First National Financial LP

Canadian Pacific Perspectives with First National’s Michael Yeung: 2021 - Volume II

  • Michael Yeung, Regional Vice President, Commercial Finances

With COVID-19 border restrictions still in place, and normal migratory population patterns disrupted, the source of housing demand has changed in British Columbia over the past year. Construction activity has also changed. In Volume II of Canadian Pacific Perspectives for 2021, Michael Yeung, First National’s Regional Vice President, Commercial Financing, Western Canada examines the state of and outlook for multi-unit construction.

Michael, you are on the record as saying you believe the future is bright for construction activity. What about today – has the pandemic put the brakes on development?

Not at all. Construction is moving forward at a strong pace and there is a reason for that. In Vancouver, we are always short of housing supply…always behind the curve. Developers are looking beyond the next year, beyond the pandemic, to what lies ahead and they like what they see. As a lender, First National is aligned with that viewpoint. That said, developers are dealing with some changing dynamics.

Such as?

First, they must now build to meet the needs of the local population because it is the local resident who dominates the market at the present time, not immigrants due to pandemic border controls. Local residents favour affordable housing so that is one theme. Another is work-from-home, which has opened the door to an exodus from Vancouver’s downtown core. Consequently, we are seeing more construction activity on Vancouver Island, the Okanagan and the outer limit of the Greater Vancouver region, particularly south of the Fraser River. Popular projects include wood-frame construction and mid-rise apartments that address the need of the local consumer for affordable housing.

So the focus of development has shifted geographically but also toward affordable housing?

Correct, developers of both market condos and rental apartment properties are focused on affordability, rather than catering to the needs of wealthy newcomers to our province. Developers are also more committed to building and leasing larger units because of the work-from-home and stay-at-home themes. Our market research shows that one-bedroom units with a den are now outperforming one-bedroom suites. In effect, we are seeing the true nature of the local market because there are no foreign students, no foreign buyers and no business travellers to inflate demand.

Is this a good thing and is First National positioned to help developers shift focus?

It’s a healthy change. I think more square footage is a good thing because it translates into a better living environment. People who move out of the downtown are paying lower rents and of course with low interest rates, mortgage payments are also lower. Greater affordability means more savings for better personal wealth accumulation. As far as First National is concerned, we are in a very good position to help with these changes. We know the affordable space, we know every corner of the B.C. market and we have ready solutions such as the CMHC Flex construction program to assist developers as they build affordable units. There is strong interest in this program because of its incentives and the ease with which it can be termed out.


How is the pandemic affecting construction costs?

This is a topic we discuss with developers every day. The short answer is the pandemic is forcing builders to pay extra attention to the supply chain for materials: the source of those materials and the cost. Lumber prices, for example, have risen dramatically. The reason this is an ongoing topic of conversation with clients is that disruptions lead to cost overruns. As a lender, we want to see realistic scheduling estimates and appropriate budget contingencies. Understandably, we prefer to see fixed-price quotes in place for key building materials.

Is the supply chain more of a risk today than normal?

Yes, our clients tell us they are seeing some delays in getting building materials from the U.S. and Europe, two traditionally reliable sources. Only supplies from China are unaffected. When materials arrive late, it ends up leading to logistics challenges, delays for construction workers and higher overall costs.

What about the availability of construction workers?

There is a shortage of skilled workers due to both strong construction activity and under-supply of young people entering the trades and it’s an ongoing headwind for developers. Remember too that it is more complex to build multi-family apartments and condos than single-family houses or townhouses and as a result, developers are sometimes forced to wait for qualified tradespeople to finish another project before starting theirs. This creates project delays and again escalating construction costs.

How are B.C. developers coping with the skilled trades deficit?

By recruiting in Alberta. This works well if the project is large and leads to ongoing employment. It doesn’t work so well if a construction job provides only a few months of employment.  

What about getting building permits in the current environment?

On the municipal government front, our clients tell us they are seeing permitting delays for a variety of reasons. Without a building permit and detailed drawings, developers are not able to lock down final design. And without final design, it’s impossible to get a detailed quote for construction. It’s a challenge but one our clients are managing.

How is the empty home tax affecting the market this year?

Unfortunately, and somewhat surprisingly, it is making homes less affordable. We’re also seeing property tax and insurance costs rising.

Knowing all of this, what is First National’s appetite for construction financing?

We are all in and we express that through our committed financings but also by doing a deep dive to help our clients plan contingencies so they secure a realistic financing program with the best terms and features possible. Programs that include CMHC Flex and insured term loans and also bridge and conventional programs to get shovels in the ground quickly.

Final topic: what does a recovery in B.C. look like – will the market return to its previous state?

On a macro basis, President Biden’s $1 trillion American Rescue Plan will have an impact on global stock markets and bond yields and in turn will drive changes to cap rates and the cost of funds. That’s one factor to consider. The other is that when the border reopens, there will be a surge in housing market activity from new immigrants and they will once again dominate the market and push demand to new highs. We know the federal government intends to increase immigration levels and traditionally, B.C. attracts 10% of all immigration to Canada. In turn, the Lower Mainland typically attracts 90% of that 10%.

Any thoughts on timing?

I’m very optimistic about the B.C. market and I would expect to see some of this new demand unleased in late 2021 and well into 2022 and beyond.  The future is bright.


Michael Yeung is recognized for his expertise in real estate financing including high-value commercial construction lending. His mandate includes growing First National’s commercial business in both B.C. and Alberta. If you would like to speak to Michael or any member of our B.C. commercial team, you can do so by calling 778.887.8433 or emailing Michael at