A review of the CMHC’s role and culpability has been shelved

Peter O’Neil
Sun

The Conservative government has shelved its election promise to conduct a review into a federal agency’s role and potential culpability in B.C.’s $1.5-billion leaky condo crisis, according to a letter sent by Human Resources Minister Diane Finley to a homeowners’ group.

Finley said the promise, made in Victoria by Prime Minister Stephen Harper Dec. 17, can’t be fulfilled because of court actions launched against Canada Mortgage and Housing Corp., a federal agency.

CMHC, according to internal documents obtained by Tory MP John Cummins last year, was aware in the early 1980s that new federal building regulations could lead to severe damage to homes in coastal areas.

“As I’m sure you can appreciate, it would not be appropriate for me to comment or to consider initiating a review into leaky condo issues while these matters are before the courts,” Finley wrote to Consumer Advocacy and Support for Homeowners (CASH), a consumer advocacy group that is seeking compensation for the thousands of B.C. residents whose homes and property values were devastated by moisture damage.

CASH president Carmen Maretic, in a letter sent Wednesday to Harper and Finley, said the Tories “knew or should have known” at the time of the campaign promise about a lawsuit filed against CMHC in B.C. on Dec. 6, 2005.

Critics have also noted that CMHC has been named in more than 30 other lawsuits. Former Liberal housing minister Joe Fontana and former Liberal industry minister David Emerson, now Tory trade minister, stated publicly in mid-2005 that the government couldn’t comment on CMHC’s role in the crisis because the issue was before the courts.

“Minister Finley’s response is unacceptable to British Columbians (voters), leaky condo owners and our organization,” Meretic wrote.

“The Conservative government must understand the suffering of the leaky condo victims, and the number of people who yet again will be re-victimized by a lack of accountability and by broken promises by your government.”

Harper, in a sweeping “Stand up for B.C.” election platform unveiled Dec. 17, promised to “review CMHC’s handling of construction regulations and ‘leaky condos.'”

A press release accompanying the platform boasted that Conservative MPs “understand and have advanced the interests in British Columbia” on several fronts, such as pressing CMHC “to investigate how it failed to warn homeowners about potential problems with ‘leaky condos.'”

In an exclusive interview with The Vancouver Sun after the announcement, Harper said he’d consider compensation for condo owners following the review.

Cummins (Delta-Richmond East), who was travelling to Ottawa Wednesday and couldn’t be reached, has alleged that the Liberal government under Pierre Elliott Trudeau, by establishing energy-conservation building standards to prevent heat and moisture from entering or escaping homes, planted the seeds of the leaky condo crisis that emerged in the 1990s.

Cummins had earlier asked the Library of Parliament to research options for the Harper government to fulfil the “review” promise. The subsequent report, released in April, said a formal public inquiry would be the “best choice” to look into CMHC’s “possible role” in the condo crisis.

CASH estimates that the crisis, which emerged in the 1990s, has resulted in more than 65,000 homes being damaged by moisture and the buildup of mould and fungi. The non-profit society’s website ( http://www.cashsociety.net/) includes links to the early-1980s documents that allegedly suggest the federal government’s culpability.

The Dec. 6, 2005 suit filed on behalf of two British Columbians by Vancouver lawyer John Singleton will not qualify as a class-action suit, thus qualifying others to join in the legal actions, until it is certified by the B.C. Supreme Court.

© The Vancouver Sun 2006

Ottawa rejects B.C.’s bid for more money for the expansion project

Peter O’Neil
Sun

Work on the Vancouver Convention and Exhibition Centre expansion in Coal Harbour is well underway. but the federal government says it has no extra money for the project. Photograph by : Mark van Manen, Vancouver Sun

OTTAWA – The federal government has rejected a B.C. bid for additional funds to cover cost overruns involving the Vancouver Trade and Convention Centre expansion project, a senior B.C. official confirmed Tuesday.

