A low inventory of single-family detached homes for sale in Metro Vancouver has buyers engaging in multiple bidding wars or camping out to get a shot at the few homes when they come on the market.

The demand is so high that many buyers are paying more than the original asking price and, in some cases, aren’t bothering with inspections or subjects on the property before signing on the dotted line, said Cory Raven, managing partner at ReMax Select Realty.

This is because they’re afraid someone else will beat them to the punch if they wait or take their time, he said.

“It’s very typical for someone to enter the market once, twice or three times expecting to buy a house and going into the bidding war and losing.” Raven said.

“It really has changed the dynamic of the good old days when you see a place, put in an offer and wait a couple of weeks … people are going into a 40-year-old house with no inspections.”

Such tactics are not surprising in the most expensive region in Canada for residential real estate in 2014. The average residential sale price for a single-family home in Metro Vancouver this year was about $838,400, up from $781,517 a year earlier, according to the ReMax 2015 housing market outlook.

And the situation isn’t expected to improve much for buyers looking for deals in 2015, with home prices forecast to rise by at least three per cent across Metro Vancouver — similar to what was experienced this year. Healthy gains are also anticipated in Kelowna, which is expected to see a seven-per-cent increase, and Victoria, slated for a four-per-cent rise in house prices.

The market is so hot that sales of single-family houses are still being listed across Metro Vancouver into mid-December, when they would have usually stopped by now before resuming in the new year, said Brian Lamb, of Royal LePage Realty Coquitlam.

“It’s bizarre,” Lamb said. “It can only go up in the first quarter of 2015. I think we’re going to have an incredible first half.”

The ReMax report suggests young families and older homeowners wishing to downsize are expected to drive demand, while interest from Mainland China also continues to influence the Greater Vancouver market.

“The supply side has definitely been affected,” Raven said. “A lot of people who are housing rich don’t know what to do with the equity except to keep it.”

David Lamb, of Sutton Group West Coast Realty, agreed many older people are hanging on to their homes, which is having an impact on inventory. He recently had eight offers on a home in Windsor Park on the North Shore, while a property east of Seymour raked in $40,000 more than the asking price, which was round the mid-$800,000s.

“Earlier this year we had a guy who lost out four times and finally found a house,” David Lamb said. “It’s emotional, it’s tough. When there’s a lot of competition, there’s always somebody who will pay more.”

It’s not just older homes that are facing the crunch. Lamb said foreign investors are willing to pay more for a home in Metro Vancouver, particularly in the Tri-Cities and Burnaby, where they tend to knock down existing homes to build their own.

He cited the Rivers Run development as an example of foreign investment interests: in the first two phases 24 homes sold within hours, while the remaining 14 homes were snagged within an hour by buyers who camped overnight to get them.

ReMax expects there will be upward pressure on detached house prices in Vancouver’s west side due to high demand and low inventory, but said the condo and townhouse markets will likely sustain a more balanced market.

However, even those markets aren’t immune from buyers’ frenzy. ReMax realtor Mary Cleaver said a four-bedroom townhouse listed on Vancouver’s Carolina Street had seven offers and was sold within the week, with no subjects and at $50,000 more than the asking price. “It is unique for that to happen,” she said.

Condos in East Vancouver were in high demand near the end of 2014, according to the report, which suggested well-priced homes often sold within one to two weeks, whereas the average market time for condos was 45 days. “The condo market has been healthy but nowhere near the bidding wars and housing (price) gains,” Raven said.

But both Lamb and Raven said some people are starting to get buyers’ fatigue and bowing out of the bidding wars. Two Sundays ago, Lamb said, 28 people had come through an open house, but several parties decided not to bother in the bidding. “We had people who won’t get tied up in this flurry,” he said.

However, ReMax noted as those potential buyers move to the sidelines and wait for the market to stabilize, the demand in the region will continue to grow.

Source: Kelly Sinoski, Vancouver Sun

After 18 months on the job, Bank of Canada governor Stephen Poloz has yet to wield the primary tool at his disposal: the key interest rate.

