rennie landscape Victoria . fall 2024
Thank you for taking the time to read the Fall 2024 edition of the rennie landscape. If it feels like we’re in a continuous state of change today, it’s probably because we are. A lot has changed over the past few years, but also in the six months since we published the spring edition of the rennie landscape. And with that, sentiment is evolving. In the spring edition we had said that there was a general sense of optimism around real estate and that it was predicated on an expectation that the Bank of Canada would start cutting interest rates. Well, the Bank has indeed been cutting rates, though some of the optimism in the market has faded. At least some of this has to do with an economy that remains in a state of imbalance. Compared to two years ago, the pendulum has now swung in the opposite direction, with inflation mostly under control but labour market pains piling up alongside debt burdens, a rapidly expanding Canadian population, and a slew of new housing policies from all levels of government. As we look ahead, more interest rate cuts are needed in the near term, and with this continued easing of monetary policy the Bank will look for the pendulum to swing back towards some sort of economic equilibrium. It will take time to achieve this state of nirvana, and in the meantime we’ll be paying more attention to all of the other labour market and economic indicators impacted by high interest rates, and less to the inflation that higher rates were meant to quash. We hope you enjoy this latest edition of the rennie landscape.
Ryan Wyse MARKET INTELLIGENCE MANAGER & LEAD ANALYST rwyse@rennie.com
Ryan Berlin VP INTELLIGENCE & HEAD ECONOMIST rberlin@rennie.com
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contents
04
ECONOMY
10
RATES
16
CREDIT & DEBT
22
DEMOGRAPHICS
26
HOUSING
32
POLICY
36
KEY INSIGHTS
38
GET THE DATA
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economy
01. economy Canada has experienced slow and sustained labour market deterioration for the better part of the last two years, resulting in a situation today that is weak by most metrics.
TRENDING IN THE WRONG DIRECTION
The national unemployment rate has been on an upward trajectory of late, rising from a low of 4.8% in July 2022 to 6.6% most recently (in August). This trend of rising unemployment has occurred alongside some pretty substantial job gains—specifically, 211,000 job additions year-to-date after 418,000 were added in 2023—as Canada’s population has swelled at a record-setting pace. So while annual job growth is at one of its highest levels ever, it belies an otherwise challenged labour market. Looking at a range of labour market indicators compared to both the past decade and a benchmark of the stable pre-pandemic period of 2018-2019, we can see most of the results skewing to the left of their respective benchmark ranges (with the left-hand side of the chart representing worse economic outcomes). Beyond the unemployment rate, unemployment—the number of people not working but still looking for a job— has been growing at almost the same rate
as employment and much faster than during the benchmark period. Even more concerning, however, are the employment and participation rates, both of which have recently hit their lowest level since the turn of the millennium (excluding the pandemic years of 2020 and 2021). That so many working-age Canadians are not engaging with the labour force is partly due to demographics—aging baby boomers are retiring in increasing numbers—but also due to a growing number of discouraged workers leaving the labour force on account of not being able to find suitable employment. On the positive side of the economic ledger, job vacancies are falling and are back to pre-pandemic levels (with more on that later), and the number of EI claimants, while rising, is also at pre-pandemic levels. All-in-all, Canadian labour market gauges point to a steady economic decline and, as such, are cause for some concern. They also point to a need for further interest rate cuts sooner rather than later.
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economy
LABOUR’S LEFTWARD LURCH
6.6%
9.2%
4.8%
UNEMPLOYMENT RATE
58.8%
62.5%
60.8%
EMPLOYMENT RATE
ANNUAL UNEMPLOYMENT CHANGE
9.2%
-0.6%
2.8%
ANNUAL EMPLOYMENT CHANGE
0.8%
3.5%
3.5%
64.8% 65.1%
67.3%
PARTICIPATION RATE
1,003,395
341,220
554,005
JOB VACANCIES
473,980
767,730
258,680
EI CLAIMANTS
AVERAGE WEEKLY EARNINGS GROWTH
-0.3%
8.4%
4.0%
Worse Outcome
Better Outcome
BENCHMARK RANGE
CURRENT
(excludes pandemic outliers)
DATA: SELECT LABOUR MARKET INDICATORS, 2010-2024, CANADA SOURCE: LABOUR FORCE SURVEY & TABLES 14-10-0406-01, 14-10-0011-01, 14-10-0203-01, STATISTICS CANADA
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economy
JOBS FIND THEIR MATCH: WORKERS! The great mismatch between jobs and workers that persisted through much of the past few years has abated, with the job vacancy rate now back to its pre-pandemic level.
Canada’s job vacancy rate has been on the inverse trend to its unemployment rate. After peaking in the spring of 2022 at 5.7%, it has consistently declined the past couple of years to its most recent level at 3.1%. This matches the rate heading into the pandemic as the number of open roles and workers to fill them has largely normalized. With vacancies back to typical levels, expect less upward pressure on wages as companies find it easier to source the workers they need—which may not be great for job seekers but is good news for the Bank of Canada as it seeks to maintain 2.0% inflation.
Despite an overall reduction in job vacancies, the pace of reduction has not been consistent across sectors and poses some important challenges going forward. The good news for the real estate sector, as we collectively attempt to significantly expand the supply of housing, is that the construction vacancy rate has declined to a manageable 3.6%. In contrast, the relative prevalence of job vacancies in health care (at 4.8%) is poised to grow due to both our growing and aging population.
