Will We Ever Have Affordable Housing in Vancouver?

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Are Vancouver home prices going up in 2023?

This question is at the core of today’s episode and the answer might surprise you… especially if you’ve been sitting on the sidelines waiting for the bottom.

Andrew Lis, the Real Estate Board of Greater Vancouver’s Director of Economics and Analytics, sits down with Matt & Adam to talk data, market trends, perpetually low inventory, and where the market goes in 2023. Plus, some surprising insights we’ve never had on our show. Let’s go!

Will we ever have affordable housing in Vancouver? Are Vancouver home prices going up in 2023? And how can we use data to evolve our understanding of the market? REBGV’s Andrew Lis shares all! 

Who is Andrew Lis? 

My current role is building out the analytic capacity of the Real Estate Board of Greater Vancouver. I’m the front person talking to the media but also doing a lot of backend work to build out our data.

Prior to this role, I worked in the housing policy branch of the BC government; I was the only economist working there which was surprising! Before that, I worked with CMHC as an economist doing market analysis. 

I had a few different careers before finding real estate and economics. Back in the day I was a studio person producing musical selections. I would create music that other artists could use in their songs. I didn’t make much money but I did it for a few years. It was a very niche area but a fun time.

Why real estate?

I like really hard puzzles. I like problems that don’t have obvious solutions. There are things I have been thinking about in this space for 10+ years. Real estate is a fascinating intersection of so many facets of life.

Practically, my family always moved houses and renovated. We didn’t do the flipping thing but there were always renovations going on. I have always been interested in how you can add value or change a property. I continued the tradition myself by buying and gutting my own home. I like biting off more than I can chew!

How do different stakeholders in the Canadian housing space communicate with one another? Are they on the same page?

Some stakeholders have very different mandates about what they’re trying to achieve. All of them have similarities and differences. Where there’s more disagreement is about the causes of what we have in front of us. Even the term “housing crisis” is a choice and using that term will depend on who you are speaking with.

Where things get dysfunctional is when we can’t understand what problem we’re all talking about. It’s hard to design the solution and target the issue if we’re not talking about the same problem.

There’s a lot of disagreement about what the issues are. I did a presentation on this back in January with the REBGV called “Dysfunction by Design.” I talked about some of the big points of disagreement and why things are so dysfunctional. 

In that presentation I go through 4-5 major issues like demographic issues, policy issues, central bank issues, etc. All of the issues are very intertwined, which is the point. The goal is that the viewer comes away realizing the problem is more complicated than they thought and that a simple solution maybe isn’t feasible.

I want to encourage people to understand the context and think about it in a richer way. If you say you have a solution, I want to know, do you really understand the problem? Does your solution actually target what you’re trying to hit and not hit a bunch of other things unnecessarily?

What has been your evolution of understanding the market?

Back in 2015/2016, everyone was searching for stories because something had happened in the housing market. But most of the data looked normal except for the data on real estate. Things weren’t adding up so people came to different conclusions. 

For example, the foreign buyer issue probably wasn’t as big as people thought it was. But the legislation did have an effect, so it’s hard to tell the full story. There isn’t a neat and tidy story about what happened in 2015/2016.

I have to know exactly how the data is generated to have faith in it. Sometimes the data isn’t as concrete as people would like it to be. While there is a lot of data to look at now, there wasn’t as much data or as much focus on it 10 years ago. People are trying to grapple with issues of affordability but you can’t do that with 1-2 data points. You need a more holistic approach.

Does the picture get clearer with more data? 

Generally more data is welcome. For example with the foreign buyers, the data we have now tells us it wasn’t as much of an issue as we thought it was. But we don’t have the data pre-2016, so it’s hard to say if it was an issue then or not. That’s the benefit and curse of more data. You always want more data as each data point raises more questions.

If you’re a data person and you like hard puzzles, I highly recommend working in the real estate space. We’re definitely short on people with great ideas of how to do better data work in housing.

How do we get clearer on our collective understanding of the market and our housing issues?

As someone who has worked for the BC government, I’ve seen how the sausage gets made. Policy is meant to be evidence based. When you vote someone in, you hope the elected officials bring in a big change that is backed up with data.

When it comes to real estate, my personal view is that instead of the policy being evidence based, it’s almost like policy-based evidence finding. Some ideas get the attention of the political sphere and are popular with voters. They may not move the needle but they’re great sound bites. Sometimes there isn’t any research behind these ideas.

Realistically, there’s a high correlation between political platforms and what people are talking about on Twitter. That doesn’t mean the issues on Twitter aren’t real but are they the best issues to move the housing discussion in the right direction? Probably not. We live in a world that is media-hungry. Unfortunately those popular issues are not the real story.