When Poloz took the bank’s reins in June 2013, he inherited an overnight rate set nearly three years earlier by his predecessor Mark Carney. That rate has yet to budge from one per cent, idling for one of the longest stretches in Bank of Canada history.

Bill Robson, the president of the C.D. Howe Institute think-tank, believes it will happen sometime in 2015 thanks to an increasingly positive economic outlook, including an improving U.S. economy and a pickup in Canadian exports.

Once the bank’s overnight rate starts to creep up, Canadian businesses will see their borrowing rates rise as will consumers who take out car loans and mortgages.

Ian Lee, a professor at the Sprott School of Business at Ottawa’s Carleton University, predicts businesses will feel the sting of higher rates right away, but he expects the effect on households to be much more muted.

Many consumers, he added, will avoid a sudden jolt because of fixed-rate loans and mortgages.

On top of that, Lee said the rate would likely inch up a quarter-percentage point at a time, making the coming increases easier to manage than the towering Canadian levels of the early 1980s.

Lee said the rate hikes in the early 80s killed the real-estate market, but didn’t create a housing meltdown and the number of foreclosures barely increased.

On the flip side, higher rates would help pension funds reap a bigger return on their investments, Lee added.

McGill University economics professor Christopher Ragan said, fundamentally, rising rates are a good thing.

“It is signalling a stronger economy,” he said.

The Bank of Canada said last week the country had showed signs of a “broadening recovery” and the output gap appeared to be smaller than it had projected just six weeks earlier. The output gap represents the divide between where the economy stands at a given time and where it would be when performing at its full potential.

However, the bank’s statement offset the positives by pointing to potential threats: weakening oil prices that drive down inflation and the significant risks of high household debt accumulated during years of low borrowing rates.

The basic logic behind low rates is to encourage people to gather debt when the economy is weak, said Ragan, who has worked at the Bank of Canada.

Robson belongs to the camp that expects Canada’s strengthening economy to force Poloz to move the rate in the middle of 2015, while Lee predicts the rapidly shrinking output gap will spur an increase as early as this spring.

The Organization for Economic Co-operation and Development recently predicted the Bank of Canada would start pushing the rate up in late May due to advancing inflation, a key driver of interest rates.

At the other end of the spectrum, economists like David Madani of Capital Economics expect Poloz to stand pat for a while, even after the U.S. Federal Reserve starts hiking its own key rate.

He predicts the forces pushing Canadian inflation upwards to remain fairly subdued in 2015, which he says will keep the central bank in a “holding pattern” for the whole year.

Robson said it would even be OK if Poloz raised rates and then edged them back down, if necessary.

“Everybody knows that the central bank has trouble reading the economy just as everyone else does,” he said.

Source: Andy Blatchford, The Canadian Press

The benchmark price for a typical detached home – a gauge that omits the most expensive properties – is approaching $1-million in Greater Vancouver.

The Real Estate Board of Greater Vancouver uses the resale home price index (HPI), which strips out the priciest properties, because it asserts that calculation serves as a better barometer of trends than average prices.

On Tuesday, the board reported that the HPI for single-family detached houses reached a record-high $997,800 last month, up 7.9 per cent from November, 2013.

The HPI for detached homes on Vancouver’s west side hit $2,323,300 last month, up 10.9 per cent from November, 2013, while the index for Vancouver’s east side reached $957,300, up 11.9 per cent from a year earlier. Both of those prices also set records.

The average price for detached homes sold in the region has risen 1.2 per cent over the past year to $1,274,904.

Over all, the HPI for detached houses, townhouses and condos rose to $637,300 last month in Greater Vancouver, up 5.7 per cent from a year earlier.

Greater Vancouver had 2,516 housing sales last month, up 8.4 per cent from November, 2013, and 6.9 per cent higher than the 10-year average for that month. “It’s been a more active fall than we typically see,” board president Ray Harris said in a statement.

In the Fraser Valley, which includes the sprawling and less expensive Vancouver suburb of Surrey, there were 1,136 residential sales on the Multiple Listing Service in November, up 15.2 per cent from 986 properties sold in the same month last year.

November’s HPI for Fraser Valley detached homes climbed to $575,400, up 4.6 per cent year-over-year.