A HEALTHY LEVEL OF VACANCIES (FOR MOST)
14%
12%
10%
8%
pre-pandemic vacancy rate average 2.8%
6%
4%
2%
0%
HIGH LOW CURRENT
(excludes March-Sept 2020)
SOURCE: STATISTICS CANADA. TABLE 14-10-0406-01 DATA: JOB VACANCY RATES BY SECTOR, SEASONALLY-UNADJUSTED, 2015-2024, CANADA
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economy
A CONCERNING DIVERGENCE How many Canadians does it take to screw in a lightbulb? According to the latest productivity data, the same number it took in 2017.
Productivity is an important measure of economic performance, as it is the magnitude of output we produce relative to the inputs required to produce it that determine our incomes and standards of living. Labour productivity—what we're able to produce in the hours we work—is what we'll focus on here. Labour costs, alongside the level of consumer prices, have risen sharply the past few years. And as with the goods and services we consume today, the amount we’re actually getting for our ever-increasing costs, labour or otherwise, has not followed suit.
What’s more, this trend actually pre-dates the pandemic—though it has accelerated since 2021—as the divergence of labour costs and productivity began in 2017. This trend cannot continue in perpetuity, as labour costs (incomes) will cease to rise without a commensurate increase in productivity in the long-run. To achieve productivity gains will require greater investment in technology, machinery, and education, alongside reduced regulatory barriers and increased competition.
DOING LESS WITH MORE
140
labour cost growth since 2017 +31%
130
120
110
100
productivity change since 2017 -0.3%
90
80
2010 2011
2019 2018 2017 2016 2015 2014 2013 2012 2020 2021
2022
2023 2024
LABOUR PRODUCTIVITY
UNIT LABOUR COST
DATA: INDEX OF LABOUR PRODUCTIVITY & UNIT LABOUR COSTS, SEASONALLY-ADJUSTED, QUARTERLY, CANADA SOURCE: STATISTICS CANADA. TABLE 36-10-0207-01
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economy
RAISING DOUBT ABOUT FUTURE WAGE GROWTH With a soft labour market and clouds of uncertainty still hanging over the Canadian economy, businesses expect fewer increases to their labour costs over the next year.
As we noted previously, incomes have been growing in Canada at an elevated rate. Currently, average weekly wages are rising by 4.0% on a year-over-year basis, which in turn puts upward pressure on inflation. So it’s with great interest that we, and the Bank of Canada, look to the latter's Business Outlook Survey for forward-looking data on expected labour costs. In the most recent survey, the majority of firms surveyed (57%) indicated that they expect lower wage increases over the next 12 months, the second-most (after Q3 2023) since the Great Recession and an increase from the previous quarter’s 43%.
We should note, this would still mean rising incomes for workers, just at a slower pace than the previous year and moving more in line with the rate of inflation. Further, just 11% of firms are expecting higher labour costs over the next year, which is the second-lowest such response since 2009 and down from 25% last quarter. These responses give the Bank of Canada a clear indication (alongside the more broadly weakening labour market we discussed earlier) that wage growth is likely to slow in the coming months—an important feature of an evolving economy as it works to maintain 2% inflation.
EXPECTING LESS OF MORE
90%
“Over the next 12 months, are increases in labour costs expected to be higher, lower or the same as in the previous 12 months?”
80%
70%
60%
57%
50%
40%
32%
30%
20%
11%
10%
0%
2018
2019
2020
2021
2022
2023
2024
HIGHER
LOWER
SAME
DATA: PERCENTAGE OF POLLED BUSINESSES EXPECTING HIGHER, LOWER, OR THE SAME INCREASES IN LABOUR COSTS, NEXT 12 MONTHS, CANADA SOURCE: BANK OF CANADA BUSINESS OUTLOOK SURVEY, Q2 2024
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economy
NOT A GOOD TIME TO ASK FOR A RAISE
A majority of businesses in Canada expect to have slower wage growth next year. ›
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rates
02. rates The Bank of Canada’s fight against inflation has stretched beyond the two-year mark. The good news is that with broad-based declines throughout the consumer price index, inflation has settled back to a stable and predictable level.
THE JOB IS DONE
Inflation is like your water heater: you don’t really pay attention to it until it breaks. The good news for most of us (if not the Bank of Canada) is that fairly soon we can go back to not worrying about it as intently. The overall rate of inflation has been inside the Bank’s target range (of 1-3%) all year and has been trending downward, most recently sitting at 2.0% in August. The overall decline in inflation has been broad-based throughout the Consumer Price Index (CPI) and shows an economy that has responded predictably to restrictive monetary policy. Notably, core measures of inflation—which are of particular importance to the Bank as they strip out the most volatile components of inflation, and look at how prices for more stable goods and services are evolving—are all below 2.5% and on a downward trend.
The biggest contributor to inflation today is the shelter component, which is rising at an annual rate of 5.3%. It remains elevated for two reasons: mortgage interest and rents. Both of these elements have seen reductions in their rates of increase of late but both have been pushed upward precisely because of high interest rates. As rates come down, so too should those components of shelter inflation. In fact, without shelter, all other prices in the CPI rose just 0.5% over the past year. With that said, one can parse the CPI in myriad ways to examine price changes of just about anything, from potatoes to non-electric kitchen utensils, and find prices moving in different directions. The bottom line is that inflation is back to target and we can soon stop parsing every possible permutation of the CPI before it drives us nuts (and seeds).
