight years and built about 1,000 homes.

“We’re seeing it every day. Land floods into the market because developers are either in bankruptcy or they cannot afford to complete the project,” Lei said. “They are selling their project or trying to salvage some value out of a significant loss.”

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VANCOUVER, BC., April 3, 2024 - CMNC economist Michael Mac in action in Vancouver, B.C., on April 3, 2024. (NICK PROCAYLO/PNG) 10104337A [PNG Merlin Archive]
CMHC economist Michael Mak in action in Vancouver April 3, 2024. Nick Procaylo/PNG Photo by NICK PROCAYLO /10104337A

‘Trying to do way more with way less’

If not for Metro Vancouver’s recent rental construction surge, the region could expect even higher rents and lower vacancy rates in the future, said Michael Mak, a Vancouver-based CMHC economist.

“We’re in a different regime right now. We’re seeing rental construction at rates not seen in 30 years,” said Mak. “Basically, a switch has sort of flipped in the past 10 or so years, leading to more and more construction of rental.

“All walks of life, from government to public sector and private sector, they’re all realizing this is what’s needed in the region,” he said. “The silver lining is that a lot of people are working on solving this problem right now … But it is contingent on those projects being profitable.”

Vancouver-area tenants hoping the recent rental construction boom would lead to lower rents will be disappointed: CMHC economists expect average rent for a two-bedroom apartment in Metro Vancouver will increase from the record $2,181 last year to $2,380 this year, $2,580 the following year and $2,800 in 2026 — a 28 per cent increase over three years.

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It’s unlikely many Metro Vancouver renters will see 28 per cent increases in their incomes over the next three years, said Tiffany Duzita, executive director of the Community Land Trust, a non-profit real estate development company established by the Co-operative Housing Federation of B.C.

VANCOUVER, BC - April 16, 2024 - Tiffany Duzita in front of 3338 Sawmill Crescent, a non-profit housing development under construction in Vancouver, BC, April 16, 2024. (Arlen Redekop / Postmedia staff photo) (Story by Dan Fumano) [PNG Merlin Archive]
Tiffany Duzita at 3338 Sawmill Crescent, a non-profit housing development under construction in Vancouver. Arlen Redekop/Postmedia Photo by Arlen Redekop /PNG

“If we think of truly making housing affordable, what is that as a percentage of someone’s income?” Duzita said. “The cost of life — everything outside of what it might cost for you to pay for rent — is getting more expensive. Everybody’s getting hit on every side. As the rent goes up, a loaf of bread is still a loaf of bread.

“We’ve got to get housing down to a point where it is much less of a percentage of people’s incomes, so people can actually have lives, and plan for retirement, or … be able to afford to have kids.”

The Community Land Trust currently has a total of 738 homes actively under construction in Vancouver and Surrey. But they have almost the same number in Vancouver, Burnaby, Coquitlam and North Cowichan that are in the development pipeline but have not yet broken ground and “are challenged to move forward with the current environment on construction costs and interest rates,” Duzita said.

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Non-profit housing projects benefit from government measures such as lower-interest or forgivable loans, and incentives from municipal governments.

“But all of that comes with conditions,” Duzita said. To qualify for public funding, projects must meet ever-changing requirements around affordability, sustainability and accessibility.

It’s understandable that public money going to housing developments must meet certain conditions, Duzita said, but it’s challenging for non-profit builders struggling with many of the same challenges facing their private-sector counterparts, such as interest rates and construction costs.

“You’re trying to do way more with way less.”

ravi kahlon
B.C. Housing minister Ravi Kahlon speaks to media during a housing announcement in North Vancouver, B.C., on February 13, 2024. Photo by NICK PROCAYLO /10103830A

‘A perfect storm’

The B.C. NDP government recently introduced a series of sweeping reforms aimed at dramatically boosting housing supply, including pushing municipalities to meet housing targets and approve denser and taller buildings.

Even with these major changes, B.C. Housing Minister Ravi Kahlon said: “We are in a bit of a perfect storm. Interest rates increased dramatically, global inflation pressures, labour shortages. There are very difficult challenges out there.”

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Kahlon said people often ask him: Does B.C. need more homes built by the private sector? Or by non-profits?

“It’s great to have a philosophical debate, but that’s a luxury we don’t have,” Kahlon said. “We need both. We need the private sector to build housing for a large portion of the market. And we need not-for-profits to be building it at full capacity.”

“We’re so far behind when it comes to the housing needed in British Columbia — decades behind — that we need everybody firing on all cylinders.”

Kahlon pointed to B.C. Builds, a housing program unveiled by the B.C. NDP earlier this year that aims to identify under-utilized land — often publicly owned — that can be developed by private developers or non-profits using low-cost government loans to build rental housing that will be operated by non-profits. When the province announced the B.C. Builds program in February, it came with $2 billion in low-cost provincial government financing. The federal government is also ramping up its own multi-billion, low-cost rental construction financing initiative, too.

“The market needs us to play a more active role,” Kahlon said. “Every meeting I go to, this is what I’m hearing from people in the development community: it’s not ‘government, get out of the way.’ It’s ‘government should step in and support this housing to continue to get built.’”

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The real estate business, in Vancouver and elsewhere, has always been a story of ups and downs, and “it’s been up for a very long time,” said Andy Yan, director of Simon Fraser University’s city program.

“There was a particular real estate development environment. And then in the last two years, it’s totally changed,” Yan said.

“We’re not in that environment anymore. But is it a blip in the weather? Or climate change?” he said. “I don’t know. If I knew, I’d drive a Ferrari.”

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