No Vacancy at Any Price

Canada is in the grips of a housing crisis and nowhere is worse than British Columbia. The Canadian Real Estate Association reports that the average house price in Greater Vancouver in November 2024 was nearly $1.3 million – beyond the capacity of any but the wealthiest entry-level buyer. (Toronto was a relative bargain at only $1.1 million.) And typically, when there is pressure at the top, the pain is felt most severely at the bottom – in this case in the rental market in which Vancouver is again the most expensive in the country, with average monthly rent for a one-bedroom at $2,534. It’s better in the Fraser Valley; in Langley, it’s only $2,460. But even the most affordable choice – Surrey at $2,297 – still sits 16 per cent above the national average. [Ed note: figures reflect late 2024 data]

How we got here—how we move on

The three obvious questions, then, are: Why? Where did it start? And, how can we make the rental situation better?

The first question is tricky: there are a lot of complicating factors. But, fundamentally, the rental market in B.C., and especially in the Greater Metro Vancouver area, is critically and chronically undersupplied. David Aizikov, product manager for data services at Rental.ca, says that a healthy rental market has a vacancy rate of 5 to 8 per cent – low enough for landlords to survive if they stay competitive, high enough to give renters some choice. But the Canada Mortgage and Housing Corporation (CMHC) reports that Surrey’s vacancy rate in October 2024, was 1.7 per cent, barely better than Vancouver’s, at 1.6. Aizikov adds that this is typical: the B.C. rate was 1.3 per cent in 2022, down from 1.4 per cent in 2021. There was a ‘good’ year in 2020 – 2.5 per cent – when many young renters moved home through the pandemic. But the rate in 2019 was 1.5 per cent. There simply are not enough rental homes to go around.

Whose fault is that? Well, you don’t have to be anti-government to point the finger at politicians and bureaucrats who have been making and enforcing policy on housing and related issues. It may not have been the actions of a concerted, intentional effort, but the series of policies, initiatives, and reversals, going back a century have had the cumulative effect of compressing the housing market, producing a critical shortage of rental supply.

The good news, however, is distinctly local. There will be no fast or easy fixes, but in the Lower Mainland, the Fraser Valley may be in the best position to lead the way out of the crisis.

Going back to the origin story, it’s worth reviewing the 100-year government campaign to constrain housing options and drive up the cost. The longest-standing problem is the municipal-level effort to limit residential construction to the most expensive and exclusive format: single-family detached houses. Single-family zoning was designed to protect residential neighbourhoods from infiltration by industry, commerce or, in the worst interpretation from the distant past, the wrong kind of residents. The result, says Tom Davidoff, Director of the University of British Columbia Centre for Urban Economics and Real Estate, is that single-family homeowners gained a huge advantage and, being most invested in the status quo, became the people most likely to (re)elect city councillors who would protect that investment. So now, a significant portion of the land in Greater Vancouver for example is covered in single detached homes, amid which, until recently, it has been illegal to provide any alternatives. Davidoff says, “It’s bananas!”

Foreign investment and stratas squeeze the market

With municipalities restricting where you could build affordable homes, higher levels of government then stopped investing in housing for people with lower incomes. The federal government cut back in the 1980s before going full slash-and-burn, abandoning its co-op program in 1992, freezing social housing investments in 1994 and downloading everything to the provinces in 1996. BC accepted the challenge more heroically than any other provincial government, but cancelled the surviving Homes BC program in 2002, leaving the sector bereft.

During the same period, governments also relaxed the rules for stratification of apartments, leading developers who had been specializing in purpose-built rentals to switch to condos. It’s so much simpler to build and sell a condo project, recovering your investment and profit in five years, rather than having to build and manage a rental apartment complex, tying up your money for two decades before breaking even.

Governments also started organizing periodic parties (Expo ’86, the 2010 Olympics), to convince global real estate investors that our fish-forest-and-mining community was beautiful enough to be a world-class resort. As property values then spiked, municipal governments started adding Amenity Cost Charges (ACCs) and Development Cost Charges (DCCs) whenever a property was rezoned. The intent, again, was good: to share the “lift” in land value so communities could afford new services. But the fees pushed land prices (and home prices) ever higher.

