Condo developers in Vancouver are facing a market decline and some are stalling projects and laying off workers.DARRYL DYCK/The Canadian Press
Vancouver’s real estate industry had a great run at the height of the pandemic, but three years on, major marketers and developers are laying off staff and selling off assets.
The most recent is Wesgroup Properties – developer of the master-planned community River District – which announced the layoff of 12 per cent of its staff last week. Prior to that, condo marketing company Rennie Group announced the layoff of 25 per cent of its staff.
In a statement to The Globe and Mail, Beau Jarvis, president and chief executive officer of Wesgroup Properties, said the layoffs were “the direct result of having to delay future projects.” He added that the company was facing “unprecedented pressure” and it wasn’t alone in reducing staff. But Mr. Jarvis stressed that the company remains in a “fiscally sound position.”
“With rising costs, increasing complexity and a rapidly shifting economic environment, Vancouver’s real estate market is facing challenges unlike anything we’ve seen in decades,” he said. “Like many of our peers, we’ve reached a point where we must realign our operations for long-term sustainability.”
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The decline in the condo industry has been going on since inflation hit and interest rates soared in 2022, said Magnum Properties founder and chief executive officer, George Wong. The first sign of a problem was the announcement in early February, 2023 by Vancouver-based developer Coromandel Properties – who owned 17 properties and owed $700-million – that it had applied for creditor protection. A series of insolvencies and court-ordered sales by smaller to mid-size developers followed.
Mr. Wong said he has laid off five from his staff of 60 people and revenues are way down. He’s counselling developers to hold off on launching presales because they’d need to sell around 60 per cent of the building within 12 to 18 months to get financing, and that is not currently achievable. Due to world politics, a higher interest rate and government policies aimed at curbing speculation, the investor has backed off. When the market was hot, presale purchases in a desirable building were about 80 per cent investors, said Mr. Wong, who marketed the luxury Harbour Green condominiums in Coal Harbour.
“We’re in the same boat. We ride the same tide,” he said of Wesgroup’s layoffs. “I’ve been dealing with it, pivoting, adjusting, adapting to that for a better part of three and a half years. It’s been very defensive, and a lot of people don’t know that.
“Wesgroup is definitely the most significant one so far in the past three years,” he added.
In a statement to The Globe, Beau Jarvis of Wesgroup Properties called it 'cost-of-delivery crisis.'DARRYL DYCK/The Canadian Press
Mr. Jarvis said Wesgroup has been selling off assets to cover costs. Mr. Wong didn’t want to mention names, but he said another major developer has been quietly selling off property assets. Others have been selling off condo inventory at discounts, usually to industry insiders, such as realtors and valued clients, to keep their lenders happy, he said.
“A couple of projects from big developers that you and I know have quietly signed nondisclosure agreements and passed on really attractive pricing to the insiders so they can move more product,” he said. “The banks [financing] presales, they will say: ‘Show me 150 sales, otherwise, we won’t give you the money to build.’”
In a LinkedIn post, Urban Development Institute president Anne McMullin noted that 22 per cent of land sales over $5-million in the first quarter of this year were court-ordered. She asked what all three levels of government were going to do to get housing back on track.
In his post, Mr. Jarvis emphasized that the industry is delivering housing that people simply can’t afford. “This is a cost-of-delivery crisis,” he said.
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Developer, architect and consultant Michael Geller said that he’s playing more golf these days because of the downturn. It’s not that developers are asking for a “bail out” of sorts from government, but more of a return to the way things were, so that housing continues to get built, he said.
“I do think that we are in a situation that could take years to sort out,” he said.
To get housing starts going again, the industry would like to see reduced municipal fees and a lift on the federal foreign buyer ban on real estate, he said.
“There is generally a movement developing to ask the federal government to lift that,” said Mr. Geller. “It will have some ramifications, because foreign buyers were part of the market, especially the presale market.
“Foreign buyers really impacted my projects, not because they bought units in my developments … but because the foreign buyers were buying the homes of the people who were buying into my project. So, to that extent, it really was a factor.”
The Vancouver region saw historically high housing starts in 2023 – an increase of 33,000 units from the year before, according to the Canadian Mortgage and Housing Corporation. Mr. Geller points out that there are tens of thousands more units that have been approved since then that have stalled.
Andy Yan, associate professor of professional practice in urban studies at Simon Fraser University, said the layoffs appear to be more periodic than disastrous.
“Is this an end of sunny days or a prolonged period of climate change for the market residential industry?” said Prof. Yan.
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The presale condo market in the city of Vancouver had largely been driven by investors. In Vancouver, 50.3 per cent of condos built between 2016 and 2022 were investor-owned, according to the Canadian Housing Statistics Program. In Toronto, it was 56.3 per cent. Those investor condos were smaller in size than condos purchased by end-users, said Prof. Yan.
“So much of a particular type of market housing was built that appealed to a specific buyer in an environment of low interest rates,” he said.
As a result of policies that include reductions on the numbers of international students and temporary migrants, and short-term rental restrictions, foreign buyer and empty homes taxes – as well as the fact that developers shifted to building rental as soon as the new condo sector started to tank – the vacancy rate for rental units in Vancouver is the highest it’s been in 20 years, except during COVID. According to the CMHC, it’s at 1.6 per cent on average.
“Wasn’t this the housing direction that was needed?” asked Prof. Yan. “Why aren’t we saying that the supply and demand policies are working? Shouldn’t we be okay with declining rents and housing values? This is market behaviour.”
“We decided to regulate for the public good and market exclusion, and this is where we are at. However, we still have far to go in terms of housing affordability for those on local incomes and without access to wealth.”