Are presales part of the problem in BC’s housing market?

Good morning,

Five Vancouver restaurants made the list of the top 30 new restaurants in the country. I’ve been to three of them. Hopefully I’ll make it to the others soon!

Funny enough, I actually re-released my review of Gary’s a few weeks ago in our restaurant review newsletter (which you can subscribe to instantly here). You can read that review about Gary’s here. 

Let’s dive into today’s newsletter.

— Geoff Sharpe, Lookout managing editor

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WEATHER

Wednesday: 18 🌡️ 13 | 🌧️

Thursday: 19 🌡️ 13 | ⛅️ 

Friday: 18 🌡️ 12 | ☁️ 

HOUSING

Are presales part of the problem in BC’s housing market?

Are home presales part of the problem when it comes to Vancouver and Canada’s housing market? Or are they part of the solution? And why even write about this odd topic you might ask? You’ll soon find out why.

So what is it: Presales are a key part of the housing market that helps in the creation and financing of new homes. Developers market condos before construction, mostly to investors, who then purchase the homes in anticipation of reselling and making a sale profit, or renting them out at a later date. It’s estimated that presales account for 10-20% of all sales in Vancouver, according to the Vancouver Sun. 

• Why this approach: It’s a question of capital. Unlike US companies, where the practice is less common, Canadian developers do not have access to as much capital, which means they need to presell to raise capital. In general, a development needs 40-70% of units pre-sold to proceed. 

The problem: Here in Vancouver, the changing real estate environment is causing problems with the normal presale process. Purchases have fallen quite a bit, as projects have also been stalled or abandoned. People are holding off on purchasing presales, especially until interest rates fall further, according to the Globe and Mail. The home sales market is also lower, with the number of sales down 26% below the 10-year average, according to Better Dwelling. 

Zoom out: It’s not just a Vancouver problem, and in fact may be even worse in the Greater Toronto and Hamilton Area. Sales for new homes and presale units are down dramatically, around 66% year-over-year in June. It represents the lowest number of sales in the last two decades, except for 2020 during COVID, according to CBC. 

• While supply has dramatically risen, with over 25,000 units unsold as of June, prices have only fallen 2.6%. 

A big problem: Usually you would expect prices to drop when supply increases. Instead, because of high interest rates and increased cost of construction, developers need higher prices to make a profit profit. Hence, prices don’t fall that much, and inventory remains high.

• A bigger problem: In the Greater Toronto and Hamilton Area, construction of new condos has plummeted 67% as the presale market dried up, at a time when new construction is needed more than ever.

A question of size: The focus on condo presales for investors means that developers are incentivized to build smaller units, such as one-bedrooms, because they are more profitable to build and rent than larger units, according to the Globe and Mail. The result? Family units with two-to-three bedrooms don’t get built as much. In Vancouver, only 15% of children live in condos, compared to 35% in Toronto, according to a study, illustrating part of the problem with the investor focused presale market. 

• The government, especially the Canadian Mortgage and Housing Corporation, are the ones who step in to build needed family housing, especially those who can’t afford homes. The good news is some investors are putting more resources into family condos, specifically rental units, thanks to government incentives like the federal government's ending of the GST on rental construction. 

What it all means: The importance of presales raises important questions about how we structure housing markets in Vancouver and BC. Is it really best to rely on presales for housing inventory? Is this model really the best to address the shortage of family homes? Do other jurisdictions like the government have a greater role to play, similar to how Vienna provides housing where rents are much lower and public housing much higher quality?

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VANCOUVER NUMBERS

📉 -9.4%: The decline in the cost of a one-bedroom rental unit in Vancouver from August 2023 to 2024. The average price is now $2,708 for a one-bedroom and $3,632 for a two-bedroom. [Rentals.ca]

⛽ 10-25 cents: What one expert thinks Vancouver gas prices could fall to by the end of the year, down from the current $1.77 per litre. [CityNews]

🏠 $2.35 million: The value of the PNE Prize Home, which was won by Vancouver resident Ken Wong. The home is located in Langley. [Vancouver Sun]

CITY HALL

Park board may have a case to sue council

What happened: Outside counsel retained by the park board has gotten a tentative thumbs up, with the attorneys saying that the park board may have grounds to sue under The Canadian Charter of Rights and Freedoms to maintain the park board’s existence, according to CityNews.

Reminder: Mayor Ken Sim, back in December 2023, put forth a motion to end the park board and bring its responsibilities under city council, arguing that the governing structure was broken. Three ABC park board commissioners broke from his party and opposed the move. The change requires provincial legislative changes to the Vancouver Charter, which governors how the city is run. The province supports the decision, but is requiring a transition plan before proceeding. 

The details: The park board is considering whether to pursue a legal challenge now that they have legal advice, according to CBC. Board chair Brennan Bastyovanzsky told CBC that, “never in Canadian history has an elected body been dissolved without something, like, replacing it.”

• The legal opinion notes, “Abolishing an elected governing body mid-term removes [an] expressive activity, and the effect is to disenfranchise more than a hundred thousand citizens who voted in the last election for seven Parks Board Commissioners, and it disenfranchises the seven Commissioners who were elected to serve out a four-year term.” 