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rates
ANY WAY YOU SLICE IT: TRENDING BACK TO TARGET
2.0%
TOTAL CPI
CPI COMMON
2.0%
CPI MEDIAN
2.3%
CPI TRIM
2.4%
INFLATION EXCLUDING SHELTER
0.5%
INFLATION EXCLUDING MORTGAGE INTEREST
1.2%
INFLATION EXCLUDING ALCOHOL, TOBACCO, CANNABIS
1.9%
0.4%
NUTS & SEEDS
SOURCE: STATISTICS CANADA. TABLE 18-10-0004-01 DATA: ANNUAL CHANGE IN SELECT MEASURES OF INFLATION, AUGUST 2024, CANADA
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rates
WHAT ONCE WAS LOST BUT NOW IS (PARTIALLY) FOUND In today’s declining interest rate environment, homebuyers are regaining some of the affordability they lost to higher rates. That should continue even as prices start to rise.
The past two years have proved particularly challenging for homebuyers. With the Bank of Canada embarking on a once-in-a-generation tightening of monetary policy in response to rising and high inflation, borrowing became much more expensive. While home prices in British Columbia’s largest housing markets remain below their peaks from the spring of 2022, they have not fallen enough to fully offset the impact of higher rates. In turn, this has led to an overall decrease in affordability for homebuyers. To use some numbers to tell the same story, home prices would have had to have fallen by 42% to neutralize the Bank of Canada's 475 basis-point increase in its overnight rate for affordability to have remained unchanged. In Greater Victoria, the benchmark condo price—the usual entry point into the housing market for a first-time buyer—was down only 7% from its peak in May 2022 by May 2024 (right before the Bank began to cut its policy rate). The composite benchmark price, meanwhile, fell a little more from its 2022
peak (by 10%, to be specific), but this still yielded a substantial decrease in purchasing power.
The good news for homebuyers is that they’ve started to regain some of that lost purchasing power, as the three 25 basis-point cuts to-date from the Bank of Canada have been accompanied by modest declines in home prices (-1.6% for condos in Greater Victoria). Looking ahead, we can expect further affordability gains as the Bank continues on its path towards a theoretical “neutral policy rate”. Their stated goal is to settle somewhere in the range of 2.25%-3.25%, which we expect them to achieve midway through 2025. If the Bank's policy rate settles in at 2.75%, price appreciation of anything less than 21% will result in increased affordability. Our expectation is for a modest increase in home values over the next year, and another 175 basis-points in cuts to the Bank’s policy rate, thereby yielding increased purchasing power for homebuyers.
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rates
PURCHASING POWER PICK-UP
50%
Less Purchasing Power
40%
30%
20%
TOLERANCE RANGE * EXPECTED RANGE BY END OF
peak unaffordability April 2024
10%
0%
-5%
-4% -3% -2% -1% 0% 1%
2%
3%
4% 5%
reference period August 2024
-10%
-20%
-30%
More Purchasing Power
-40%
INTEREST RATE CHANGE PP CHANGE -50%
* prices can increase by up to 20% and affordability doesn't deteriorate
SOURCE: BANK OF CANADA, GVR DOTTED LINE REPRESENTS COMBINATIONS OF RATE & PRICE CHANGES THAT YIELD CONSTANT MONTHLY MORTGAGE PAYMENTS
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rates
BECAUSE WE ARE INVERTED Bond yields are falling with implications for fixed mortgage rates. It also means the yield curve, which has been inverted, is on a path to normalize.
In real estate, bond yields matter because they are the basis on which fixed mortgage rates are determined by lenders. The good news for borrowers is that yields for all term lengths of bonds have been declining of late in Canada, and fixed rates are indeed following suit. For example, the 5-year Government of Canada yield, which is the basis for lenders’ popular 5-year fixed rate, is now below 3% and falling. Beyond mortgage rates, we also care about bond markets because when the yield curve inverts—which it did 2 years ago—trouble could be a-brewin'.
More specifically, an inverted yield curve— where the 2-year bond yield is higher than the 10-year yield—has historically been a good predictor of recessions. That said, the fact that the yield curve is inverted today doesn’t necessarily mean we’re on a highway to the danger zone as it reflects a falling interest rate environment. As the Bank of Canada moves towards its goal of a neutral policy rate, expect shorter-term yields to fall and the shape of the yield curve to normalize. At that point, expect the curve to look a lot more like it did in 2017, albeit with rates higher across the board.
A REVERSION ON THE HORIZON
6.0%
4.6%
5.0%
3.6%
4.0%
3.3%
3.0%
3.1%
2.0%
1.2%
1.8%
1.0%
0.0%
LONG TERM
MONTH
YEAR
YEAR
YEAR
YEAR
YEAR
AUGUST
AUGUST
AUGUST
SOURCE: BANK OF CANADA DATA: GOVERNMENT OF CANADA BOND YIELDS, SELECT TERMS TO MATURITY
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rates
BEND THE CURVE Canada’s yield curve has been inverted for the past two years, but that’s likely to change sooner rather than later. ›
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credit and debt
03. credit & debt Canadian household borrowing has been on the rise of late— though the increase actually pre-dates the Bank of Canada’s first interest rate cut.
