Vancouver Island’s booming housing market, and its unintended ripple effect
He was the youngest of the three young men standing at my kitchen island counter. His anxious fingers shook a little as he scrolled through the cracked phone screen. He was showing me the variety of houses, apartments and four-plexes they’d applied for. His nails were chewed short.
He and his two roommates wanted a three-bedroom suite. COVID-19 still lurked in the community. But even with it on their heels, they were facing a more difficult opponent — the booming housing market.
Looking for a space of their own, Ethan Klaeboe and his buddies thought that together they could save money by sharing a 3-bedroom rental unit and splitting the costs.
These three young men and a sudden surge of hundreds of home-seekers were competing for the same few units in a lean rental market on an island. Availability was at 1%. They would have their work cut out for them.
Though they been professional, quick, and responsive to emails, Ethan agonized over property managers who weren’t taking him seriously. At this point they were desperate.
Ethan recently graduated top of his class from film school in Vancouver. He’d been fortunate when he moved to Vancouver Island to begin his new career. His dad had an empty luxury cabin nearby that was about to be put on the market. He could live there for a few months until he could find a place of his own. Two of his best friends joined him. These other two were musicians, both working at Starbucks. All of them ambitious.
Two months rent-free in the cabin gave them ample time to look and save up for deposits and moving expenses.
Nightly, the three of them pored over their computers in search of affordable housing in Nanaimo. They needed a place that wasn’t too far from anyone’s work, nothing fancy, but something central, since the city was long and narrow, sandwiched between the tall trees of Mount Benson and the cold seas in Georgia Strait.
Young men here on the island had a reputation for being wild, partying, and a general nuisance to landlords — or at least that’s what they’d heard. They had to convince inundated property managers by email that despite their gender and age, they were cut from a different cloth.
Real estate agent Dan Morris agreed to a call on speakerphone from his car. Houses, he said, are selling fast and for a lot more than they were even two years ago. Dan spoke quickly and confidently and told me what’s happening in the housing market here.
Real estate prices are higher than they’ve ever been in Canada, he said. It’s a frenzy, and he was right in the middle of the action.
He told me of a woman in a small town south of Nanaimo whose home was built in the 1970’s and had almost no updates. Her home just sold for $600,000 in late April.
She’d had 22 offers.
He rattled off multiple stories of people getting $150, 000 or more over their asking price — without having to do much to update their homes.
Dan said he was not completely certain about what’s causing this spike in sales and prices, but he had a few theories.
He said that with COVID-19, people have realized that they can work from home and don’t have to return to the office anymore. Homeowners in high-priced Vancouver are selling their city properties for millions and taking that money to look for a new home. Many are looking to Vancouver Island — for a notably more relaxed lifestyle, surrounded by some of Canada’s most beautiful landscape.
With millions in hand, they can offer a hundred thousand over the asking price and buy a home here on the island for $700,000 or $800,000. To them, it’s a bargain.
Morris went on to illustrate the market’s intensifying climate. A family had been in touch with him every year for ten years to inquire if it was time to sell. This time he told them the market was good. They listed their home for $310,000. It sold for $500,000.
The tenants who lived there had to move out.
He stated that in the past four months, he’d sold homes that were residentially tenanted — and four families unfortunately, had to find somewhere else to live.
Morris said that what’s happening to renters is that in this seller’s market, anyone who doesn’t want to be a landlord is dumping off properties as fast as they can.
Tenants are left scrambling for housing units.
But who is buying up million-dollar properties in Vancouver? He had a theory about that too.
In 2015, China announced they’d allow individuals to invest in real estate overseas as a part of their “Going Global Agenda”. Many investors did just that, investing in properties on the mainland — Vancouver and Surrey mostly.
Soon after, BC announced a 15 percent tax on foreign buyers of metro homes after denying that foreign investors had anything to do with the affordability of Vancouver’s real estate. The market cooled, but only briefly.
Housing prices rocketed again when the Bank of Canada dropped interest rates, inadvertently causing what some are calling panic buying.
And those on the mainland in turn, Dan said, are investing in properties here on the Island.
Since December, many sales have been purchased “subject free” — that is, they’ve made offers without a house inspection or having financing approved. This usually means that they’ve made a cash offer or were confident about their financing.
And according to CBC’s Mark Ting, prices aren’t expected to go down any time soon. Ting states that “…over the long term, I expect prices will keep going up mainly due to excessive money printing by the central bank, higher construction costs and Canada’s immigration targets.”
Jared Dillian, investment strategist and writer on financial issues in Canada and the US says that despite Canada’s comparably shallower recession, its economy relies heavily on the housing market. Canada is aware that if prices decline, many mortgages would be underwater, Jared states. Not wanting what happened in the States in 2008 to happen in Canada, “Everyone kind of has an interest in keeping this going.”
For Canadians, the risk is even higher. While the US primarily invests in stocks, Canadians use housing as an investment vehicle.
Ethan’s dad’s luxury cabin sold. Despite their efforts, the three young men couldn’t find a place in time. They asked me if they could move into our four-bedroom, three bath house. Our family of four hastily became a household of seven. They’d had a few promising leads, and expected they’d only need to stay for two weeks.
With DJ equipment in my art studio, mismatched furniture squeezed into my upstairs TV den, and pots and pans hastily piled and lining my dining room floor, we made room. The young men would have to share the large, empty room downstairs, and the tiny bathroom next to it.
Ethan works for a company that takes photos and video of real estate that’s up for sale. He could see firsthand the buzz on the market. Initially working part time, he had been asked to work full time and then overtime. He’d edit late into the night.
It had been announced that multiple affordable housing units would be built here in Nanaimo. Six hundred units in all. Construction had already begun and would expand in April would relieving the crunch for rental housing. It did little to ease Ethan’s mind, though. They wouldn’t qualify to live in them. And still, they needed something sooner.
It was two months of temporary living in our home before they got their shot. A three-bedroom apartment in central Nanaimo had opened up. They got a viewing. Their persistence paid off.
Ethan and his roommates dressed up. They asked if they should be more casual or professional. It told them to dress up like they’re meeting their girlfriends’ parents for the first time. They knew what I meant. A suit was too much, but ripped jeans and EDM concert merch wasn’t going to cut it either.
A fresh cut, fade and clean shoes, and a $900 cash deposit in hand, they left to meet the property managers. For two of them, this was their first apartment rental experience. They were nervous.
They came home with good news, and a rental contract.
They’d been in competition with a steady stream of potential renters, they’d been told.
“I guess we impressed the landlord.” Ethan said through a grin. They’d done it. They’d won the housing rental lottery.
We saw their new home — a small three-bedroom in a four-plex in the centre of town. Just as they’d hoped. Boxes were piled high, mismatched furniture were finally in their proper places. Piles of pots and pans that had lined my dining room were resting on their own kitchen counter. They’d figure out why the WiFi wasn’t working later.
The apartment is small and cramped and a little musky — and they can’t believe their luck.
Tonight, they’ll have a house meeting over Ethan’s famous BBQ chicken wraps.
Next, Ethan says, they want to save up to buy a house.
However, Jared suggests, for young investors, it’s a terrible time to buy. He says that eventually the prices must come down — he predicts as much as 30%.
“Let’s say you buy a million-dollar house and you put down the $200,000 down payment, and the price drops to $800, 000 — then your equity is wiped out.”
He recommends they keep renting and wait it out.
On average it will take some Canadians 34 years to save for a down payment.
It appears waiting it out won’t be a problem.
