April 17, 2023 – Conventional wisdom suggests that increasing our housing supply will reduce home prices. Or, is this wishful thinking? Expert research, reinforced by recent experience here in Qualicum Beach, reveals quite a different result.
What are the experts saying?
Steve Pomeroy is a long-time observer and analyst of the so-called housing crisis here in Canada, with over 35 years of experience in the housing sector. He is currently a professor with McMaster University’s Department of Health, Aging & Society. His specialty is Housing Policy and Governance.
Pomeroy’s research on housing supply and demand that he summarized in a 2021 article debunks the myth that simply increasing the supply of housing will reduce prices.
Pomeroy blames a wide range of actors for the unsubstantiated mantra that increased-supply-will-reduce-prices: “A chorus of voices, from bank economists to the real estate industry, perpetuate the argument that the primary cause of skyrocketing house prices is lack of supply. This view has been reinforced in media reporting, and was emphasized in recent election platforms,” he says.
“Insufficient supply may be a contributing factor, especially in cities where household growth exceeds new home construction,” acknowledges Pomeroy, “but it’s not the primary or most important cause.
“The more significant cause is demand — and not just the quantity of demand, but the quality of demand,” he says.
“Over the last few decades we have seen a new phenomenon of super-charged demand created by households that have substantial accumulated equity from persistent appreciation in their home values, combined with strong income growth and declining and historically low mortgage rates,” Pomeroy maintains.
A market also supercharged with laundered money
In a 2022 article, Diane Francis shone a light on how Canadian real estate has become the go-to vehicle for laundered money, enabled by lax regulation and feeble law enforcement.
“… about half the money laundered through Canadian real estate came from outside the country, with China accounting for nearly a quarter of the foreign funds. Of the domestic money laundered through real estate, well over half came from drug trafficking.”
Diane francis, financial journalist, national post
Francis reminded us that “International money laundering watchdogs have condemned Canada’s failure to regulate its mortgage brokers, lenders, housing investment funds, realtors, developers and lawyers.”
“Transparency International,” she said, “has consistently ranked Canada near the bottom of the pack of all G20 countries due to its failure to meet G20 anti-money laundering commitments. Last summer, Global Financial Integrity (GFI) — a Washington, D.C.-based think tank focused on corruption and money laundering — issued a report that underscores Ottawa’s many failures.
“GFI’s report analyzed 35 [Canadian] cases involving US$626.3 million ($783 million) in laundered funds over five years (which is a drop in the bucket considering that a 2019 RCMP report estimated that $46.7 billion was laundered in Canada in 2018 alone).
“It found that about half the money laundered through Canadian real estate came from outside the country, with China accounting for nearly a quarter of the foreign funds. Of the domestic money laundered through real estate, well over half came from drug trafficking.
“The top ‘facilitators’ of the laundered money were lawyers (22.8 per cent), real estate agents (14.2 per cent) and developers (11.4 per cent).
“GFI found that the top ways in which money was laundered included anonymous company structures (51.4 per cent), third party accessories (45.7 per cent), mortgage schemes (34.2 per cent), private loans (17.1 per cent), renovations (5.7 per cent) and leasing schemes (5.7 per cent). Some also used the immigrant investor program and overvaluation of property schemes (overpaying to pay off the seller tax-free), according to the report.”
Until this scourge is under control, no amount of new housing supply can make a whit of difference to reducing home prices. And, yes, the tentacles even reach here in Qualicum Beach.
Spot-rezoning densification does not help either
The so-called “gentle intensification” in preferred neighbourhoods is also singled out as causing prices to increase not decrease.
“All cities have coveted properties in desired neighbourhoods — often modest, older dwellings on sizeable lots,” says Pomeroy. “Developers often buy those lots, demolish the existing home and replace it with two or three contemporary new homes. The pricing will reflect the values that consumers attribute to that area, inevitably exceeding the original home price.”
This scenario is being repeated with increasing frequency here in Qualicum Beach.
Pomeroy, backed by his research evidence, concludes that: “Clearly this form of intensification (the rezoning in exclusive single-family neighbourhoods) and expanded supply will do nothing to stall or slow price growth, especially given the demand from buyers with accumulated wealth seeking properties in these locations. More supply, therefore, doesn’t mean lower prices.”