SPRINGTIME (BORROWING AND) SPENDING SPREE
It shouldn’t come as much of a surprise that household borrowing went through a period of relative stagnation, beginning in the second half of 2022, as the Bank of Canada was aggressively tightening monetary policy in response to high inflation. Total credit extended in 2023 was just $95.7 billion, the lowest annual total since 2019. Of that, $71.6 billion came in the form of mortgage credit, its lowest yearly sum since 2018. So far in 2024, however, household debts have been on the rise. Borrowing in Canada is quite seasonal, so in Q1 when only $7.4 billion in credit was extended, that actually represented an almost fourfold increase over the same quarter in the prior year, when $1.5 billion in credit was extended. This trend carried into Q2 of this year—where the second quarter typically sees the highest levels of new debt—with $45.6 billion in credit extended. While this is substantially lower than the heady days of 2021 and 2022, it’s 13% higher than Q2 2023.
Through the first six months of 2024, borrowing is up 26%, to $53 billion. Total mortgage credit year-to-date has been $35.7 billion, which was 8% higher than the same period last year. The mortgage share of overall household credit this year, however, declined to 67% (from 79%). The rest of the growth came in the form of non-mortgage credit, which includes home equity lines of credit (up to $5.5 billion this year), and consumer credit (up to $11.8 billion). The trend in rising consumer credit is something to keep an eye on. Consumers sometimes turn to this form of debt out of necessity in tough economic times, and many of these debts come with higher interest rates (think credit cards and even personal lines of credit). If this trend continues, it could spell trouble for some Canadian borrowers.
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credit and debt
A RESUMPTION OF DEBT CONSUMPTION
$70
$20
Mortgage Credit
Consumer Credit
$15
$60
$10
$50
$5
$40
$0
$30
-$5
$20
-$10
$10
-$15
-$20
$0
2019 2020 2021 2022 2023 2024
2019 2020 2021 2022 2023 2024
SOURCE: STATISTICS CANADA. TABLE 36-10-0579-01 DATA: NET CHANGE IN CREDIT ISSUED BY TYPE, QUARTERLY, CANADA
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credit and debt
RECORD-BREAKING MORTGAGE BURDENS The proportion of incomes that Canadians are using to service their mortgage debt reached an all-time high in Q2 2024 (the data go back to 1990) at 8.18%. That is undoubtedly a concern going forward: prior to 2023, the mortgage debt-service ratio (DSR) had not reached 8.00%, a level it has been above ever since. There is a silver lining when it comes to the debt obligations of Canadians—non-mortgage DSR has been declining. At 6.79% in Q2, the non-mortgage DSR reached its lowest level since Q4 2022, and compared to pre-2020 rates, is at its lowest point since Q3 2002. The diverging paths of the mortgage and non-mortgage DSRs has kept the overall debt-service ratio in check and in line with 2019 levels. It rose to 14.97% in Q2 2024,
which is still elevated from a historical perspective. That said, it was less than the same quarter in 2023 (15.00%) and below the all-time high of 15.03% set in Q1 2019. With two-thirds of Canadian mortgages held in fixed-rate mortgages, there is still a wave of renewals to come that will be at higher interest rates, with the potential to push the mortgage payments higher. The other side of the DSR equation is incomes: as wages rise they can reduce the debt-service ratios for individual borrowers. But as we explored earlier, unemployment is growing and slower income growth is likely to follow. All of this suggests that Canadian debt-service ratios may increase going forward, which is another consideration for the Bank of Canada as it continues cutting its policy rate.
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credit and debt
The share of income that Canadians are devoting to servicing their debts remains elevated.
IN SERVICE TO OUR MORTGAGE DEBT
1.3
1.2
1.19
1.1
1.03
1.0
0.9
0.88
0.8
0.7
2018
2019
2020
2021
2022
2023
2024
TOTAL DEBT SERVICE RATIO DSR
MORTGAGE DSR NON MORTGAGE DSR
DATA: INDEX OF PROPORTION OF DISPOSABLE INCOME GOING TO DEBT SERVICE, CANADA
SOURCE: STATISTICS CANADA. TABLE 11-10-0065-01
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credit and debt
NO CAUSE FOR CONCERN (YET)
The mortgage arrears rate in both Canada and British Columbia remains low from a historical perspective, but it’s trending in the wrong direction.
The mortgage arrears rate is a useful, though lagging, indicator, as it measures the proportion of mortgages that are 90 days or more behind on their payments. So while we can see how many Canadian borrowers were falling three months or more behind through the second quarter of 2024, it doesn’t necessarily give us a gauge for how many borrowers are starting to fall behind today. With that said, we can observe a pretty clear long-term trend of a declining arrears rate in Canada over the past decade-plus.
Canada’s arrears rate today, at just 0.19%, is lower than at any point in the decade leading up to the pandemic. Here in British Columbia, the arrears rate has held below the national average throughout the same period, and sits at just 0.16% today. One thing to keep an eye on, however, is the more recent trend of an increase. Both nationally and here in BC, the rate bottomed out in the summer of 2022, at 0.14% and 0.10% respectively, and has been rising ever since. Given the current level of arrears is still quite low, this isn’t overly alarming, but the upward trend is clear and could spell some pain for borrowers and lenders alike in the coming months.
