How much of detached construction is really new?
Construction data is in for the full year 2019, so here is quick look at construction over the last decade.
As you can see, the level of construction is only mildly off the record of over 6200 units under construction in May of last year, ending the decade at 5600 units in various stages of construction.
While I usually focus on condos and rental apartments that make up the vast majority of units under construction, it’s worth thinking a little more about the detached construction (single family homes). For the last 25 years or so, there have been about 500 to 800 of new single family homes built every year.
However, what does that mean for our stock of single family homes in the area? Is it growing by around that 500-800 units per year? We can examine the counts of single detached homes in the census to get a sense of how the stock of houses have changed over the years. It’s a bit annoying extracting data from the census because the government likes to change what it collects over time, but here are the number of single family detached homes in Victoria since 1996.
How is it possible that the number of single family homes have stayed exactly constant despite the construction of nearly 14000 single family homes in that period? Well there’s a few reasons:
- Many single family homes are simply replacements of existing homes that are torn down. Those home are inevitably larger and fancier but don’t add to supply.
- Some single family dwellings are redeveloped into higher density housing. In my opinion this isn’t happening nearly fast enough but that takes some detached housing out of the total.
- Many single family dwellings are turning into defacto duplexes via suites. I’m not 100% sure of the methodology that Statscan uses when tallying dwelling types but we know that they consider a house with a suite a duplex, and data shows that the duplex count has been increasing rapidly. We also know that we aren’t building any significant number of true side by side duplexes, which means the increase must be coming from home conversions and new builds designed from the get go to house a suite.
It wouldn’t surprise me if the absolute number of true single detached homes were down in the 2021 census, and kept decreasing past that. Despite the rapid expansion of little boxes in the hills of Langford, the single family house is making up an ever dwindling percentage of the total housing stock. I’ve heard that Langford has about 10 years of easily developable land left, at which point they will switch mostly to infill like the other municipalities which will sharply increase this trend.
the era building has a air bnb feature which adds tons of value in it.
they are a few savvy ones grabbed the money and run…( well not just run but purchased other projects including legato, 989, jukebox and capital park), each units may have a unrealized profit of 100k+ all the rental collected over the past 6 years….
New post: https://househuntvictoria.ca/2020/01/13/out-of-town-buyers-continued-to-decrease-in-2019/
The average condo investor is quite dumb and can’t do basic math. Typically buys when the market is hot, FOMO is highest, cash flow is negative and uses way too much emotion in the purchase like “this unit has a nice view or large balcony.”
I look at a unit without a balcony and think great, it’s cheaper, I’ll get the same rent +/- and less headache as tenant can’t physically have a propane BBQ.
When I was regularly buying pre-sale units 2009-2015 you couldn’t give then away even thought numbers were cash flow positive. I remember at the ERA they actually shut down the sales showroom it was so slow and they had one bedrooms starting at 205k. Now the same one bedroom is close to 400k but rents have not doubled.
Marko is correct and there is little to nothing in the pipeline in the downtown core. Construction costs are out of control and that is directly tied to the increased labour costs and poor management within the large contractors. Any company moving forward or looking to develop in Victoria should be very careful and do their due diligence, companies like Starlight, Chard and the Jawls should tread lightly with who they decide to work with. Perhaps this is an opportunity to start a company on their own…
Drive by appraisals do exist but they’re cheaper ($200). I bet they don’t even actually do the drive by either… It’s probably just fine via Street view. I should really open up shop as a drive by appraisal place and ship out the Google Street view work to a Chinese sweatshop. Pretty good opportunity there.
Some projects are being held off due to delays in design and funding. As other projects complete and they can free up cash flows and other resources they will move onto the next one assuming market conditions remain optimal.
Condo projects are typically taking longer in Victoria due to several factors. Changes in the safety standards, building code, and there is an serious inability to adopt new technology and effectively schedule, forcast and manage projects. The individuals running some of the largest GC companies in town over the last 20 years are not the brightest and consistently make costly and inefficient decisions with their company both on and off site. The construction industry in Victoria is slow to change, very reactionary and most owners do not want to invest in technology or staff. As these companies get handed down from one generation to the next, productivity will continue to decline. Farmer has struggled on projects as of late, lost staff and even lost money last year, while Campbell has also been loosing money on various projects. It is unfortunate that the two biggest GCs in town have had losses in the hundreds of thousands of dollars on various projects over the past 5 years. But that’s what you get when owners with big egos, poor business acumen start building the future with tools of the past. The next 5-10 years will be interesting for these companies in Victoria as one struggles to acquire work from the poor client relationships it has established and the other looks to hand the company from a carpenter to it’s two uneducated kids who have a bit of a drug issue and barely graduated high school. Scary times ahead for anyone in either company.