Ken Dobell, chairman of the B.C. Crown corporation running the $615-million expansion, said he made his pitch last week to Louis Ranger, head of Infrastructure Canada.

“Mr. Ranger said that the available infrastructure funding for British Columbia was exhausted, and that there was nothing available,” Dobell, who retired as Premier Gordon Campbell’s deputy minister last year, told The Vancouver Sun.

Dobell said he made the request during a last-minute meeting with Ranger while in Ottawa as Campbell’s special adviser to discuss the softwood lumber agreement with federal officials.

He said any new federal money would offset the province’s $50-million contribution, announced last September, to cover new costs that bring the total project costs to $615 million.

He said he told Ranger the project, intended to triple the centre’s capacity and allow it to serve as the international broadcast centre for the 2010 Olympics, was suffering due to inflationary costs in the construction industry.

“He said, ‘Yes, you and everybody else,'” according to Dobell.

The B.C. and federal governments had originally committed identical amounts for the project. But the B.C. contribution has risen to $272.5 million, compared to a $222.5 contribution from the federal government, $90 million from Tourism Vancouver and $30 million to be generated in commercial revenue.

© The Vancouver Sun 2006

Vancouver area close to levels last reached before previous downturns

Michael Kane
Sun

The Affordability Factor Canada Mortgage and Housing Corp.’s tracking of average mortgage payments for the Real Estate Board of Greater Vancouver offers a kind of affordability index, with previous peaks at the $2,600 level. Each of those peaks preceded a downturn in the market, CMHC’s Cameron Muir says. Note that in July of this year the average monthly payment was $2,322.526. (To arrive at the average mortgage payment, CMHC takes the average MLS price for that month, assumes a 25-per-cent down Photograph by : VANCOUVER SUN

The cost of carrying the average mortgage is nudging levels that preceded the last two significant downturns in the greater Vancouver housing market, a study by Canada Mortgage and Housing Corp. says

While Lower Mainland home prices have risen dramatically in recent years, the federal agency says the monthly cost of carrying a five-year mortgage at posted interest rates, when adjusted for inflation, has yet to top $2,600 as it did in 1990 and again in early 1995.

However, in July, the average mortgage sat at $2,322, its highest level in 12 years, thanks to a combination of higher interest rates and rising prices.

“We haven’t been where we are today since 1994 and 1989 which were both peak years in their respective cycles,” Cameron Muir, senior market analyst with CMHC, said in an interview.

The study supports other surveys that suggest real estate prices will level off as homes become less affordable, although Muir doesn’t expect that to happen before next year.

“We’ve had a marginal increase in the number of listings over the last couple of months, but not enough to be indicative of a return yet to more balanced conditions,” he said. “The affordability measures that we look at indicate that sometime going into 2007 the market will trend to more balance as more and more households who are looking to buy a home are squeezed out because of affordability issues.”

Statistics Canada released numbers Tuesday showing new housing prices in Vancouver were up 0.5 per cent over June, compared with 1.1 per cent nationally, and decreased 0.6 per cent in Victoria, the only one of 21 metropolitan areas other than Kitchener, Ont. (minus 0.1 per cent) to show a decline.

StatsCan said the booming economy in Alberta continues to drive the national average price — Calgary led the way with a monthly increase of 4.6 per cent — along with strong demand and increasing costs for construction materials and labour.

“People have been looking for an overall housing slowdown but it hasn’t really happened yet,” StatsCan analyst Randy Stearns said in an interview.

Hints of a slowdown are contained in the latest housing report from Clayton Research, a Toronto firm of urban and real estate economists, which shows a drop in home buying intentions across the country in June, compared with the same time last year, and an increase in plans to renovate.

“Obviously there is an issue of affordability creeping into the market in B.C. as we’ve seen prices really accelerate over the past year and a half or so,” Clayton vice-president Peter Norman said in an interview.