CHECKING THE ARREAR-VIEW MIRROR
0.9%
2020-2022 average 0.19%
2022-2024 average 0.17%
2011-2020 national average 0.29%
0.8%
0.7%
0.6%
0.5%
0.4%
0.3%
0.31%
0.2%
0.17% 0.16% 0.14% 0.19%
0.1%
0.0%
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020 2021
2022
2023 2024
CANADA
BC
AB
ON
QC
DATA: MORTGAGE ARREARS RATE, MONTHLY, SELECT PROVINCES & CANADA
SOURCE: CANADIAN BANKERS ASSOCIATION
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credit and debt
PUNCTUAL BC The west coast has maintained one of the lowest rates of mortgage arrears in the country. ›
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demographics
04. demographics
British Columbia is projected to experience robust population growth over the next decade. This will have implications for how its metro areas accommodate the additions.
GO YOUR OWN WAY
The record-setting population growth in Canada and throughout British Columbia has already had major implications for housing in our local communities (later, we’ll explore how our housing supply has not been able to keep pace to-date). Beyond that, we also have to consider future population growth and for that we look to population forecasts from BC Stats. The provincial statistical agency has produced what can only be described as a "robust" outlook for population growth over the coming decade, one driven by high levels of net international migration continuing in the short-run—something that federal policy is looking to curtail.
Greater Victoria's population is projected to grow at a slightly slower pace over the next 10 years, expanding at 15%. This would be less than the 19% growth over the past ten, and would add almost 71,000 people to the region (compared to almost 77,000 over the past decade). The recent trend of explosive growth on the West Shore and specifically in Langford is expected to intensify over the next decade. In fact, more than two out of five additions (42%) are expected to come to Langford alone. This growth will require increasing the pace of housing construction, alongside transportation and infrastructure expansion to meet the needs of the population.
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demographics
LOCATION ALLOCATION
29,498 21,886
LANGFORD
54%
66%
11,891 15,366
VICTORIA
12%
18%
5,664 10,334
SAANICH
5%
9%
4,251 4,639
SOOKE
28%
34%
COLWOOD
4,590 4,257
20%
27%
VIEW ROYAL NORTH
2,520
2,736
22%
25%
1,860
948
7%
16%
SAANICH CENTRAL SAANICH SIDNEY
1,844
864
5%
11%
6%
15%
1,724
767
OTHER
10%
15%
9,627 12,334
CHANGE IN POPULATION
Projected Growth Rate
Historical Growth Rate
SOURCE: BC STATS DATA: HISTORICAL & PROJECTED POPULATION GROWTH BY MUNICIPALITY, GREATER VICTORIA
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demographics
GROWTH BY ANY OTHER NAME…
After two consecutive years of record-shattering population growth, the federal government has pledged to reduce the pace of in-migration through a reduction in the non-permanent resident population.
Keeping track of a changing population is a tricky endeavour. The only true count of population comes every five years via the census, with the next iteration coming in 2026. In between each census period we have a variety of sources that are either estimates or proxies to help our understanding of how the population is evolving, each with their own drawbacks. And after record-setting population growth in 2022 and 2023, it is with great interest that we seek to learn how Canada’s population is changing so far in 2024. The quarterly demographic statistics from Statistics Canada are a good place to start
and can be counted on for accuracy, though as of writing this report only Q2 data are available. We can use the population of working-age Canadians from the Labour Force Survey, which we have through August, though this estimate is drawn from a small sample and then extrapolated. Lastly, we can look at the issuance of permits and permanent resident admissions through seven months of the year. The bottom line, though, is that regardless of which source we observe, they all point to continued population growth in 2024. The government’s plan to reduce the number of non-permanent residents does not appear to have started in any meaningful way.
SOURCES (OF POPULATION GROWTH) FOR COURSES
+1.5%
1,000,000
+32.3%
900,000
871,530 884,790
829,500
800,000
700,000
626,900
-9.2%
600,000
555,498
504,243
500,000
-0.2%
400,000
304,125 303,640
300,000
200,000
100,000
0
TOTAL POPULATION QDS
POPULATION LFS
NONPERMANENT IRCC
PERMANENT RESIDENTS IRCC
YTD YTD
SOURCE: LABOUR FORCE SURVEY & QUARTERLY POPULATION STATISTICS, STATISTICS CANADA. IMMIGRATION, REFUGEES, & CITIZENSHIP CANADA. DATA: YEAR-TO-DATE CHANGES IN POPULATION, VARIOUS MEASURES, CANADA
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demographics
STILL GROWING AND NOT SLOWING All metrics suggest that Canada’s trend of robust population growth has continued into 2024. ›
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housing
05. housing
Communities throughout British Columbia have struggled to add enough housing to keep pace with their ever-growing populations. Without a substantial increase to the pace of construction, existing housing deficits will grow.
