PAINFUL TRUTH: Real estate boom and bust creates future problems

I’ve done a bit of reporting this year about a very nerdy real estate topic – assignment sales. It’s about to get really relevant for anyone in the condo market.

An assignment sale, if you’ve forgotten, is when someone signs up for a pre-sale contract to buy a condo or townhouse (usually when the site is still a big muddy hole in the ground), but instead of moving in, they wait until just before the project is finished and flip it to another buyer, an actual prospective homeowner.

This became a particularly popular move in Langley, where the boom in condos and townhouses under construction has been pronounced.

In 2019, there were 103 assignment sales in Langley, 177 in 2020, and then 854 in 2021, as real estate sales in general were going absolutely ballistic.

I wrote that this was making homes more expensive for residents. This seemed obvious to me – with investors and would-be homeowners competing for pre-sales, that would drive prices higher, right?

A couple of people told me I am an idiot who doesn’t understand economics. Well, maybe that’s true.

However, a recent Bloomberg article found that assignment holders are now worried about losing their shirts, since the price of housing has been dropping.

If they bought their assignment on a big building back in 2019, they’re probably still fine. They won’t make an astronomical amount of money, but they won’t be in the hole.

But if they bought in late 2021 or early this year, they bought at the peak of the market. The value of their assignment is now edging into the negative.

And as the Bloomberg piece pointed out, that could mean a rush to unload those future condos, which would drive the price down still further by creating a glut in the market.

This whole mess is instructive for how we create these long-term problems for ourselves in the housing market.

For years, we weren’t building enough homes. (Arguably, we still aren’t, or we’ve barely caught up to the minimum required.)

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Starting in the early 2000s, this drove prices higher and higher, with the two biggest spikes coming between 2015 and 2018, and then from 2020 to this past spring.

The spiraling prices didn’t just draw speculators, they spurred on developers, which is why there are cranes everywhere in the Lower Mainland right now.

But the recent price declines may scare developers away from starting new projects. They might not be able to sell a good chunk of their pre-sales to investors looking to flip them, after all!

But this will be a slow-moving crisis – it takes so long to build a six-storey condo, that we won’t see the impacts until between 2024 and 2026. And somehow, we still won’t be prepared.

It’s possible that what we need instead of investor speculation and wild swings in the price of housing is a rational policy of building more co-ops, rentals, and affordable housing.

But what do I know. I’m an idiot.