Source: Brent Jang, The Globe and Mail

Even though real estate prices have been rising faster than inflation and are going through the roof in some parts of Canada, home ownership actually became more affordable in the third quarter, according to a quarterly survey by RBC Economics.

The bank credits rising household incomes, low interest rates and lower utility costs in some markets for making it a bit easier to own a home.

During the July-to-September period, RBC’s housing affordability measure at the national level fell 0.2 percentage points to 47.8 per cent for two-storey homes. It also fell for condos – down 0.3 percentage points to 27.1 per cent.

“A trend that jumped out in the latest data was a further broad improvement in affordability of condos where a strong majority of markets across Canada saw the measure for the segment fall,” said RBC chief economist Craig Wright in a release.

“Condos no doubt continue to be the more affordable ownership option in every market.”

The affordability measure for detached bungalows was the outlier; it rose a tenth of a percentage point to 42.6 per cent.

An affordability reading of 50 means that ownership costs, which include mortgage costs, property taxes and utility costs, would require 50 per cent of a household’s monthly gross income.

The latest data from the Canadian Real Estate Association shows that the national average home resale price rose 7.1 per cent on a year-over-year basis in October.

The MLS home price index, which many observers consider a better indicator of home price trends, rose 5.5 per cent over the same period.

Some markets, notably Vancouver, Toronto and Calgary, have seen real estate prices rise much faster than the national average. The bank notes that it is the robust activity in these three markets that has been largely responsible for eight monthly increases in resales in the last nine months.

Affordability remains a big stretch in Vancouver and Toronto. The cost of a benchmark detached bungalow in Vancouver, for instance, requires 83.6 per cent of a typical household’s pretax income to carry. In Toronto, it takes 56.3 per cent.

RBC says a drop in fixed mortgage rates earlier this year helped to drive the current strength in the housing market. But it doesn’t expect that situation to last.

“A combination of gradually increasing interest rates and higher prices will likely reverse the improvement in housing affordability that took place in the past year and weigh more and more heavily on homebuyer demand in Canada,” said Wright.

“We expect the next stage of the housing cycle to be a transition toward lower resales and slower price increases.”

RBC said it expects the Bank of Canada to raise its key overnight lending rates in the middle of next year, but says longer-term rates will rise “well before that.”

Source: CBC News

The total number of home sales in Greater Vancouver is expected to hit 33,800 units by the end of 2014, the British Columbia Real Estate Association announced November 18 in its housing forecast.

This is 16.6% higher than the number of units sold in 2013 (28,985).

The association anticipates that unit sales will see a modest increase of 0.6% in 2015, bringing total sales to 34,000 in that year.

The average home price in Greater Vancouver is forecast to be $814,000 in 2014 – up 5.2% compared with $767,765 in 2013. The BCREA anticipates a slight increase of 0.1% in 2015 to $815,000.

Across B.C., home sales will reach 83,940 units by the end of this year. This is more than 15% higher than the number of units sold in 2013. It is also almost 5% higher than the number of 2014 sales forecast by the association in July, which, at 80,100 units, would be the first time since 2009 that sales were expected to exceed 80,000 units.

In 2015, strengthening economic conditions will push sales upward, but this will be offset in part by increasing interest rates, forecasts the BCREA.

“Consumer demand has ratcheted up this year and is expected to remain at a more elevated level through 2015,” said Cameron Muir, BCREA Chief Economist.

“While historically low mortgage rates support demand, the housing market is also being underpinned by a more robust economy and associated job growth, strong net migration and consumer confidence.”

The average home sale price across the province will be 568,800 in 2014, forecasts the association. This is 6% higher than the average of $537,414 in 2013. Prices in 2015 are expected to grow a further 0.8% to an average of $574,300.

The average number of units sold provincially over the past 15 years was 80,400. In 2005, sales hit a record 106,300 units.

Source: Emma Crawford Hampel, Business in Vancouver

The average price of a home sold through the Multiple Listing Service last month was $419,699 – up 7.1 per cent from $391,931 in October 2013. That’s according to new numbers from the Canadian Real Estate Association (CREA), which reports on the market each month.