A GROWING DIVIDE
It’s well documented that the cost of housing has historically been more expensive in British Columbia than in other parts of the country. And costly housing, whether ownership or rental, means that some people make different choices regarding their own living situation than they otherwise would if housing were more abundant. Adult children living at home for longer, living with roommates, and families sharing bedrooms are all relatively common examples of the trade-offs people make in BC and elsewhere. But we can also estimate how people might prefer to live if housing was sufficiently available and affordable to them. If we use a starting point of 2001 when housing was more affordable in BC, we can model how much housing construction our growing population would have needed if we were to hold those living conditions constant. This is done by looking at population growth by age, and allocating housing needs based on 2001
levels of household formation—when 18 year olds could more easily move out. From there we can compare it to the number of households actually formed, and the difference between the two is the deficit (or surplus) of housing that has accumulated since 2001. In Greater Victoria, we’ve built up a deficit of almost 9,000 homes in a little over two decades, which at 2.1 persons per household represents housing for almost 19,000 people—more than the entire population of Central Saanich. This millennium we’ve underbuilt by an annual average of just over 400 homes, on a net basis. With demolitions in Greater Victoria representing about 9% of housing construction, this means we should have been building more than 450 additional homes each year. With population growth expected to slow in the coming years, we expect the deficit to shrink a little, but we’ll need to substantially increase the pace of construction to make further progress.
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housing
DEMANDING MORE HOUSING SUPPLY
0
-1,000
-2,000
-3,000
-4,000
-5,000
-6,000
-408 average incremental deficit accrued to date
-7,000
-8,000
-7,421
-9,000
-8,976
-10,000
HOUSING DEFICIT
PROJECTED HOUSING DEFICIT
SOURCE: 2021 CENSUS, STATISTICS CANADA. RENNIE INTELLIGENCE DATA: DIFFERENCE IN HOUSEHOLD DEMAND VS ACTUAL HOUSEHOLD FORMATION AND FORECASTED DIFFERENCE, GREATER VICTORIA
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PER-PERSON PURCHASING PARITY Greater Victoria has typically seen less housing market activity, relative to population, than other markets in British Columbia. Not this year.
British Columbia’s largest housing markets have a lot in common, operating in a similar regulatory environment and sharing a macro-economy. But given the difference in size between Victoria, Vancouver, and Kelowna, it can be useful to compare these markets on a population-adjusted basis. And when we look at per-capita sales activity, the Kelowna market stands out from the other two. For most of the past decade, the Central Okanagan saw about 25% more per-capita sales counts than Greater Victoria and the Vancouver Region. This surplus of activity
likely captures the increased demand from secondary buyers in the Okanagan—think a mix of recreational properties, vacation homes, investors, and even part-time vacation and part-time short-term rental. That surplus, however, shrunk substantially in 2023 in the face of generationally-high interest rates and has evaporated entirely in 2024 as a plethora of new government policies have been implemented that affect investors and recreational buyers alike. With that in mind, expect the Kelowna market to take longer than its counterparts to recover as interest rates decline.
SECONDARY BUYERS FOR SECONDARY MARKETS
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24.2
25
~ 25% recreational surplus
19.5
~ 15% recreational surplus
20
18.2
15.2
15
13.5 13.6
13.2
12.7
12.0
10
5
0
AVERAGE
FORECAST TO YEAREND
VANCOUVER REGION GREATER VICTORIA
CENTRAL OKANAGAN
SOURCE: GVR, FVREB, VREB, AOIR, BC STATS DATA: PER-CAPITA MLS SALES COUNTS BY REGION
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A SHORT-TERM VIEW TO A LONG-TERM ISSUE In an effort to boost rental housing supply in British Columbia, the provincial government enacted restrictions on short-term rentals. Notably, very few of these homes are suitable for long-term habitation.
With the ever-expanding popularity of short-term rental accommodations and a growing shortage of housing in many parts of British Columbia, the provincial government opted to place tight restrictions on what could be used as short-term rentals in municipalities of 10,000 people and greater with some exceptions, starting May 1st. Only principal residences, secondary suites, and accessory dwelling units are allowed to be used as short- term rentals. And while the number of long- term rental listings in major markets in BC have increased since the beginning of May, the majority of short-term rental listings
are in dwellings not suitable for long-term housing (whether rented or owned). Here in Greater Victoria, no municipality had more than 1.5% of its housing stock as short- term rentals that could otherwise be long-term accommodation. The City of Victoria led the way, while Sooke had the most short- term rentals overall at 4.4%, but just 1.3% of its stock as potential long-term dwellings. This policy is not making much of an impact on overall housing supply and has negative implications for tourism accommodations.
STOCKING UP ON RENTAL HOMES
5.0%
4.4%
4.5%
4.1%
4.0%
1.3%
3.5%
3.2%
1.5%
3.0%
1.0%
2.5%
2.1%
2.0%
2.0%
0.6%
0.5%
1.5%
1.0%
0.5%
0.0%
SAANICH
LANGFORD
N. SAANICH
VICTORIA
SOOKE
SHORT TERM RENTALS
POTENTIAL LONG TERM DWELLINGS
SOURCE: STATISTICS CANADA DATA: PROPORTION OF HOUSING STOCK BEING USED AS SHORT-TERM RENTALS AND PROPORTION OF SHORT-TERM RENTALS WITH POTENTIAL FOR LONG-TERM DWELLING, GREATER VICTORIA
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housing
TIME IS OF THE ESSENCE
The pre-sale market has changed a lot since the framework governing new-home consumer protection was introduced two decades ago. It's time for a change.
