2. Non-core Demand

Non-core demand represents short-term investment, long-term investment, and recreational demand (i.e., homes not occupied full-time by the owner). Here is where foreign capital, real estate flippers, and dark money come into play. It also includes short-term rentals, long-term rentals, and recreational property purchases.

Since non-core demand is ‘optional’ (i.e., not used to shelter your own family), it is more volatile than core demand.

Foreign Capital

Beginning January 2023, Canada will ban some foreigners from buying Canadian homes until 2025. The foreign-buyer ban won’t apply to students, foreign workers, or foreign citizens who are permanent residents of Canada however the additional hurdles will reduce the flow of capital to Canadian real estate compared to previous years.

Long-term Rental Investors

Rental investments are a significant driver of home prices. Nearly 50 per cent of Vancouver condos are not owner-occupied, and almost 20 per cent of detached single-family houses in the city are not occupied by the owner. Similar trends are reflected in the Okanagan and Victoria.

Demand increased in the major cities as many people began to recognize they would need to return to the office or adopt a hybrid work model. As well, many of the International students who were barred from entering Canada are now coming.

With everyone arriving at once, it has run up rental rates in the near term, and that will encourage investors seeking rental income to enter the market.

However, borrowing costs have more than doubled. Will rents collected from tenants still cover mortgage costs, maintenance fees, taxes, and wear and tear?

As well, the B.C. government has passed a new law that stops Strata Corporations from preventing rentals in their buildings. This could lead to increased rental supply, further clouding the stability of future rental rates.

Short-term Rentals

According to Inside Airbnb, there were Airbnbs were 4,900 Aibnbs in the CIty of Vancouver before the pandemic and 3,500 of them were rentals of entire homes. The number of listings has recovered. Now there are approximately 3,700 listings for short-term rental of an entire home. Will tourism recover enough to absorb all this short-term rental supply?

In October 2022, according to airdna.co, short-term rentals were:

• Vancouver: 4,000 rentals with 87% occupancy.
• Victoria: 1,100 rentals with 88% occupancy.
• Kelowna: 1,600 rentals with 71% occupancy.

Typically, an occupancy rate of between 70% and 95% is considered a supportive investment environment.

Perhaps in 2023, tourism will finally return to pre-pandemic levels. A global recession would reduce the likelihood of this scenario.