Such high costs have many wondering whether it’s a good idea to buy and what they should watch out for.

While everyone’s decision-making process will be different, here are a few things worth considering when shopping for a home.

The market could fall

Many people who bought homes in Canada in the past decade have profited from rising house prices.

But home prices sometimes fall, says Paul Anglin, a real estate professor from the University of Guelph.

“Most people get excited about the rising part,” he says. “They forget about the falling part.”

Fresh in the minds of many is the 2008 U.S. housing market crash, which left millions of Americans with homes worth less than they had paid. Prices have mostly recovered, but many lost money in the meantime.

Markets have crashed in Canada, too. For example, from 1990 to 1996, prices dropped every year in Toronto.

Both The Bank of Canada and Moody’s have warned recently that a crash could happen again in Canada, especially if the economy slows down.

Local markets differ

Housing markets tracked by CREA vary widely by city. Prices are up 9.5 per cent year-over-year in Calgary, 8.3 per cent in the Greater Toronto Area and six per cent in Greater Vancouver.

However, they were flat in Saskatoon, Ottawa, Greater Montreal and Greater Moncton – and down 3.4 per cent in Regina.

The eye-popping increases in Toronto and Vancouver are likely because “lots of people want to move there and there’s limited space,” says Anglin.

Calgary is a different story, however, because it’s highly dependent on the success of the local oil extraction economy, which is tied to the global price of oil.

Although Calgary has been booming for years, global oil prices have recently started to fall. “If the price of oil stays low, then [a crash in Calgary] is exactly what you would expect,” says Anglin.

Transit lines can boost value

Living close to good rapid transit options can boost the value of a property for obvious reasons – people want the shortest possible commutes.

“You want to be in a place that is convenient – or that will be convenient,” says Anglin. In other words, don’t just consider existing transit lines, but also where proposed transit could be built.

Think about SmartTrack in Toronto or the Broadway Subway proposal in Vancouver.

“But you also need to figure out how much inconvenience there will be during construction phase,” says Anglin. Buyers who end up too close to a new train station might have to put up with years of dust and noise.

Buying an unbuilt home can be risky

Buying pre-construction can be appealing, because everything will be new once the home is done.

It can also be risky.

“If you’re buying from a plan, you don’t know what will actually be there,” says Anglin.

For example, those who buy a condo from a plan, do not know who else will be in the building, he says.

Some buildings have a large proportion of renters, who may be noisier or dirtier than owners who live in their homes.

It’s also worth keeping in mind that condo fees are more predictable after a building has been up and running for a few years, says Anglin.

And while buyers used to get a discount in exchange for the unpredictability, as TD Bank pointed out earlier this year, resale condos may now be a better deal.

How long do you plan to stay?

Potential buyers need to ask themselves how long they plan to stay, because the longer they are willing to stay, the lower the risk of being forced to sell when prices are low.

“If you plan to be in some place for a year, maybe you should be renting,” says Anglin.

“If you plan to be there for 10 years,” he says, “the monthly wiggles on the average price probably don’t matter, because 10 years from now, economic conditions will be very different.”

Source: Josh Dehaas, CTVNews.ca

The Canadian Real Estate Association raised its home sales forecast Monday on the back of stronger than expected sales in recent months after a slow start to the year.

The association said sales through its Multiple Listing Service are now expected to total 475,000 homes for 2014, up from a June prediction of 463,400.

The new forecast would mean sales would be up 3.8 per cent compared with 2013.

The association said the frigid winter delayed the start to the spring home buying season and helped boost sales in May and June.

“Although this boost was and still is expected to be transitory, sales have yet to show signs of cooling as activity strengthened slightly further over the summer,” CREA said in its updated forecast.

“The increase reflects continuing strength in home sales among large urban markets that initially drove the spring rebound together with gains in markets where activity had previously struggled to gain traction. Lowered mortgage interest rates supported this trend.”

The higher forecast came as CREA said that sales through its MLS system in August were up 2.1 per cent compared with a year ago as sales were up in just over half of all local markets, led by Vancouver and Calgary.