The Real Estate Development Marketing Act (REDMA) is a useful consumer protection tool. It dictates how developers can market and sell pre-sale properties in BC, including requiring disclosure statements, then selling enough homes within 12 months to trigger a construction financing commitment. It also sets out the terms by which a buyer can rescind their purchase. Since this came into effect in 2004, it has been amended—in 2014, 2021, and 2023—with some notable changes including extending the pre-sale period from nine to 12 months, and allowing disclosure statements for individual phases in a development, among others.
If we compare projects today with those of 2010 (as far back as the data goes), the average size of a project in Metro Vancouver has grown by 46% in the number of homes and 60% in height. More than one-third of projects launched with at least 200 homes—more than double that of 2010. Each new project today requires financial commitments from home buyers that are 212% greater than they were just over a decade ago, along with more complex financing that requires additional
time to obtain. Simply put, REDMA's 12-month early marketing period no longer suits the size of projects today.
A CHANGING DEVELOPMENT LANDSCAPE
PROJECT FEATURE
LAUNCH
LAUNCH
Number of Storeys
10
16
Number of Homes
116
169
Price per Square Foot
$467
$1,090
Unit Size (sq ft)
820
752
Unit Price
$383,085
$819,941
Project Volume
$44,425,860
$138,664,655
Share of Projects with 200+ Units
14%
35%
Typical City
Vancouver
Surrey
DATA: AVERAGE NEW HOME PROJECT STATISTICS, METRO VANCOUVER
SOURCE: ZONDA URBAN
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COMPLEXION INTROSPECTION New home developments in Metro Vancouver are growing in scale and that means they take longer to sell, finance, and build. ›
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policy
06. policy The federal government has announced new plans to limit the number of non-permanent residents in Canada. Achieving this goal will require significant change.
MIGRATING TO A NEW POLICY After previously announcing new caps on the number of international study permits (which we discussed in the last rennie landscape), the federal government, in March, announced a plan to reduce the overall number of temporary residents— international students, temporary foreign workers, and the international mobility program—in Canada. The intention is to reduce the share of non-permanent residents to 5% of Canada’s population from 6.2% (at the time of announcement) by 2027. Since the announcement, the latest quarterly demographic estimates showed that the share of non-permanent residents was actually 7.3% of the population (3 million people) at the end of Q2, making the task that much more difficult. As we discussed earlier, the number of temporary permits issued through the first seven months of 2024 is actually higher than the same period in 2023, suggesting that no meaningful action on this issue has begun.
What’s more, the sheer scale of the change requires more than just reducing the number of new permits issued—it will also require a greater share of non-permanent residents leave the country once their permits expire (instead of renewing or seeking permanent residency). The other option available is to only issue permanent residency to current non-permanent residents—in the last few years between two-thirds and three-quarters of permanent resident additions annually have already been living in Canada—but this also will not be enough to meet the new target alone. What this means for Canada, and for local real estate in British Columbia, if the new target is achieved, will be a slowdown in overall population growth. The first order effect will be a reduction in overall rental housing demand as the majority of temporary residents are tenants. This should bring the rental market, which is currently undersupplied, closer to balance.
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CAPITALIZING ON INVESTORS
In April, the federal government announced their intention to amend the capital gains inclusion rate. The old policy had an inclusion rate of 50%, meaning half of any capital gain is tax-free while the other half is taxed at the individual's or business’s marginal tax rate. The new rules, which came into effect June 18th, bring the inclusion rate for businesses up to 67%. For individuals, capital gains exceeding $250,000 are now subject to a 67% inclusion rate for the portion above $250,000.
The new policy has had some negative consequences for the real estate sector in BC. The change applies to any capital gain realized after June 18th, regardless of the original purchase date of the property, retroactively adding a tax burden. This policy change, along with others aimed at investors, has reduced demand in the market. Given the critical role that investors play in bringing new supply to market through pre-sale, this change will have a negative impact on new housing additions.
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policy
Like the BC Government before it, the Feds have made housing a priority of late. While some policies help to boost supply at the margin, they ultimately
will not have much of an impact on affordability.
AMENDING THE AMENDMENTS In April, the provincial government announced changes to the Residential Tenancy Act around evicting tenants for owners' personal use. The new policy, which came into effect on July 14th, changed the notice period for personal occupancy evictions from two months to four months. It sought to add protections to tenants who might be evicted in bad faith using the personal occupancy evictions in order to get new tenants at higher rents. The province also created a web portal, through which all personal occupancy evictions would be submitted in order to better ensure personal occupancy evictions were being used properly. The owner would also need to maintain their occupancy for a minimum of 12 months, up from six previously, and tenants now get 30 days to dispute a notice, up from 15.
Two weeks after the new rules came into effect, the province amended them again. The notice period for evictions by a purchaser who intends to occupy a dwelling was reduced from the new four-month period to three months. The new timelines can be challenging for landlords who wish to occupy their properties, and even at three months add complications to the sale of tenanted properties, particularly for buyers with insured mortgages, who require vacant possession. This will reduce the number of suitable options available to buyers who require mortgage insurance, many of whom are first-time homebuyers.
