The Wrong Signals
Happy Monday Morning!
We’ve written at length about the housing bust emanating across the country. In particular, in the new construction space.
New home sales have hit 45 year lows in the GTA, and aren’t fairing much better in Greater Vancouver, and so, as we noted last week,
An article in the Globe & Mail highlighted the insolvency crisis plaguing the development community. According to data from the commercial real estate data firm Altus Group, 119 “distressed sale” transactions were recorded in 2023 across the country, totalling properties worth $767-million. In 2024, those numbers rose to 191 transactions worth more than $1.5-billion. Last year, 252 distressed sales were registered, totalling more than $1.42-billion.
At this point, the housing downturn is well documented, and so we couldn’t help but notice the willful blindness from BC’s housing minister, Christine Boyle.
Premier David Eby told the real estate community Tuesday he’s very worried about slumping housing starts and stalled high-rise condo projects, as he seeks to avoid contributing to what could be a housing supply crunch in just a few years.
“We’re following the housing starts pretty closely,” Eby said to delegates from the B.C. Real Estate Association meeting in Victoria. “We’re still above the 10-year average, the building is still taking place, which is positive. But I am extremely concerned about the next couple of years and where those numbers are going to go.”
While Eby was delivering his speech to Realtors, back at the legislature his housing minister was showing anything but concern at the situation.
Christine Boyle mostly shrugged her way through questions about housing starts during her ministry’s estimates, displaying none of the concern shown by the premier.
Boyle said “housing-starts activities in B.C. continues to be at a relatively historic high,” with purpose-built rental registration “strong” in 2025 and registration of data units “exceeding” expectations, all of which is, in her mind, “signalling strong interest in continuing to build.”
Strong interest? Regular readers here are likely scratching their heads.
As we have explained previously, housing starts remain elevated, but are a lagging indicator by 2-3 years! A housing start, as defined by CMHC is once the foundation has been built back to grade.
In other words, a housing start is what happens after the land is bought, rezoned, has received its development permit, building permit, pre-sold 60% of the building, excavated, and then built a new foundation back to grade. Only then is it marked as a housing start.
In other words, if you want to know where housing starts are going there are a few metrics we’d encourage our housing minister to monitor.
Firstly, pre-sales. After all, if you can’t pre-sell the building, you can’t get the financing to dig the hole and pour the foundation.
Pre-sales in Metro Vancouver are running at shockingly low levels.
You could also look at single family housing starts. The construction cycle is several years shorter. When market conditions turn, builders can adjust quickly and turn off the taps, unlike a high-rise condo project.
Single family housing starts in BC are running at 30 year lows!
Mrs. Boyle is right, rental housing has been robust, but it too is making the turn lower. With population growth now outright contracting in BC, and a flood of rentals completing, rents are plunging, killing developer proformas in the process and keeping CMHC (Canada’s largest rental construction lender) up at night. CMHC underwrites more than 85% of all new rental construction in the country and has significantly tightened underwriting standards in recent months.
Rents in BC are now lower than they were two to three years ago.
As a result, we’re seeing more rental developments going into insolvency on completion due to an increasing number of projects unable to acheive projected rents and cover the equity shortfall.
We’re also hearing of some developers raising capital on completion to cover vacant rental units, in hopes of holding out long enough that rent prices will rebound. Remember, BC has strict rental controls. Once a tenant is placed at todays depressed rental rates you’re stuck with that tenant for years, impairing long term returns to capital partners.
Suffice to say, there’s nowhere to hide these days.
BC’s construction industry is a mess, and there’s no turning this ship around in the immediate future.
Thus, we find it rather ironic that the BC government is still forecasting rising housing starts this year and next.
We’ll take the under.
Let’s watch.
The elephant in the room is that the probability for the foreseeable future is that population remains flat in BC. Considering the high unemployment rate in Ontario and elsewhere it is likely that immigration is going to be kept on the lower side.
Considering the number of units under construction, the question becomes at what point are we building for ghosts?
Thanks Steve, maybe just for fun look at the question of how many units do we need each year if the population stays basically flat.
Thanks, Steve, for reiterating what most can see, except for the housing minister. Most people are unaware that the problems resulted from Mr. Carney’s monetary policy and the government’s immigration policy. Now we’re asking the government for a solution? Might be appropriate to listen to Milton Friedman. 😳🤔