Supply not meeting demand in Merritt home market

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It is no secret that housing in BC has become increasingly unaffordable. According to the Canadian Real Estate Association, British Columbia is the most expensive province as far as average house prices go, with Vancouver being the most expensive city in Canada. 

The CD Howe Institute, a non-profit policy research organization, recently released a report which highlights several issues driving the high cost of housing within the province. They cited an increased demand without an increased supply, but also found that restrictive regulation was responsible for the bulk of excess cost in housing. 

Ideally, in a well-functioning housing market, the price of a home would be close to that of the cost to construct; this cost would include labour, materials, and the time it takes to build. 

“In any competitive market without barriers to entry, regardless of the product being sold, the overall market price should equal its marginal cost of production,” states the report. 

“If prices persistently exceed this construction cost, it is often due to barriers that inhibit new construction. These barriers often stem from excessive regulation.”

The CD Howe Institute delved into the exact cost of this excessive regulation in greater detail, finding that homebuyers were on the hook for more than half a million dollars as a result of housing restrictions in the city of Vancouver. 

“…homebuyers in the eight most restrictive cities paid an extra $229,000 per new house between 2017 and 2016,” reads the report.  

“In Vancouver, the cost of housing restrictions is by far the largest in Canada, at $600,000 for the average new house.”

That number is now estimated to be closer to $644,000. When you consider that the average house in Vancouver costs $1,092,000, that amounts to more than half of the sale price. 

Not only do these restrictions affect the cost of new construction, they also, in turn, affect the cost of existing homes. Further studies have indicated that the regulatory burden in Vancouver is nearly equivalent to those of Manhattan, New York. 

For a time, municipalities outside of Vancouver were not drastically affected by the increased cost of housing in the city itself, but that has changed in recent years as the rest of the province suffers the shockwaves of exorbitant housing costs in the Lower Mainland. 

Kelowna is now another of the province’s most expensive cities, with the report turning up similarities between added cost there and in Vancouver.

Restriction cost per square foot in Kelowna is $120, in Vancouver it is $322.

Restriction cost as a percentage of cost in Kelowna is 27%, in Vancouver it is 50%.

The average new, single-family house price in Kelowna is $775,000, in Vancouver it is $1,298,000.

Increase in cost per new house in Kelowna is $207,000, in Vancouver it is $644,000.

Merritt, a town of just over 7,000 people, is located between the highly desired real estate markets of the Lower Mainland and the Okanagan, with Vancouver three hours to the southwest and Kelowna one and a half hours to the southeast.  

Housing prices in the community have skyrocketed in recent years, increasing in some cases by more than 200%.