The real story with housing – and it’s been the story for a long time – is supply. But it’s a boring story. It’s not sexy to talk about supply on the radio. It’s much sexier to talk about speculators!

How is the Vancouver real estate market as of April 2023? 

The market is doing better than I thought it would, especially on the pricing side. We saw a huge increase in policy by the Bank of Canadawhich translated to higher mortgage costs, leading to a decrease in sales after crazy years in 2021/2022. Comparing today to those periods of time sounds scary, but those years were outliers. Given where we are with interest rates, it’s surprising we’re doing as well as we’re doing today.

The forecast I did in January 2023 called for price growth because of the severely low inventory. But we also have the interest rate scenario butting up against that. So I brought that forecasted price growth down. But we’re already beating that. The bottom hit last winter and our price growth has been surprising since.

What is the headline for 2023? Is it a story of the interest rate or inventory?

Definitely an inventory story. The interest rate is a story but the lack of new listings is so low. Why? Anecdotally, people don’t have a place to go. Sellers won’t list if they have nowhere to go and borrowing costs are so high. That’s a plausible story but I always wonder if there’s something more to it. I think this will play out until the end of the year.

Right now, the models thought we’d be higher for inventory and new listings. Therefore, our sales will be lower. It’s not the worst inventory or sales level we’ve ever had, which is surprising given the interest rate environment.

Our region continues to grow. We don’t have a huge amount of new product coming to market and what we do have takes a while to get there. The rental market is tight. When you add that all up, the longer term trend is clear.

Are we headed for a recession? Would we get an influx of inventory if the economy crashes?

The jury is still out on the recession. All of the economic indicators aren’t saying that this is definitely a recession. But there are some signs. We’re waiting on economic data to confirm things.

Would a recession cause a flood of inventory? Well, that ties into the job picture for some people. But a large number of British Columbians and Canadians are mortgage-free. Many of them are older and out of the job force, so a recession might not affect them.

When you look at the data, it doesn’t add up to a story of doom and gloom. A lot of people have very reasonable, serviceable mortgages on their current incomes. That’s why we have the stress test and give people mortgages based on their income and assets. The reason why this isn’t risky is because there is good underwriting behind a lot of these mortgages.

If you have an economy that goes in the tank and there are job losses, some people will have to sell their homes. But historically when we’ve had big recessions, we haven’t seen a tsunami of inventory with dramatic price crashes.

So when will the other shoe drop? It probably won’t. We have good underwriting, paid off mortgages and generational wealth transfer. It’s hard to imagine those big catastrophes materializing. 

Does inventory trigger more inventory?

I don’t have data on people’s states of mind on this but I’m sure there are some levels of inventory that trigger more inventory. I was actually hoping we’d see more inventory in the spring market.

The Bank of Canada saying they would probably be done with rate hikes is bringing more confidence into the market. I think the next few months will bring more buyers and sellers to the space.

Of course, anything can happen. If you were talking to someone pre-2020, no one would’ve said a global pandemic was coming. It’s a great reminder of how fragile forecasts can be. They’re your best guess at the time given the data you have. But now is feeling more certain for forecasting. 

Inflation is coming down and it seems like the Bank of Canada may stick the landing. I’m hopeful that encourages people to get back into the market.

Where do you see yourself being a different voice in the real estate space?

There are voices in this space that I don’t fully subscribe to based on my personal experience and the work I’ve done. After CMHC, I worked as a consultant at Altus Group where I learned a lot about the microeconomics of an individual development. Developers can’t all come out and flood the market at the same time because they’re businesses. That’s why they phase out their buildings.

The production of housing in the private sector is a business. It’s not fair or correct to point fingers and say developers need to be doing more to make housing affordable. Do you go to work and agree to get paid less money? That’s what you’re asking people to do.

If we make it easier for projects to get built, we will get more supply. Will it be enough to flood the market and bring prices down? Probably not. That’s where I differ from some of the other voices. It doesn’t make sense for developers to buy expensive land and sell their units for less. 

I think if we up-zoned all of Vancouver and got shovels in the ground tomorrow, it still wouldn’t be enough supply to push prices down to an affordable level.

On the aggregate, you might be able to get a lot of developers competing with each other to bring prices down 10-15% over 10-20 year timelines under the most ideal building circumstances. But I struggle to see how that would work. I know it’s a popular movement in the political space.

On the impact of zoning: 

I’m not against upzoning and doing more development. Definitely do more development! But I think it’s disingenuous to frame that policy as a magic bullet that will bring affordability back to people earning $30,000 per year. There needs to be some honesty around the outcomes we can expect to see.

There is more happening than just the zoning question. Maybe in some areas zoning is the only thing holding back supply but in other areas, zoning has nothing to do with it. I can think of large sites that are already zoned but aren’t being built on. I’m not pointing fingers at the development industry because again, it’s a business. 

