Despite Vancouver's foreign buyer tax, it's proving to be a seller's market for townhomes

The scene is pretty standard for what happens when a quality home in a good neighbourhood hits the market in Vancouver — dozens of house hunters at the open house, offers restricted to a single night, and, in the end, a property that goes well over the asking price after seven bidders fight for the title.

Earlier this year few home hopefuls in Vancouver would have thought this was unusual.

But this scene took place 10 days ago — late September, and nearly two months after the 15 per cent foreign buyer real estate tax was brought in by the B.C. Liberals in an attempt to cool the market and increase home affordability.

"After the long weekend [in September] it went crazy — 30 people in one open," said potential homebuyer Henrik Karlsson, 33. "I expected it to be less busy."

Karlsson and his wife, Emilia Gustafsson, 28, hoped it would be easier to upgrade from their 631-square-foot one-bedroom and den apartment with the tax in place.

But they lost the bidding war — the two-bed, two-bath, 1,150-square-foot townhouse in a pretty pocket of East Vancouver went for $70,000 over the asking price at $908,000.

Indications of a seller's market

Officials with the Greater Vancouver Real Estate Board say the tax, so far, seems to have created two different markets — one for detached homes and one for condos and townhomes.

Sales of single family homes are slow and prices soft, but the market for attached homes is showing a different trend, they say.

Though the board won't release official October numbers until Tuesday, officials say the indication for the month so far is that the "sales to listings" ratio for townhomes and condos in Vancouver is hovering at 40 per cent. A ratio of 20 per cent or more is considered a "sellers" market. 

It's an eyeball roller for Karlsson and Gustafsson, who both work in the film industry, and who say they can't afford a single family home in the city on their househunting budget of $900,000.

The couple wants to "future proof" their lives, as they put, for possible babies: Two bedrooms, some outdoor space, their own street entry and maybe a room for an office.

It's nothing outlandish, but outlandishly tough to find, says Gustafsson.

Short supply

None of this comes as a surprise to Michael Ferreira with the housing research firm Urban Analytics. 

The tax may be working at the top end of the market, but that's where it ends, he said.

This fall, his firm has counted just 16 new townhomes that will hit the pre-sale market in Vancouver during what is referred to as the busy "fall launch" — when homebuyers are back from summer holidays and the market gears up.

That's too few to leave a visible imprint on the market, he said.

"We're just not doing enough to provide the type of housing that we are now seeing increased demand for," said Ferreira.

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According to Anne McMullin with the Urban Development Institute, current zoning laws will continue to limit the supply of attached homes and keep competition high. The foreign buyer tax isn't fixing that, she said.

"We're having to jam most of our development into 15 per cent of the land base because 85 per cent of the land [in Vancouver] is zoned single family."

Added to that is a lengthy permit process and city and other development fees that can tack on an additional $150,000 to one unit.

McMullin — whose association represents developers — said that means townhouses in Vancouver are not attractive for builders.

Give tax time

But Josh Gordon, an associate SFU professor in public policy, says the 15 per cent foreign buyer tax should eventually work, by opening up the high end of the market to more domestic buyers.

Once it seeps through the system, "mid-range" buyers should be able to move up into single family homes, he said.

"The point is that you bring the top end down enough so that locals can move up," said Gordon, who has also advocated for a tax on homeowners who don't earn income locally.

But for Karlsson and Gustafsson those single family prices would have to fall substantially in price before they could comfortably move up.

"To me, you can re-zone a lot ... you don't need all of those houses, you can build townhouses and fit five times as many people and they [Vancouverites] won't have a burden on their commute," said Karlsson.

They say it's how they grew up in Sweden, where they're originally from, and they don't see the downside.