Metro Vancouver developers spearhead rental apartment construction mini-boom

VANCOUVER — Rental apartments are frustratingly difficult for developers to build in Metro Vancouver’s high-priced real estate markets, but builders have started work on more of them in the first half of 2010 than in similar periods over the past five years.

The total number is quite small, 475 compared with 6,881 housing starts overall in Metro Vancouver, Canada Mortgage and Housing Corp. reported Friday. However, market analyst Robyn Adamache said it reflects that developers may be responding to the city’s demographic needs.

Adamache said the new units are spread across five buildings, which include mixes of market-rental housing, seniors’ housing and other unit types.

“I think it’s mostly population-based demand, whether that be an aging population or a growing population through migration,” Adamache said.

For population growth, Adamache said Metro Vancouver expects to absorb 40,000 new immigrants and migrants from other provinces this year, which should represent some 16,000 to 18,000 new households in need of some form of accommodation.

“[Developers] wouldn’t be starting [rental apartments] if they didn’t think there was demand for them.”

David Goodman, an agent with Macdonald Commercial Realty who specializes in apartment buildings, said new rental buildings are difficult to build profitably in Metro Vancouver, where land prices are very high.

However, they are seen as a solid investment when the financial conditions are right. “I think what’s pushing [developers] is they are really a blue-chip investment,” Goodman said.

Goodman, with his son Mark Goodman, regularly publishes the Goodman Report on activity in the rental apartment market, and in the mid-year edition, he calculated increased investor interest in apartments on the resale side.

Some 40 existing apartment buildings worth $133 million traded hands in Metro Vancouver in the first six months of 2010 compared with 35 buildings worth $89 million in the same period last year.

“[The market] is not booming, I don’t want to give that impression,” Goodman said. “But there is certainly a lot of investor interest.”

As far as new rental buildings go, however, Neil Chrystal, president of Polygon Homes Ltd., said they are typically done alongside other projects.

Polygon built a 32-unit apartment building in North Vancouver in 2008 to replace a building it tore down in the redevelopment of a site, but construction of the rental structure was subsidized by the adjoining 135 units of market condominiums. Because of high land prices, “we haven’t found any [building] sites where rental pencils out on its own,” Chrystal said.

As for market housing, the 6,881 new homes Canada Mortgage and Housing counted in the first six months of 2010 amounted to 106 per cent more than the 3,342 homes developers had started in the same period of 2009, the time frame in which developers virtually shut off new construction in response to the recession.

Adamache expects the region will hit 12,000 starts by the end of the year, which will still be well below Metro Vancouver’s 10-year average of 15,000 new units per year.

The increase in construction was led by a big surge in single-family-home starts, with the 2,373 new units started by the end of June representing a 171-per-cent increase from a year ago. Multi-family starts, however, are beginning to catch up. In June, builders started work on 806 multi-family units, a 127-per-cent increase from the same month a year ago.

That brought the total of multi-family units under construction in Metro Vancouver to 4,508 by the end of June, which is up 83 per cent over the first half of 2009.

Source: The Vancouver Sun