Seeing renters caught in the squeeze, the province brought in rent controls, in recent years limiting allowable rent increases to less than inflation (and nothing at all during the pandemic). Again, noble intent, but as Landlord BC CEO David Hutniak points out, if landlords’ expenses go up and they can’t recover those costs with increased rents, they also can’t afford to maintain their properties – or, sometimes, even cover their mortgage. It’s a recipe for decline in the condition of existing rentals and it discourages new developers from getting into the business.

Then, with housing already constrained, the federal government invited an immigration stampede, welcoming two immigrant classes that inevitably compete for rental housing: temporary foreign workers and students. Again, good intent: bring in workers eager to support the economy by doing jobs Canadians won’t, and recruit international students whose sky-high tuition fees subsidize domestic students. But without adequate housing, it’s a recipe for unaffordability.

Even government efforts to reduce international real estate speculation created trouble. With fewer developers producing purpose-built rentals, the market started relying on investors – often international – who would buy condo units and rent them out. Foreign-buyer taxes, popular as a domestic policy, chased most of those buyers away, removing a whole class of investors just as developers were facing rising interest rates and tighter capital.

“Nothing pencils”

So, even with higher-level governments now forcing municipalities to relax single-family and other zoning restrictions, we have a housing shortage that took decades to build. Land prices are high, construction costs are up, and cities keep charging ACCs and DCCs – Metro Vancouver, for example, is tripling DCC rates for regional services, which Hutniak says will raise purpose-built-rental development costs by $9 to $40 per square foot. “It blows the budget on most projects,” he says. Worse, in an effort to make developers expand the affordable rental supply, municipalities are imposing “inclusionary zoning” conditions that demand new projects include a component of lower-income housing.

The result, says Andy Ramlo, vice president of Market Intelligence at the Rennie Group, is that “nothing pencils.” Developers, even those who would love to be expanding the rental housing supply, can’t find a way to do so profitably. There is much land available – Surrey, for example, has 44,300 housing units conditionally approved and awaiting construction – but even with rents at $2,300+ per unit, developers can’t find a way to build those units without losing money.

Valley to the rescue?

The good news is, although circumstances aren’t great in the Valley, they are better than everywhere else.
First, the housing mix south of the Fraser River has traditionally included relatively little rental product. Ramlo says that, in Vancouver, 55 per cent of city rents; south of Fraser, it’s less than 40 per cent, with home ownership being as high as 80 per cent in some parts of the region. So, adding any new purpose-built rental will have a bigger relative impact.

As well, Jeff Fraser, vice-president and senior policy advisor at the Urban Development Institute, says that construction costs in the Valley, are still low enough to qualify for subsidies from the CMHC MLI Select multi-unit mortgage loan insurance program, whereas, “It’s almost impossible to meet the affordability limits in places like Vancouver or Toronto.”

Ramlo says the Valley – already more affordable – also has a distinct advantage in the availability of labour, a serious limiting factor in the construction industry. (Good luck trying to get a framing crew on Bowen Island.) And affordable rental housing, quickly becomes an economic advantage, facilitating labour mobility.

The new-housing mix in the Valley is also a plus. Aizikov points out that the more-common low- to mid-rise woodframe buildings are cheaper and quicker to build than the taller concrete buildings that dominate north of the Fraser, so Valley developers can get product to market much faster.

Notwithstanding the physical constraints imposed by the border, the mountains and the Agricultural Land Reserve (which overlaps heavily with areas that are vulnerable to climate impacts), the Valley still has space, for everything from new building sites to outdoor play areas for daycare centres – another competitive advantage for attracting labour.

No one is expecting a quick resolution to the rental housing crunch, and the real estate and development sector will have work to do helping government – and the public at large – understand what should be done (and what should be stopped) in an effort to turn the tide. But the best hopes for some early wins, as well as a healthier long-term transition, could well lie south of the Fraser.