Compared with July, sales were up 1.8 per cent.

The national average price for homes sold in August was $398,618, up 5.3 per cent from a year ago. Excluding Vancouver and Toronto, the average price was $324,738, up 3.9 per cent from a year ago.

The national sales-to-new listings ratio was 55.5 per cent in August, up from 53.9 per cent in July, within the 40 and 60 per cent band that CREA uses to mark a balanced market.

The number of months of inventory stood at 5.8 months at the end of August, down from six months in May, June and July.

Source: The Canadian Press

With mortgage rates near all-time lows and the government of B.C. saving first-time buyers up to $7,500 by increasing the First Time Home Buyer’s Property Transfer Tax limit from $425,000 to $475,000 (and partial savings up to $500,000), now could be the perfect time to finally take the plunge into home ownership.

If you are thinking of obtaining a loan of any kind, like a new mortgage, vehicle loan or any other loan, it is important to understand how the banks think. By setting up your finances as optimally as possible, you can increase your chances of getting approved instead of declined. Here are some tips for increasing your borrowing power in 2014.

Also, having all of your documents ready may allow you to make a more competitive offer on a timesensitive deal like a foreclosure in real estate. Here are some of the documents you will likely need: Two years of T1 Generals (tax returns filed to the CRA); Two years of Notice of Assessments (document sent back from the CRA once income taxes have been filed); Job letter and paystubs if an employee; Mortgage statements and lease agreements if you own real estate; And more, depending on your circumstances.

Find out what your credit score is

It is always a good idea to obtain a copy of your own credit bureau report ahead of time. Every time a lender does a credit inquiry, your credit score will take a small hit. Learning ahead of time whether your credit score is good or bad will allow you to prepare and fix anything that may appear on your credit rating.

You can obtain a copy of your own credit rating yourself at Equifax.ca.

Get pre-approved

If you plan on purchasing real estate or a vehicle in 2014, it would be a good idea to discuss your options with your broker or bank to learn more about what you qualify for. You don’t want to be wasting your time looking at making a major purchase only to find out you won’t qualify for the loan you need to make that purchase.

If looking to obtain a mortgage, get a pre-approval so that you will have a sense of what your borrowing cost will look like and lock in your interest costs.

Investigate RRSPs

If you are a first-time homebuyer, you can pull out up to $25,000 per person out of your RRSPs to be used towards the purchase of your first home. Important points about the first time homebuyer plan are: The $25,000 is tax free, but must be repaid into the RRSP over a 15-year period.

The funds have to be in the account for 90 days before you pull them out, so make sure if you plan on buying a house in the spring, you make an RRSP contribution this fall.

You can create “money out of thin air” by making an RRSP contribution shortly before purchasing because of the tax refund.

Example: If you deposit $20,000 into your RRSP and earn between $30,000 and $62,500 annually, you will get an approximate $6,500 tax refund once your taxes have been filed. You will now have $26,500 available for the down payment, not $20,000.

Filing your taxes

Generally, the sooner you file your taxes, the better. There are some exceptions, however.

Lenders will generally use either your minimum guaranteed income (common for salaried employees) or what you have averaged for the past two years on your income taxes (the net income on Line 150 on your taxes).

So, if you had a very good year in 2013 and have a variable income (self employed, or a large amount of your annual income is derived from commissions, bonuses, etc.) you should file ASAP. However, if 2013 was a very poor year, you can still get away with using your 2011 and 2012 income taxes to qualify for a mortgage or other loan until the summer. If you had a bad year, you may want to buy in the first half of 2014 instead of waiting.

Presales completing in 2014

If you have a presale completing in 2014, it is important to prepared ahead of time. The developer will usually give you an idea of the estimated closing date well in advance, but the dates often change.

Make sure you are prepared in advance. Once the developer is ready to close, they usually only give about 10 business days’ official notice which means you should already have your financing arranged. Rates can be held for 90-180 days depending on the lender (most lenders are 90-120 days) so start early to make sure you get the best possible rate by the completion date.