A poster child for failed housing policy in Qualicum Beach
Recently listed 475 Cottage Drive: https://www.realtor.ca/real-estate/25207876/475-cottage-dr-qualicum-beach-qualicum-beach
“Brand New Luxury Rancher in Eaglecrest. Welcome to this gorgeous contemporary 4 bedroom, 2 bathroom, 2,052 sq ft home featuring an open concept floor plan with 10 foot ceilings throughout. Radiant heated wide plank engineered hardwood and tile flooring, a spacious gourmet kitchen with an abundance of custom cabinetry with a linen textured finish, a large island, quartz counters, as well as a stunning double fireplace separating a generous living space, all with large south facing windows making this home comfortable, spacious and bright. The luxurious primary suite boasts a spa like bathroom with a large walk-in tile shower, integrated vanity sinks, a large luxury bath as well as walk in closet. Three more bedrooms and generous laundry room round out this architectural floorplan. Comfort and efficiency maintained with air conditioning, Natural Gas hot water on demand & an HRV system. New Home Warranty.”
Doesn’t that sound appealing? Particularly for a “cottage?” And, how ‘bout that price? Only $1,349,000.
What was the original rationale for this sub-division of “Cottages”?
Let us take you on a short journey down memory lane. Eight years ago, in July 2015, Paul Kim, then-owner and General Manager of the Eaglecrest Golf Course applied to the Town to convert the former Eaglecrest driving range at 444 Country Club Drive into an 18-lot subdivision.
As a community we need to ask ourselves: Is the human cost of this interpersonal friction what we want to see repeated over and over, on every street of every neighbourhood?
The Town’s Official Community Plan at the time (2011 OCP) indicated that “given the Town’s strong nodal development policies, provisions for the densification of the Village Neighbourhood, the community’s wish to preserve protectiveness of the rural greenbelt areas and a desired finite size of community, the Plan makes no provision for additional single family residential development opportunities except for a Cluster Development Area in West Qualicum Beach.”
However, the 2011 OCP also stated that, as an exception, “The Town will consider an application for a nine-unit residential development on the Eaglecrest Golf Course, subject to the requirement of execution of a Development Agreement that sets the Town’s conditions, including but not limited to, the 18-hole golf course retention and maintenance covenant.”
In the Kim proposal, his agent Helen Sims stated that: “The demand is for smaller lots that do not require massive landscaping and water demands. Many people winter elsewhere so they do not want large lots that require a lot of maintenance. Furthermore, there are many current residents of Eaglecrest that want to remain in their neighbourhood. However, they are finding it a struggle to maintain their large lot and home in their elderly age.”
In other words, it was a proposal for 18 (not 9) units of housing for fee-simple purchase by wealthy retirees wanting to down-size from their existing McMansions.
According to the Minutes of the Advisory Planning Commission’s December 2, 2015 meeting, designer John Larson described the proposed homes as single-storey homes with two-car attached garage in a “coastal cottage” styling, whatever that means — hence the seductive moniker “The Cottages at Eaglecrest”.
At first reading by Council, February 1, 2016, Planner Rebecca Augustyn noted that “Permitting 18 units would help support the local construction industry and increase housing supply and diversity.” Really? Helpful for building contractors, sure, but that was not, and is not, the Town planner’s mandate, nor their responsibility.
Housing diversity? These images, and the resulting product now on the ground, look like most of the cookie-cutter SFDs (single family dwellings) sprawling across our region. There was no mention of affordability or attainability for the half of our population at or below the median income or net worth, take your pick.
The proposal appears to have streaked through second reading (Feb 22, 2016), Public Hearing and third reading (Mar 14, 2016), and adoption (Aug 15, 2016).
The land then sat dormant for years, quietly appreciating in value, making folks in the monied class even richer.
The next new thing – spot densification – provokes hostility between neighbours
On March 1, 2023, Qualicum Beach Town Council held a (second) Public Hearing of a request from Isaac and Jennifer Morgan to subdivide their existing property on First Avenue West into two parcels, intending to retain their existing home on one half, and build a two storey duplex on the new parcel.
Whatever Council decides to do with the application, potentially irreversible damage has already been done to the neighbourhood. Bitter feelings from the passionate, occasionally hostile, public criticism from neighbours opposing the application will likely not soon subside.
Any readers who did not witness the Public Hearing for this development are encouraged to watch it here.
As a community we need to ask ourselves: Is the human cost of this interpersonal friction what we want to see repeated over and over, on every street of every neighbourhood?
The ecological cost of densification
We close with another planned development in the same neighbourhood, only three blocks away from the Morgans’ proposed development.
Here’s what it looked like several months ago.
Here’s what it looks like now. We imagine the migrating songbirds returning to their summer homes are not impressed.