Here you go:
https://outline.com/528byx
Makes sense, both the interchange and treatment plant were flying in trades from the prairies to help, but smaller GCs don’t really have that luxury.
Yeah I wonder if they’re in no rush because of the labour shortage. If some of the rentals clear out then they’ll have an easier time building.
Condo prices are set to put many investors in the red as rents fail to meet carrying costs, experts warn
Note that in Ontario properties first occupied after November 15, 2018 are not subject to any rent controls, and as in BC there are no rent controls on new tenants for any property. This is the rental market speaking.
This article is behind a paywall but Star articles often show up for free later on sister publications, try searching for the title.
Right now pretty much everyone is late due to labour shortages.
2017-2019 volume looks small compared to 2004-2009.
It is healthy alright but given record breaking prices you would expect more. These projects/pre-saless take years to get up and running and I think we will have a new condo void once inventory at 989 Johnson and Hudson Place clears out. You don’t see anyone rushing anything to market like the huge development Chard will be doing on Cook Street.
Tower 4 at Bayview has been delayed 2-3 years in a record high price environment.
Will be interesting to see what Bosa rolls out at Dockside green later this year. I think it might be the only pre-sale roll out in 2020. Maybe the Panoroma too.
Riddle me this. Why do condo projects take much longer to complete during booms?
Shortage of trades? Bigger projects built when prices have increased?
Average length of construction in months – Greater Victoria condo/apartment projects
Regional non-rental condo starts overall still at pretty healthy levels.
I think there is still margin there. 2019 condo starts downtown were above 2018 levels. Maybe it will drop back a bit this year but mostly people just shifted over to rental because of cheap financing and easier approval.
Corvette landing sold a few presales and then switched to rental. Presales probably just weren’t doing too well.
Even at record high prices there isn’t much in the condo pipeline. There wasn’t one pre-sale that launched downtown in 2019 I can think of? 2020 we may get Dockside green doing some pre-sales but outside of that it’s not going to be very active.
My thoughts are construction costs are through the roof and even at record high prices the margins just aren’t there.
Residential real estate is pretty much irrational buyers and sellers. I’ve seen plenty of situations where a buyer is clearly overpaying for something and the appraisal comes in close when it shouldn’t.
And Victoria’s almost 10x increase in rental starts is pretty amazing compared to ~2.5x for rest of country
Yeah I think mostly the result of federal cheap credit for rentals and helped along by provincial and municipal incentives
The long history of low rental construction, with a resurgence over the last 5 years is Canada-wide. Victoria’s numbers are better than average. And this is a at a time of record high condo prices. Low borrowing rates, high occupancy and rising rents are incentives to build rentals.
Because you can make more money with lower risk selling a building as condos than renting it out. It’s that simple. That’s the point of the Alberta condo conversion example.
But you are getting near the point with the inflated land value. If condo selling prices are inflated, this will inflate the cost of all inputs to condos, which are the same as the inputs to rentals.
Yes, modulo actual duplex construction but there is almost none of that.
I don’t follow. Why do high condo prices lead to low rental construction? Inflated land value?
I agree rent control is not the primary culprit though. Rents on average rise at less than rent control max over long term.
The author ignores the most obvious factor in the construction of condos versus rentals – condo prices out of proportion to rents.
If you want to blame rent controls, you might want to take a look at Alberta (pre-oil bust), which has no rent controls, yet not only had few purpose-built rentals but led the country in conversion of existing rentals to condos.
The entire premise is flawed. Why would anyone think that one person estimating value will do a better job than the entire market? The only time when markets are bad at pricing is if buyers and sellers cannot be rational actors. That is in a overheated market or in a crash. Every other time the sales price is a better indicator of market value than an appraisal.
The bank appraisals are really just there as a sanity check and to prevent fraud.
Seattle built 17,450 rental homes in 1 year, while Vancouver only counted 1,364
https://dailyhive.com/vancouver/seattle-vancouver-rental-housing
Appraisal are definitively not drive by. The majority of appraisers have access to our REALTOR® lockbox system to access homes (they book the appointment through the listing agent).
