Labour, red tape stand in way of controlling rising house prices in Okanagan: economist
The best way to put a lid on skyrocketing housing prices in the Okanagan and beyond is to increase the supply of housing.
Labour and local government bureaucrats, however, stand in the way of that happening quickly, Brendon Ogmundson, chief economist of the B.C. Real Estate Board, told a Chamber of Commerce luncheon in Kelowna today, May 18.
“What if we just got back to the time it takes to build to the 2012 levels?” he asked. ”It used to be, you could build an apartment in 13 months. Now it takes 19 to 20 months.”
In the Western United States, it takes 16 months from the date a building permit is issued to complete an apartment.
“If we could just get that down (in B.C.) from 39 months to 24 months, that seems very doable,” Ogmundson said. “If we can do that, we’ll increase the number of units that get to market every single month.”
One of the reasons it’s taking so long to build is that municipal governments are way too involved in the minutia of home building. He cited Vancouver as an example of a city where plans are repeatedly sent back from City Hall to the developer with “dumb” changes that drag the process out for months.
“The building permit process is just broken,” he said. But that’s only one part of the problem.
B.C. has the highest vacancy rate for construction worker jobs of any province in Canada and 13% of the existing labour force is going to retire in the next five years, he said.
“I don’t know if it’s not certifying people fast enough or we’re not getting students in those programs where they need to be,” Ogmundson said. “We really need to fill those roles if we’re going to make any dent on the supply side.”
With a 7.6% growth rate, B.C. was the second fastest growing province in Canada (next to Prince Edward Island) during the last census and Kelowna was the fastest growing major city.
That’s due, in part, to the 100,000 people who moved to B.C. during that time period but the demand for more housing is also due to the fact that the 30 to 39 year age cohort is the largest it’s been since 1971 when such data was first collected. That’s the age where people really need housing.
“You can’t fight demographics,” Ogmundson said.
And, just because interest rates are going up, that doesn’t necessarily mean housing prices will fall.
The Bank of Canada overnight lending rate is 1% and expected to rise to 1.5% on June 1. It's projected to climb higher this year. Ogmundson expects it won’t rise past 2.5%, which means mortgage rates will rise to 4.6% to 4.8% from the roughly 4% they’re at today.
History shows that, while there is often a drop-off in housing sales and prices due to rising interest rates, that’s not always the case, he said.
Another major factor contributing to higher housing prices is there are only about 2,000 listings of homes for sale in the Okanagan. That needs to climb to about 6,000 to be in a healthy balance with supply. It could take one to three years to reach that level.
Ogmundson does see a moderation of the rate of growth in prices from the 20% or more in most months for the past year but, even if they fell 20% right now, that only takes them to the same level as December 2021.
What is not a major factor in housing prices, especially given the media coverage it’s given, is foreign ownership of vacant houses, he said.
Those account for an almost negligible 6,000 (0.15%) homes in B.C.
In terms of whether this is a good time to buy or not, Ogmundson stressed it depends on the individual. The best choice is to buy a home that you expect to live in for the next five years and ride out the ups and downs that are inevitable in any real estate market.
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