If you are buying a new presale that doesn’t complete until after 2014, make sure you find out if the developer has arranged a rate hold guarantee with a bank. The rate will usually be higher than current market rates but it’s important to have a worst-case scenario. Financing is harder than it has been in a long time. Make sure you get the update on what is new and how some of the new rules may impact you. Particularly for real estate investors, it is much more difficult to qualify for rental properties.

Source: Kyle Green is a mortgage broker with Mortgage Alliance Meridian Mortgage Services Inc.

A gauge closely monitored by the real estate sector, called the sales-to-active-listings ratio, reached 20.4 per cent last month – the first time since June, 2011 that Greater Vancouver’s housing market has crossed into seller’s territory.

The industry deems it a balanced market when the ratio ranges from 15 per cent to 20 per cent. It is considered a buyer’s market below 15 per cent and a seller’s market above 20 per cent.

The number of properties changing hands is edging up while active listings are slipping, the Real Estate Board of Greater Vancouver said Tuesday.

Residential housing sales rose to 3,286 in May, up 14 per cent from 2,882 resale properties that sold a year earlier. Despite the rebound, the latest monthly sales still lagged the 10-year average of 3,514 for May. There were a total of 16,072 active listings last month, down 6.7 per cent from May, 2013.

Some housing watchers have said Ottawa’s shutdown of the federal immigrant investor program in February might erode sales volume, especially for high-end properties. But so far, the impact has been muted, said Shaadi Faris, vice-president at Vancouver-based Intergulf Development Group.

“The perception about people who have no connection to B.C. arriving to flood the market with investment properties is overblown,” he said in an interview. “The immigrant investor program being removed didn’t have as large a ripple as some might have thought.”

Greater Vancouver’s average price for single-family detached homes sold last month was $1,218,772, up 4.2 per cent from a year earlier.

Mr. Faris said that as prices for detached houses continue their march upward, prospective first-time buyers are increasingly looking for townhouses and condos in the suburbs.

Intergulf oversees the Grand Central condo project in Coquitlam, where the developer completed the first high-rise in 2009 and the second in 2012. A third tower, the highest at 37 storeys, is set for completion later this year.

“Three or four years ago, there were a lot of new projects that came on. There was an oversupply in Coquitlam, and it took time to get through that inventory,” Mr. Faris said.

Coquitlam condo prices have dipped 4.1 per cent since May, 2011, but have risen 3 per cent in the past year. The Evergreen SkyTrain line, scheduled to open in the summer of 2016, will have a stop near the Coquitlam Centre shopping mall. “Evergreen isn’t pie in the sky any more,” Mr. Faris said.

Combined index prices, which strip out the most expensive resale properties on the Multiple Listing Service, climbed 4.3 per cent year-over-year to $624,000 last month for Greater Vancouver’s detached homes, condos and townhouses. The index price for detached homes in May was $966,500, up 5.4 per cent over the past 12 months. The townhouse index price gained 3.1 per cent to $469,100, while the condo index price rose 3.2 per cent to $377,500.

Ray Harris, president of the Real Estate Board of Greater Vancouver, said statistics on existing homes sold show that demand is strong. The region’s housing market is the most active it has been since the spring of 2011, he said.

For detached properties, three neighbourhoods made the million-dollar club in May’s home price index: Vancouver’s West Side saw its price index increase 7.8 per cent over the past year to $2,229,800, West Vancouver’s gained 8.1 per cent to $2,009,200 while Burnaby South’s advanced 4.7 per cent to $1,007,400.

In the Fraser Valley, total residential, commercial and retail sales last month climbed to 1,633, up 18.4 per cent from May, 2013. Last month’s index price for detached homes in Fraser Valley, which includes the sprawling suburb of Surrey, rose 3.1 per cent to $566,400.

Source: Brent Jang, The Globe and Mail

Recent news that Toronto has caught up to Vancouver with single detached homes averaging more than $1 million raises an interesting question as to why these two cities have such high housing prices relative to the rest of Canada.

