Increased suburban migration in store

A major North American study on 2016 real estate trends is predicting increased suburban migration and greater interest in rentals in super expensive markets such as Vancouver.

The study, by PricewaterhouseCoopers and the Urban Land Institute, is based on surveys of those involved in the real estate and development industries across the continent.

It notes Vancouver, by far, is Canada’s most expensive housing market.

That said, “Overall, respondents rank Vancouver as the top investment, development and housing market in Canada (in 2016).”

Vancouver will displace Calgary and Edmonton, formerly pegged as the number one and number two investment and development spots, respectively.

The study lists Vancouver’s 2016 house price-to-income ratio as 11.6 to one, up from 10.4 to one in 2013. Toronto’s ratio is 7.0 to one. Other major cities have ratios of between 3.5 and 5.0 to one.

This explains why so many Vancouverites feel they are confronting an untenable landscape, one that has only been aggravated by a high Property Transfer Tax, large real estate commissions and government inaction on foreign purchasing.

The average 2016 home price in Vancouver is forecast at $921,900, compared to $639,000 in Toronto and $344,000 in Montreal.

The study suggests while urban densification will persist, growing numbers may decide to move away from big-ticket real estate in the city core. Suburbs, meanwhile, will themselves gradually become more urbanized.

People also are adapting to the high prices by renting and living smaller. Canadians will grow more comfortable with compact quarters, “like many of their peers around the world.” (Average home size in Canada is 2,000 sq. ft., compared to 800 to 900 sq. ft. in Sweden, Italy and the U.K.)

“Renting is no longer seen only as a temporary step on the road to homeownership, but as an alternative,” says the report. “We are seeing the rise of permanent renters.”

Demand is growing for luxury rentals, expected to provide “a comfortable bridge between homeownership and retirement homes” for seniors.

And “mixed-use intensification,” incorporating retail and residential space, is expected to continue.

Developers and builders believe provincial policies have helped to make real estate expensive.

Ontario and B.C. government greenbelt policies, promoting urban densification and limiting land supply, have boosted land costs.

They blame municipal governments for lengthy approval processes and big development charges and cite rising construction costs.

The 2016 Vancouver market is expected to reflect “more of the same.”

Foreign investment also will continue driving up prices, expanding into the retail, office, hospitality and even agricultural sectors. The report predicts global investors will continue viewing Canada as “a safe haven for their capital” in 2016, and a good place to invest while the dollar is low.

And technology is having an impact on real estate, with offices downsizing as per-worker square footage drops. The report cites “concern about office vacancy rates, which at 10.4 per cent... are Vancouver’s highest in a decade.

The report notes retailers are looking for smaller spaces as shopping moves online.

More broadly, across the country, the report predicts a “generally stable” real estate market through 2016 though it says survey respondents expressed concern about the impact of low energy prices on Western Canada’s markets.

The report identifies best prospects for Canadian property investors next year, with fulfillment centres – where goods are received, packed and shipped for online customers – topping the list. Warehouses, medical offices and neighbourhood shopping centres are close behind.