Opinion: What's next after the uncertainty in Canada's real estate market?

Feb 3 2023, 7:56 pm

Written for Daily Hive Urbanized by Wendy Waters, who is the Urban Land Institute BC Chair of Mission Advancement.

Canada’s real estate industry has been vibrant for years. Even the uncertainty created by the pandemic did not slow rental or market housing demand, or interest in other areas such as industrial warehouses. 

Expected downturns never materialized. If they did, they were short, minimal, or limited to select geographies or asset types such as office space.

This changed in 2022 as interest rates increased significantly and Canada experienced inflation levels not seen since the 1980s. Additionally, increased awareness of environmental concerns gives the real estate industry new challenges and opportunities. 

On the housing front, there is evidence of paused development projects, people hesitant to buy and sell homes, and concerns about the economy. Still, people continue to migrate to Metro Vancouver, as well as other Canadian metropolitan areas. This has placed added pressure on the scarce rental housing supply.

Rising immigration levels and a lack of real estate assets aren’t new. However, it was reported this week by CIBC that the number of new permanent and temporary arrivals in 2023 might reach one million, a number even higher than previously predicted. 

It is vital for the industry to invest now in long-term solutions with patience and a willingness to take bold actions to deliver growth in 2023 and beyond.

Industry challenges are abundant. In addition to sometimes-slow municipal approval timelines and difficulties securing permits required to build, material and labour costs have increased significantly. Additional challenges have been presented more recently in the form of rising interest rates, inflation and supply chain issues.

According to Statistics Canada, residential building costs were up 22.6% on a year-over-year basis in the first quarter of 2022. Construction cost increases also continued into the second quarter of last year. Rising labour shortages added to the challenges.

Statistics Canada added that construction job vacancies reached a record high in the first quarter of 2022 and were double the number of open positions during the same period in 2020. Construction wages were up 6.6% in the first quarter compared with the same period in 2021. All of this adds up to the fact that completing development projects on time, and on budget, is harder than ever.


Virrage Images/Shutterstock

However, this pause in the market is an opportunity to explore solutions. For example, mass timber may help builders to get projects built faster while also offering important sustainability benefits.

Considering environmental, social, and governance (ESG) is also vital. ESG refers to a set of standards for a company’s behaviour used by socially conscious investors. While many Canadian real estate companies have increased focus on ESG strategies, expectations continue to rise, including commitments to address climate change. Investors are increasingly looking at a company’s plans to reach net-zero greenhouse gas emissions. 

An important consideration should also be inclusion and diversity. PwC Canada found in its 2022 analysis of ESG reporting practices of large public companies that many Canadian organizations have gaps in this “S” component of ESG, even if their environmental reporting is robust.

The report found that many companies disclosed policies and targets around gender matters, but were lacking when it came to transparency about other diversity aspects. There will be a need for industry associations to lead in developing a more diverse workforce for corporate recruitment.

Housing Affordability and availability ultimately continue as primary issues. Metro Vancouver’s population grew by a record 78,000 people in 2022. The country added 708,000 during the year, which was also a record.

Over 80% of the national growth was in Canada’s metropolitan areas, and the vast majority of that was concentrated in Southwestern Ontario combined with Vancouver, Calgary, Edmonton, Ottawa, and Montreal — the country’s largest urban areas. 

To help manage affordability and supply issues, higher levels of government have started to encourage faster municipal development approvals. They have allocated funds to incentivize the construction of affordable homes and made policy changes to facilitate the building of modestly denser forms of housing. These include duplexes, triplexes, and mid-rise buildings in urban areas currently reserved for single-family homes.

The increased acknowledgment of the supply gap is positive and the initiatives are welcome. However, Canada’s housing challenge will need bolder actions from the government. The country’s citizens must also be open to higher-density housing and welcoming hundreds of new neighbours into their communities.

Government initiatives alone are not enough to improve a significant problem that has been building for decades.  

Another important initiative to consider is locating new housing along rapid-transit corridors. This will be essential as we address a climate crisis alongside the housing shortage.

skytrain broadway subway tunnel boring machine october 3 2022

Early October 2022: assembly process for Broadway Subway tunnel boring machines, Elsie and Phyllis. (Government of BC)

Among the opportunities for the real estate industry are developments along the in-construction Broadway subway project. Multi-family residential for-ownership housing is also a smart move for investors and developers this year, according to the report, although the outlook is mixed.

Factors like rising immigration are driving demand now and looking ahead. However, because of higher borrowing rates, challenges with approvals, construction cost inflation, and uncertainties, real estate companies may be challenged to execute new housing developments.

In the PwC/ULI report, Vancouver continues to be the top market to watch for, both its investment and development prospects. Rental demand is strong, while CMHC’s 2022 housing market outlook suggests that current construction activity will not be enough to increase vacancy rates or reduce rents. 

Learn more on February 7 at the ULI BC Emerging Trends event.

Global non-profit organization Urban Land Institute Emerging Trends in Real Estate is a trends and forecast publication, now in its 44th edition, forecasting reports in the real estate industry.

Emerging Trends in Real Estate 2023, undertaken jointly by PwC and the Urban Land Institute, provides an outlook on real estate investment and development trends, real estate finance and capital markets, property sectors, metropolitan areas, and other real estate issues.

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