March 15, 2016

Why Build So Much So Fast?

Blogger and Grandview activist Jak King analyzed the city’s breakneck construction pace in a recent post.
He notes the projections in the 2013 Regional Context Statement which show the Vancouver population increasing from about 650,000 now to 765,000 by 2041 – a need for 97,500 housing units. However,

Vancouver City Council has approved a net increase from 2006-February 2016 totaling 32,849 housing units.
Now, a little math (can’t be avoided, I’m afraid).  For the period 2006-2041, the official projection was for an increase of 97,500 units.  With 32,849 already approved, that leaves 64,651 to approve in the period 2016-2041 – a requirement of 2,586 per year for the next 25 years.
However, we are approving far more than 2,586 a year.  The average over the last five years is 5,068 per year, and that rate is increasing so fast that the average for the last two full years (2014, 2015) is 5,984 building units per year – just about double what we actually need according to the City’s own estimates.

Are the population projections so wrong, or is this another example of capital seeking the relatively safe haven of Vancouver real-estate?

Clearly we need to slow down the approval process.  However, the graph of housing approvals from 2006 to 2016 indicates that the rate of approvals is actually accelerating rapidly, with 2016 already rushing towards another 6,000+ total.

In theory, this supply ought to exceed the demand and drive prices down, cropping the profits of developers to a razor-thin slice. Condo prices have been more or less flat until very recently. I’ve always believed that developers are the smartest guys in the room; are they setting themselves up for a price crash?

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  1. So, here’s the thing. You’re a city development department and developers keep coming to you with proposals. They do their homework and follow the rules and their proposed building follows the guidelines and all that. What else are you going to do? There’s nothing else left but to approve it.
    If we decide that we will only allow so many new buildings per year, then what would the number be? What would the reason for doing this be? What’s the purpose? What would the prices be on these units being that they would be rare sought after items?

  2. Last I checked, the concept of a market was that if there was demand, people who provide supply are rewarded. We have the demand, why on earth would we want less supply? I would suggest that only existing land owners could be opposed, on the basis of the new supply competing with their “product” but even that makes little sense. Owning a piece of a city that’s growing is going to outperform owning a piece of a city that’s declining or stagnant. The only reason I can think of to object to fulfilling demand is fantasies of 1950’s Vancouver with white picket fences and two cars in every garage.

  3. A few thoughts:
    1) Population growth forecasts are just estimates, and even experts can’t predict the future. Population growth forecasts at a sub-national level are especially likely to be inaccurate given freedom of movement between provinces and cities.
    2) Basing local land use decisions on said forecasts would be really, really dumb for the reasons mentioned above. If we’ve reached the estimates and people still want to buy more housing, the most likely explanation is that the projections were wrong.
    3) Even if the projections were right, an excess supply of housing (and the corresponding price drop) is *good* for the long-term health of the region. Keeping real estate prices up is a goal that is straight-up incompatible with housing affordability.

    1. Also, Jak should have read the Regional Context Statement. The population projection is *not* based on need/demand. It’s based on current land use policy and past rates of development. Using this projection to determine how many units should be permitted would involve a lot of very questionable assumptions.
      “The population and dwelling projections are determined by calculating additional capacity based on existing zoning and Council-approved plans and policies. Only sites that have development potential are included. A rate of development, based on past experience, is then applied to project growth.”

  4. I can’t speak for developing condos but I can assure you the city has done an excellent job of slowing down construction of new houses – and yes I know it’s hard to believe looking out there. Not all that long ago it took a couple of months to design a house to meet Vancouver’s bylaws and another month to get a permit. If you get through that process within nine months today you’re doing really well. It’s common to take well over a year.
    The Vancouver zoning and building bylaws continue to get much more complex. (Which isn’t to say that I disagree with much of what they are trying to achieve.) And far more projects are subject to conditional approval (subjective analysis) that requires ongoing negotiation with the city’s development planners. After that much longer design process the permit process alone is a minimum of six months.

    1. I wouldn’t say applications for new housing has slowed as much as it is a reflection of record volumes of applications. Other cities in the Metro are also experiencing record volumes and the processing queues are long.

  5. I hope that the COV can increase the amount of housing approved per year. It should help to reduce the increase in housing costs or if we can increase the amount of housing by a lot maybe we will see price decreases.

    1. It would only decrease the costs if it also decreased the cost of the neighbors house accordingly … how happy would the neighbour be to have an underwater mortgage?

      1. If housing prices drop not all existing home owners will be happy. Many will see their paper wealth evaporate and some (especially new owners & speculators) could suffer devastating financial losses. But on the plus side, many more people will finally afford to live & own in Vancouver.
        You can’t both prop up existing prices and try to make housing more affordable. And even if it were possible to prop up current prices indefinitely, should we even try?

      2. People who are buying into an incredibly volatile market with huge amounts of leverage should have known what they were signing up for. The potential upsides of capital appreciation should have let them know just what was at state. No huge wealth gains are possible without similar levels of risk.
        If they made the choice to put the entirety of their wealth in to housing, then let the blood flow.
        I’ve been making smaller returns of most of my stock portfolio than people have been making on housing in Vancouver recently. If a market crash were to occur today, nobody would bail me out. I don’t see why someone making (more) aggressive moves in the housing market shouldn’t be similarly exposed.
        If you don’t want exposure, rent.

  6. Does anyone know a source of information showing the housing units approver per year over the last 10 or 20 years per year? I would be interested to see how Vision compares to past municipal governments.

  7. I, too, assume the projections in 2013 were flawed. However, to claim that a mistake of 100% is normal (over a period of only three years) is to make a laughing stock of all such forecasts. One of the points of my article was to get City Council to admit that their forecasting skills are about on a par with throwing dice.

    1. We’ll only know after 35 years. Nobody said it would be smooth and predictable growth. There may be many factors over this time period that increase and decrease growth. Three years is not long enough to claim a trend.

      1. Note that my report covers 10 years, not 3 — trendwothy, I think. We’ll have a good idea in Feb 2017 when the pop figures for the 2016 census are published.

  8. Is it better to over-estimate or under-estimate future population growth? Build too much and, in theory, prices go down. Don’t build enough, we may have an increase in homelessness, there are less choices for renters and property values go up. These projections were made by staff at the Metro Vancouver Regional District with the approval of the Mayors and Council of Metro Vancouver. Elected as they are.

  9. How can we be have too much housing stock while at the same time having <1% vacancy rates? I know that many US cities had a huge excess supply of condos when their housing bubble burst but they also had higher vacancy rates which at least served as an indication that things were going too fast. Apart from the population projection, are there other signs that we're building too much because it sounds like the worst-case scenario here is a 3-4% vacancy rate which sounds like it would provide welcome relief.

    1. +1
      and its more like 0.3% vacancy rate, when the ‘healthy’ rate is *much* higher. Assuming even that the long-term canadian average is ‘healthy’ (which is another discussion), that would make 3% vacancy.
      Vancouver has ~100,000 apartments according to this:
      … a back of envelope calc gives a need for another ~3000 apartments just to get to that, let alone start to accommodate any newcomers.

  10. In Germany home prices are continuously monitored by region. If prices go up more housing is built to keep prices stable or falling. Somebody had posted a Forbes article on this blog a while ago. Sufficient development is difficult in cities like Hamburg, Munich, Berlin, but those cities are much higher density than Metro Vancouver.
    There is also an annual rental price monitor by neighbourhood. You can type in address, apartment size and thermal insulation level to see the typical rent. This is to provide a guide to landlords and prevent overcharging.

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