In my opinion appraisals on MLS® listed homes with an accepted offer are just a formality. In my career I’ve personally never had a deal go sideways on a MLS® listed property on the results of the appraisal. The appraisers always asks for the accepted offer amount and then somehow magically the appraisal always comes in at +/- 2% the accepted offer amount.
You begin to understand how poor appraisals are when you see non-MLS® non-offer appraisals. I’ve seen these come in at upwards of 25% off actual market value. Right now I have a builder friend building three houses I’ve realistically pegged at 850k +/- finished product and the construction financing appraisals came in at 725k for the finished product, but somehow when we list the homes in a couple of months and sell for 850k they buyers’ appraisal at that time will come in at between 840-860k.
yes the appraisal was definitely not a drive by. From what I can tell, the bank is not legally impeded from releasing the appraisal to the buyer. There was a case that came before the Office of Privacy Commissioner of Canada that maintained that:
“Residential property appraisal documents constitute personal information of the property owner under section 2 of the Act”
The act referred to is PIPEDA which is national in jurisdiction. Here in BC, we also have PIPA which mostly seems to reflect the rules of PIPEDA.
The Commissioner found that the bank had to release the appraisal to the buyer as that information was deemed personal (to the buyer). However, the bank had the duty to first excise any non-personal information. (info about neighbours, neighbour’s property etc.)
Here is the link:
https://www.priv.gc.ca/en/opc-actions-and-decisions/investigations/investigations-into-businesses/2008/pipeda-2008-390/
Based on the above, it seems I probably do have the right to obtain a redacted version of the appraisal. Further, having read quickly through PIPA (the BC act on personal information protection), it seems to me the bank may have not complied with PIPA as it did not inform me it would conduct an appraisal (which is deemed personal information) let alone get signed consent which seems to be a requirement.
Not sure I want to make a big deal out of this but, my surface understanding of this issue leads me to believe that big banks are not taking PIPA or PIPEDA seriously, at least as far as appraisals are concerned. I can only imagine other related, and more important, infringements they may engage in…
I had colleagues in the bank who told me most appraisals were done were drive by now whether that was line of credit or new mortgages may be another matter, makes sense in Victoria and especially in older areas like Oaklands where most of the value is in the land and structures not worth much
Kenny that is incorrect unless you are going through CMHC. CMHC has a system which derives its valuation from your postal code and ,possibly, sales in the area (can’t remember exactly). If the bank requests an appraisal (in a situation where there is no CMHC) then an appraiser goes to the home and takes pics etc. They are definitely more detailed then just a drive by – at least thats how it was a few years back.
Congrats Koalas: A new home is always an exciting (if somewhat stressful) turning point in life.
I believe the bank appraisals are just drive by appraisals
Congrats Koalas! When i worked at the bank we would sometimes charge for the appraisal depending on a myriad of factors (or lump the charges in with the rate) – we would never give out the appraisal though. I remember my manager saying for legal reasons we couldn’t give it out because if you took something from the appraisal as gospel which was wrong then it could be used against us . Don’t ask me what those things could be as I don’t remember getting a straight answer but that was how one of the big 5 did it anyway (maybe something like “look your appraisal says this house wasn’t formally a grow-op but i found out it was – now i’m gonna sue the bank and i have proof right here”). Anyway – congrats again – cheers.
Thank you Leo and Garden! I’m feeling pretty good about it.
What? Infinite growth isn’t possible?
When there is a suite added to a SFH, it is now counted as two dwellings, even though there is still one building. So I’m assuming that the increase in duplex units of 6,000 over ten years refers to 3,000 buildings. Added to the 2,000 increase in SFH, that puts the net gain of “SFH buildings” (with or without a suite) over the 2006-2016 to be about 5,000 or 500 per year, which is less than the construction rate shown (700 per year), likely due to tear downs of 200 per year.
These low numbers are likely worse in the core, as I expect that most of the new SFH builds are in Langford, and most of the tear downs are in the core.
Congrats on the house, Koalas! We really like Oaklands.
@Koalas from previous post.
Lame. Usually the bank covers this since it’s solely for their use. Just another way to extact a couple hundred bucks from you. Likely nothing in there that you don’t already know though so I wouldn’t be too concerned about it.
Congrats on the house!