On why the supply and demand model doesn’t work: 

Houses are not widgets; they’re not all the same thing. That’s why the simple supply and demand model you learn in Econ 101 doesn’t work. Our housing market operates under an imperfect competition model and under monopolistic competition. It’s not a full monopoly because there is still competition.

Developers make decisions about how much to build based on other developers. In fact, it’s not even developers, it’s lenders. Lenders are risk averse.

The supply and demand model isn’t reality and it’s actually a hindrance to our reality. Houses aren’t just units. People don’t live in units, they live in homes. They’re not indifferent to Unit A vs Unit B because there’s something personal about homes. So you can’t just match people to homes.

Yes, supply is part of the answer to affordability. But there needs to be a realistic discussion about how much supply is possible from the private sector.

If you’re hoping that next year the government will have a policy that will make it so the home you want is affordable, I think it’s time to consider other options. It’s not good for your soul to sit around and feel awful about your housing situation. If you have other options, exercise those.

Even with great policies, it takes a long time to bring new product to market.

Does the government have a role in housing creation?

If you want more market supply, you need policy that moves the needle in that direction. What are the levers the private market finds most challenging? Yes, zoning is one of them but also GST on rentals is another big one. When you look at a rental pro forma, you wonder why anyone bothers building rental projects. That’s worrying.

I don’t see a realistic scenario for the private market to deliver sufficient supply to an affordable level in a short timeframe. Government is the only entity that will build at a loss. It’s called a subsidy; using taxpayer money and putting it back in the community. That is the role of government.

But will we vote in a government proposing to spend enormous amounts of money to build housing? For many of us, that will mean significantly higher tax rates.

You have to fund this housing somehow. Which is how we get into a political issue. A lot of voters want to see affordability but not at the expense of their own pocketbooks. 

What are your thoughts on REITs?

It’s incredibly important to invite this kind of money to the rental side. Having worked for the government, I can tell you there is messaging that demonizes REITs. That comes at a tremendous cost. The institutions that are willing to take low-yield, stable, cash flowing rental projects are needed.

REITs are super important to that space and will be even more important as our aging population retires. They will need stable money, which REITs are great for. REITs and pension funds have to do a lot of underwriting and due diligence before they enter into investments, so they’re not as risky as they sound.

How does the rest of 2023 play out for the Vancouver real estate market? 

We’re starting to see sales over ask in the data. We’re not seeing multiple offers in the data yet but there is an uptick in pricing, which speaks to the low inventory. There’s not a lot to choose from out there.

I think we’ll see a higher price by the end of the year. Our forecast called for 1-2% growth across all product types but we could be at 4-5% or even higher.

In the latter half of the year, I think we’ll see a pick up and it’ll be busier than normal. I think the settling of interest rates will make people more comfortable to move or refinance. So I could see the back-half being a bit busier.

The 5 Wire: Getting to Know the Real Estate Board of Greater Vancouver’s Director of Economics and Analytics, Andrew Lis 

What is one book you recommend?

I don’t read a lot of fiction; I read technical manuals and stuff like that. The last book I read was the Canadian Electrical Code!

But I do read a lot of interesting papers. Microsoft put out this paper called “Sparks of Artificial General Intelligence: Early experiments with GPT-4.” It’s a pretty technical read but it’s fascinating. They’re looking at what GPT-4 can do and where the boundaries are.

AI has opened Pandora’s box and for me, it has made coding so much easier. It’s mind blowing! It’s going to change everything we do. There’s a lot of reason to believe technology like this will create a lot of positive impact and revolutionize what we do as a society. There is risk but let’s try to use it for some fun things in the meantime! 

What new belief, behaviour or habit has most improved your life in the last couple of years? 

We got a dog a couple of years ago and taking her for walks has been a good habit. She’s a bigger dog so we do pretty big walks every day. It’s good for your health but also good to clear the mind and connect with your significant other.

What have you been binge watching lately? 

I’m such a geek that I don’t really watch TV. I’d rather be on Chat GPT or something! But during the pandemic we watched Narcos. That didn’t help with the anxiety levels but it was an entertaining show for sure!

Favourite band or music?

I don’t really have a favourite band. I love just about every kind of music. But the older I’ve gotten, the more I come back to jazz, classical and flamenco. I actually play flamenco-style guitar. It’s very rich music which gives me a lot.

What is something you’ve purchased recently for under $1500 that has had a positive impact on your life?

I hadn’t been doing much music composition for a long time so decided to dust everything off and get back to it. Sadly, most of it didn’t work. So I went and bought some software and recording gear. I’m glad I did spend the money as it’s been a fun experience to get back into it.

• REBGV