Next steps: If they do wish to proceed, the park board could request an injunction to pause the legislation until after the court’s decision.

HOME OF THE WEEK

I had to include this one in the home of the week. And soon you’ll understand why.

The unit is 548 square feet, with one bedroom. The kitchen is, while modern, very small. I’m not quite sure where you’re supposed to prepare food. Same with the oven. All I can say, really, is that while it styles itself as luxury, that certainly doesn’t extend to the size.

What’s most crazy is the price… I guess that’s luxury living costs these days. 

House of The Week is a home selected by the Lookout team and is not a paid advertisement. All ads are labeled as such. If you’re a realtor who wishes to feature your home in our newsletter, please contact our sales team.

THE AGENDA

💉 CYMI, Dustin Godfrey’s latest story at Vancity Lookout on Albera’s drug policy news has many implications for Vancouver, and the provincial election. You can read the whole story here. [Vancity Lookout]

❌ Lululemon threatened to move its headquarters out of Vancouver and Canada if it wasn’t allowed to hire temporary foreign workers, who are usually paid much less. The company didn’t want to hire workers using the normal BC hiring processes, including posting salary ranges and publishing job postings. [Business in Vancouver]

🪧 HandyDART employees, who are taking job action against their employer, are asking TransLink to intervene and mediate between the two sides. HandyDART employees are employed by Transdev, which is under contract to operate the service until the middle of 2026. Workers are asking for similar wages as other paratransit workers in the country. [CityNews]

🚴 I love, love, love the idea of a regional greenway that connects all the region's cities. Metro Vancouver says that around 58% of the planned route, made up of cycling and walking pathways, is completed, with around 865 kilometres left. Unfortunately, at the current pace, we’re looking at completion in 2050. The challenge is each municipality does most of the work, and dense city areas pose a challenge for connecting the pathways. [Vancouver Sun]

🗳️ There’s a strong chance current Vancouver city councillor Christine Boyle will win her seat in the provincial election for Vancouver-Little Mountain. If she does win, there will be a by-election to replace her, which as someone who loves following local civic issues, will be interesting to watch. If she doesn’t win, she says she will serve out her term. The only declared candidate in the riding is John Coupar, a former park board commissioner. [Vancouver is Awesome]

👮 The Independent Investigations Office of BC (IIO), which oversees the police says an officer who fatally shot a man after an interaction in the Downtown Eastside on May 5, “may have committed offenses in relation to the use of force.” The information has been sent to the Prosecution Service to look at potential charges. [CityNews]

🏒 The Canucks have a solid set of prospects in the pipeline. A recent ranking shows Jonathan Lekkerimäki, Artūrs Šilovs and Tom Willander round out the top three. [NY Times]

ARTS

Theatre

Touchstone Theatre just announced their 2024/25 season, which is worth checking out. 

Vancouver New Music also announced their new season, including PROPULSION. It’s a season full of classical, electric music and festivals. Check it out. [Stir]

Music

The Vancouver International Flamenco Festival is coming up from Sept. 12-22, featuring music and dance with artists from around the world. Check out the full festival.

Big Naked is performing at the Rickshaw to promote her first album in 15 years, CHAMPION. It’s happening Sept. 19 at 7:30 pm.  

You can catch live chamber music in downtown Vancouver at the Golden Ears Chamberfest at 1077 West Cordova St on Sept. 20 at 8 pm. It’s free for everyone. 

Movies 

Lots of movies at VIFF, including buzzy new films like His Three Daughters and classics like The Tree of Life, Amelie and Suspiria, not to mention the VIFF Festival later this month.

The Vancouver Latin American Film Festival is on until Sunday at Cinematheque, then you can catch Seven Samurai on Monday, a film that has inspired the likes of Star Wars. 

Art

If you’ve been interested in buying art, you’ll want to check out Pop-up Art Sale at 353 Railway St #401, from Oct. 4-6. It’s a great way to connect art lovers with and meet local artists. 

Slice Gallery is showcasing In Defence of Clutter, an exhibit of “unexpected compositions of cluttered spaces.” Tickets are $5, and it runs from Sept. 12-15.

Tombolo is a pop-up children’s art gallery at Sincerely Studios featuring work from younger (really young!) artists aged 3-10, from Sept. 13-15. Tickets are by donation.

COMMUNITY HIGHLIGHTS

• If you have a Globe and Mail subscription, this is a lovely story about an architectural walk through the city. [Globe and Mail]

• Learn how to build better habits with your phone with Log Off, a free 5-minute newsletter. Instantly subscribe here. [Sponsored]

• Here’s why the SPCA is seeing a spike in animals. [Vancouver Sun]

• Congrats to Vancouver restaurant Afghan Horsemen, which has been open for 50 years. [CityNews]

• Georgia Straight announced their awards for the Best of Vancouver this year.

VANCOUVER GUESSER

Alright, this one may be a little too easy — can you name the business on the right side of the screen? Reply with the correct answer and your name to be featured in the newsletter.