High housing prices are surely affected by low mortgage rates, but this is true for all housing markets in Canada. Yet, the most expensive housing markets experience price acceleration that is faster than other cities. According to the Canadian Real Estate Association, for the period March 2013 to March 2014, average house prices have risen 7.3 and 5.6 per cent respectively in Toronto and Vancouver, which is more than the 4.9 and 1.5 per cent in Calgary and Edmonton respectively.

It is all about demand and supply. If demand rises faster than supply, housing prices increase, as in many western provinces and Ontario metropolitan cities. If demand is less than supply, housing prices will fall, as in the case of Quebec City and Halifax.

Demand for housing depends on population growth, demographics and investors looking for property investments in Canada.

Calgary (4.3 per cent) and Edmonton (3.8 per cent) have one of the fastest population growth rates among metropolitan areas in the country. Toronto and Vancouver are less at 1.5 and 1.4 per cent respectively, which is more typical for Canada as a whole.

Those cities, with younger populations becoming homeowners for the first time, will also push up demand — Calgary and Edmonton have the youngest populations in Canada. Marriage breakdowns also increase the demand for housing. So will investors who buy houses to rent out, hoping to cash in on higher prices in the future. Rental vacancy rates in 2013 are least in Calgary at one per cent. Vacancy rates are below two per cent in Toronto, Vancouver and Edmonton.

Yet, Toronto and Vancouver prices continue to rise faster than Edmonton and Calgary. Why is that so, since demand factors suggest that prices should be booming most in Calgary? To answer this question, one needs to look at supply conditions for home building.

The cost of new homes will drive up housing prices since new supply will not be forthcoming unless prices are sufficient to cover costs. The 2009-12 Canada Mortgage and Housing Corp. new housing price index has risen fastest in Toronto, while Vancouver’s, Calgary’s and Edmonton’s has been more muted, although Calgary’s new housing prices have risen sharply recently at 4.9 per cent.

An important factor influencing the cost of new homes are land prices, since building costs per square metre don’t differ as much across cities. Toronto and Vancouver have quite high land prices, which is why detached homes are so expensive there.

Land prices are heavily influenced by zoning and urban growth policies. A recently released paper by Calgary’s School of Public Policy provides a comparison of policies adopted in Calgary and Edmonton with those of Vancouver and Toronto. While the authors, Zack Taylor, Marcia Burchfield and Anna Kramer, do not examine the impact of urban growth policies on housing affordability, their analysis provides some important food for thought for urban planning in the future.

In the past two decades, Vancouver has followed intensification strategies, requiring new housing to be built on an existing area of land and greater transit use. Toronto has also pursued intensification in recent years, although some suburban expansion has continued. In contrast, Edmonton has followed an expansionist strategy, although with some densification in the past decade. Calgary’s urban growth has been expansionist, similar to Edmonton, although it has adopted an intensification strategy since 2009.

An intensification strategy provides a number of benefits to communities by making more efficient use of land. The inner city is less hollowed out since the population cannot move further from the centre. Density increases to accommodate new demand and growing cities develop new business centres, not just those at the core. Greater use of transit helps reduce environmental costs related to pollution.

As desirable as it is for urban planning to prevent urban sprawl, intensification has consequences that should not be ignored. Calgary’s younger and migrant families prefer houses with land that are typically more affordable in the suburbs. Without expansion, housing which is desired by new owners will become less accessible, driving up prices for detached homes, like has happened in Toronto and Vancouver in the past decade.

After all, if more people are added to the same available land, it is bound to push up land costs for housing. Only if the city releases existing land in its boundaries for housing development will it be possible to bring on enough supply to keep housing prices sufficiently low. Otherwise, higher housing prices per square metre will force people to live in smaller houses to maintain affordability, or move to surrounding areas beyond the urban border where housing is cheaper.

While accelerating housing prices have not yet occurred in Calgary, which faced an economic recession in 2009, housing affordability may become an issue if insufficient new housing is being built. This could lead to increased demand for low cost housing, which could be partly relieved by relaxing regulations such as those with respect to secondary suites.

Calgary’s policy regime is not built in stone since it is so different from the past. If housing becomes much less affordable in the future, the voters may demand from its mayor and council a new approach that provides better balance between intensification and expansion.

Source: Jack Mintz, Calgary Herald