What Every First-Time Home Buyer Should Know

Open this photo in gallery: A condo tower under construction in downtown Vancouver, on Feb. 9, 2020. DARRYL DYCK/The Canadian Press In Metro Vancouver, supply has most definitely outpaced demand. The number of newly built, unsold condo units in the Vancouver region is expected to increase by 60 per cent by year’s end. That will bring the total of new units sitting empty to 3,493 – a 60 per cent increase from the 2,179 homes that sat empty and unsold by the end of 2024. These are multifamily units that have an occupancy permit and are move-in ready. Ryan Berlin, head economist and vice-president of Rennie Intelligence, part of Rennie Marketing, a Vancouver-based real estate marketing firm that represents some of the country’s largest developers, said 2025 will close with the “highest level of unsold condo inventory” that the region has seen in many years. It’s a bleak situation for developers, hampered by trade wars, an uncertain interest rate, rising costs and regulations designed to thwart a previous market that was driven by speculation and investment. Those days are over. “Right now, the market is out of gas. Nothing is working for developers. It’s not really working for buyers. So, we’re just kind of stagnating right now,” said Mr. Berlin. The story is all about the missing investor – a key player in the housing market. And they’ve run for the exits. Mr. Berlin has long kept statistics on investors, and from 2020 to 2023 they represented half of Rennie Marketing’s buyers. By 2024, they made up one-quarter of buyers. This year, only seven per cent of buyers are investors, he said. The investor buyer has kept the condo market going for decades. Willing to put up the deposit far in advance of the completed building, the investor enables the developer to obtain financing to construct. Once completed, the investor finds tenants for the unit, and investor landlords became a significant source of housing in the rental market. When lucrative rents were achievable, and borrowing money was cheap, the investor could easily cover costs, known as positive cash flow. But the conditions flipped, and with dropping rents and rising interest rates, many of them entered significant negative cash flow, said Berlin. “It’s not very palatable,” he said. There are other factors. Mr. Berlin said that the capital gains inclusion rate may no longer be on the table, but it created enough fear that people sold off properties. The federal anti-flipping tax, which treats gains on the sale of a house within one year as business income, has also curtailed investor buying. The federal temporary foreign buyer ban has reduced foreign money investment. Short-term rental restrictions have also put a dint in the investor market, particularly in tourist-driven markets like Kelowna. Developers were already dealing with high construction costs and soaring municipal fees. And policies that made sense in a hot market rife with speculation – which defined 2015 and 2016 – are restricting the market even more. “If somebody has money to invest in something and they look at this market, they’ll go, ‘Wow, I’m really being squeezed. Maybe I’ll just put it into a GIC.’ “It’s not to judge any of these policies as being good or bad overall for society, like a sort of net utility,” said Mr. Berlin. “But certainly, for investors … this real imbalance got created between risk and reward. The opportunity for reward diminished and the risks increased.” The dire situation has some developers asking for relief, such as easing up on the requirement that they provide social housing within a rental or strata tower, such as around transit-oriented areas and within some parts of the massive Broadway Plan area of Vancouver. Developer Tony Hepworth, president of Pennyfarthing Development, said six-storey wood-frame buildings are far more realistic than concrete towers. And the requirement to provide 20 per cent social housing in residential towers isn’t viable for most developers in this market. “We haven’t seen it yet, and not in Vancouver, but other municipalities have started dropping their requirement for affordable housing, from 20 to 10 per cent. I think they are going to have to drop it,” he said of Vancouver. “Talking to my colleagues, and some of them are bigger developers than we are, and we are saying that we can’t see how these big towers can go ahead, whether condo or rental at the moment.” Commercial broker Ian Brackett, from Goodman Commercial, said the cost to build a below-market rental unit is about double the actual value of the unit once completed. It means the market rate units elsewhere in the building must be significantly higher, and renters can only pay so much. “It has become very obvious that insisting on 20 per cent below market has become too much of a burden and is rendering many projects unfeasible,” said Mr. Brackett. “The question becomes, would renters and the city as a whole be better off having more housing built even if it is all at market rates, if the alternative is to have nothing built? Twenty per cent of nothing is zero.” The city said in an e-mail response that it is open to making policy changes to address the increasingly challenging market. “City staff certainly appreciate that market conditions are difficult for development at this time,” said Matt Shillito, director of special projects. “The market is dynamic with many different