Over 20K new homes needed in BC to accommodate record immigration

Over 20,000 new homes needed in BC due to demand from record immigration

Construction of the MC2 residential towers near SkyTrain Marine Drive Station in South Vancouver. The complex reached completion in 2016. (Shutterstock)

BC Real Estate Association (BCREA) is warning all levels of government need to do much more to work together to build a lot more housing to meet record-high immigration levels.

Based on BCREA’s analysis outlined in a newly released report, British Columbia will see a 20,500-unit increase in housing demand just from immigrants over the coming years. New home completions in BC would need to increase by 25% above their historical average over the next five years to a record level of about 43,000 completions per year.

It is estimated BC will see 217,500 new permanent residents between 2023 and 2025, driven by the federal government’s elevated immigration numbers. This represents a net gain of about 100,500 more new permanent residents over the historical average.

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About 40% of these new permanent residents are already in Canada before receiving their permanent residence status, which means 60% of the estimated immigration flows represent new arrivals to BC or the portion that is actual new housing demand.

The 20,500-unit demand figure for rental homes or ownership homes only accounts for new permanent residents and excludes non-permanent residents, which BCREA notes could have a demand that is exponentially times higher.

BCREA states the federal government’s foreign buyers’ ban — in effect since January 2023, and remaining in place for at least two years — is fundamentally flawed as it does not address the real issue of housing affordability, and will produce unintended effects.

It is estimated the two-year federal foreign buyers’ ban will result in a relatively low reduction of 2,400 units in home sales in BC, with the demand impact on the increase in immigration being about five times as large as the foreign buyers’ ban. Based on a recent survey that suggests recent new immigrants have a 54% homeownership rate, new immigrants will fuel about 11,000 additional home sales.

The Government of BC already has its own provincial foreign buyers’ tax, with provincial analysis showing only about 1% of home sales involve purely foreign buyers.

“There is weak evidence that the Foreign Buyers Ban will achieve its objective of lowering home prices,” states the report. The federal ban provides exceptions for international students, temporary workers, refugees, and spouses of Canadian residents.

It is also suggested that there will be pent-up demand from foreign buyers after the two-year federal ban comes to an end.

The combined impact of record levels of immigration — 1.5 million people over three years, reaching up to 500,000 annually by 2025 — and the federal foreign buyers’ ban will result in even further upward pressure on home prices over the coming years.

BCREA Enhanced Supply Response Required to Offset Demand Shock

Enhanced Supply Response Required to Offset Demand Shock. (BCREA Economics)

BCREA Estimated Impact of Increased Immigration Target on Home Sales and Prices

Estimated Impact of Increased Immigration Target on Home Sales and Prices. (BCREA Economics)

In the meantime, the federal foreign buyers’ ban has had the unintended effect of limiting construction financing options for much-needed new housing supply, with BCREA tallying up to 500 new rental homes in Vancouver cancelled due to the federal ban’s impact on accessing international capital markets.

The federal government’s primary rationale for opening Canada’s immigration doors wider is to boost economic growth and help address the severe labour shortage exacerbated by the pandemic, with the unemployment rate now close to the lowest level since the 1970s and about one million job vacancies as of the third quarter of 2022. For this reason, a larger proportion of new immigrants will also be through the economic category, rather than the family reunification or refugee categories.

But BCREA argues the federal government has not adequately considered the impacts on housing affordability, nor has it introduced sufficient measures to mitigate the impacts and catalyze more housing supply.

Municipal and provincial governments need to make zoning changes to allow for more housing construction, while all levels of government should increase funding for affordable housing, and provide incentives to developers to build more homes.

“Instead of policies designed to limit demand through taxation or prohibition, governments should pursue an abundance agenda for housing. An agenda that includes more housing, fewer obstacles to building more housing, and a streamlined process to get more housing to the market faster. Without such an agenda, it will only be a matter of time before the market is again facing accelerated price growth and deteriorating affordability as demand soars and supply struggles to keep pace,” continues the report.

BCREA notes that a 25% in home completions to reach 43,000 completions per year would be similar to the levels in 2020 and 2021, but high-interest rates and rampant cost inflation for construction materials and labour make such figures more challenging to achieve.

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