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MORE POLICIES THAN YOU CAN SHAKE A STICK AT The federal government has introduced or updated a series of new policies aimed at
As we’ve noted previously, the foreign buyer ban has little effect on real estate in Canada. The increase in potential RRSP withdrawals makes sense for individuals to keep up with rising prices and will not have a major impact on the overall market. The Canada Builds program, which seeks to add housing on public lands will likely grow supply at the margin. The relaxing of mortgage rules should benefit first-time buyers trying to get a foot in the door by way of increased availability of homes that can be purchased with an insured mortgage, greater purchasing power from longer amortizations, and the availability of lower mortgage rates for insured (versus uninsured) borrowers.
improving housing affordability. Some of these include the extension of federal foreign buyer ban, a new Canada Builds program (which is similar to the BC Builds program we noted in the last rennie landscape), increasing the amount of RRSP withdrawals a first-time homebuyer can make, and allowing 30- year amortizations for all first-time buyers and buyers of newly-built homes, as well as increasing the limit on home purchases with CMHC-insured financing to $1.5 million (up from $1 million).
Copyright © 2024 rennie group of companies. All rights reserved. This material may not be reproduced or distributed, in whole or in part, without the prior written permission of the rennie group of companies. Current as of September 2024. While the information and data contained herein has been obtained from sources deemed reliable, accuracy cannot be guaranteed. rennie group of companies does not assume responsibility or liability for any inaccuracies. The recipient of the information should take steps as the recipient may deem necessary to verify the information prior to placing any reliance upon the information. The information contained within this report should not be used as an opinion of value, such opinions should and can be obtained from a rennie and associates advisor. All information is subject to change and any property may be withdrawn from the market at any time without notice or obligation to the recipient from rennie group of companies. E.&O.E.
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the rennie landscape KEY INSIGHTS - FALL 2024
rates HIGH INFLATION IS A THING OF THE PAST, and the Bank of Canada has begun to unwind its restrictive monetary policy, but has a long way to go to get back to a neutral rate. Homebuyers have regained some of their lost purchasing power, as the decline in interest rates has not been offset by rising prices to-date. Canada's yield curve remains inverted for now, but yields are declining and the curve is trending towards normalization. economy THE LABOUR MARKET IS SHOWING SIGNS OF STRESS, as the unemployment rate has been trending upward for more than two years. Labour force participation is near a 25-year low, while job vacancies have returned to pre-pandemic levels and businesses expect wage growth to slow. Canada has had a labour productivity problem for seven years, and it’s getting worse. This pocket guide presents a summary of key insights associated with the Fall 2024 edition of the rennie landscape, a report focused on unpacking the myriad factors directly and indirectly influencing Greater Victoria’s housing market. Plenty has changed since the spring edition of the rennie landscape. The focus now is much less on inflation, and much more on how restrictive monetary policy has impacted our economy, our labour market, borrowers, and consumers. Interest rates have begun their descent, but have a long way to go before they reach equilibrium. Below is a summary of the highlights from this edition of the rennie landscape.
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credit & debt BORROWING IS ONCE AGAIN ON THE RISE IN CANADA, and the increase in credit extended began before the Bank of Canada started to cut its policy rate. Consumer credit has risen faster than mortgage credit. The debt-service ratio remains elevated, but increases in the mortgage DSR have been largely offset by decreases to the non-mortgage DSR. Mortgage arrears have been increasing but remain low relative to history. demographics CANADA’S ROBUST POPULATION GROWTH HAS CONTINUED INTO 2024, as it appears the new policy limiting non-permanent residents has not yet had an impact. British Columbia’s metro areas are projected to achieve robust population growth over the next decade, and the distribution of those additions are changing. housing BRITISH COLUMBIA’S LARGEST HOUSING MARKETS HAVE BEEN ACCUMULATING HOUSING DEFICITS, and those deficits are projected to grow. BC has new short-term rental restrictions, but few of those homes are suitable for long-term rental housing. Victoria typically sees less market activity on a per-capita basis relative to Kelowna, but not this year. The state of new home development has changed a lot since REDMA was implemented in 2004, and the act needs to change alongside. policy HOUSING POLICY HAS BECOME A FOCUS FEDERALLY AND PROVINCIALLY, as a slew of new policies have been implemented. The capital gains tax inclusion rate is having a negative impact on real estate and housing supply, while the temporary resident policy change will reduce rental demand once it takes effect. In BC, recent residential tenancy act changes were amended, providing added protections for renters but creating challenges for purchasers of tenanted properties.
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THE RENNIE REVIEW is a detailed monthly report providing insights into sales, listings, and pricing trends for resale markets in Vancouver, Victoria, Kelowna and Seattle. THE RENNIE ADVANCE is a brief monthly update on the latest regional sales and listings activity, produced the same morning as the previous month’s data are released. THE RENNIE OUTLOOK is an annual compendium of housing, demographic, and economic predictions for the year ahead. THE RENNIE LANDSCAPE is a semi-annual publication that tracks the myriad factors that directly and indirectly impact the Vancouver, Victoria, and Kelowna housing markets. THE RENNIE BRIEF is a topical research brief on issues relevant to our industry, as they emerge. RENNIE INSIGHTS are in-depth research papers on a range of real estate, economic, land use, and planning policy forces that shape our communities. THE RENNIE PODCAST presents engaging, insightful, and sometimes humourous discussions about the real estate market and the people connected by it.
The rennie intelligence team comprises our head economist as well as market and consumer analysts who empower our developer clients, rennie advisors, institutional advisory clients, and the entire rennie team with comprehensive data and a trusted market perspective.
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