However, he expects the strong B.C. economy and infrastructure spending to continue to drive in-migration and keep prices buoyant. “We think the B.C. housing market will remain relatively solid.”

CMHC’s average monthly mortgage calculation is based on paying the average MLS price in greater Vancouver and assumes a 25-per-cent down payment and a 25-year amortization. It also assumes that buyers pay the posted five-year mortgage rate because of the difficulty in ascertaining an average discounted interest rate which depends on the buyer’s risk, collateral and other factors.

© The Vancouver Sun 2006

Owners of vacation condos face soaring costs. Quarter-share property owners see taxes triple after assessor reclassifies them to business rate

Gillian Shaw
Sun

The price of paradise is rising precipitously for quarter-share owners in vacation properties, who are finding their taxes doubling and tripling after they buy.

Taxes on one vacation unit in a Vancouver Island resort jumped from $3,800 to $15,200 when BC Assessment changed its classification from residential to business in a shift that is hitting resort properties around the province.

At Pender Island’s Poets Cove resort in the Gulf Islands, strata fees including taxes tack on almost $1,100 a month to the cost of a quarter share in a townhouse that is listed for sale at $229,000 for 12 weeks of occupancy a year.

Some buyers are signing up for fractional ownership in vacation homes only to find long after the deal is sealed that the residential tax rate has given way to business and their costs are much higher than they expected.

“The developer comes in, sells the project and sells the management of it to a management company and he takes all the profit and gets out of Dodge,” said Errol Winter, real estate director at Crown Isle, a resort and golfing community at Courtenay on Vancouver Island.

“He’s gone, the assessment comes in the following year, the taxes go through the roof and the management company is left holding the bag.

“People are yelling.”

The controversy has prompted a review by the provincial government involving property taxes around short-term overnight commercial accommodation properties known more familiarly by the acronym STOCAP.

Larger resorts with more than 20 units and fulfilling rental conditions that trigger the business assessment are affected by the higher taxes. The rules are outlined in assessment regulations governing the classification of STOCAPs.

Developers and property owners are appealing the assessments but the regulations are against them. A group of Whistler owners, the Legends Owners Association, lost an appeal on the issue in 2005 in a decision that resonated throughout the industry.

“That Legends case at Whistler has set the tone in the property tax matter,” said Phil Leseur, vice-president corporate and legal affairs at Bear Mountain, a destination resort in Victoria.

“The judge said if it looks like a hotel, smells like a hotel, is being operated as a hotel, it’s taxed as a hotel.”

Bear Mountain was successful in appealing one year that saw taxes on its quarter-share units hiked to a business classification, but Leseur said the company is still appealing that classification for another year and there is no guarantee what will happen with upcoming tax years.

While the difference between residential and business tax rates varies with municipalities, in Langford where Bear Mountain is located, Leseur said residential taxes are set at $6.32 per $1,000 of value for a property while business taxes are $20.86 per $1,000 of value, making business taxes three times pricier than residential.

Leseur said while there are some developers who may be gone before owners get the bad news on their taxes, he said in most instances the developments have large companies behind them that remain to run the property, as is the case with Bear Mountain.

“In our case, because we manage and we are still the owners, we are working through this issue,” he said.

While some people in the industry are calling for a new assessment classification to recognize the fractional ownership properties — a route taken by other jurisdictions, Leseur said opinion is divided on the issue. Owners of stratified hotels and accommodation favour a new classification while conventional hotel owners don’t want what they see as their competition getting a break on taxes.

“One of the biggest problems you face with this issue is that there isn’t a unified force out there in the hotel world; it is very divided, there are groups against groups internally,” said Leseur.

Rick Thorpe, B.C.’s minister of small business and revenue, said while he can’t comment on specific assessment appeals that are under way, it is clear the STOCAPs issue is on his ministry’s agenda.

“I currently have a team working on that and what I can say is as we move forward we need the policy to be fair and equitable to property owners,” said Thorpe.

At Crown Isle, the tax debacle prompted the company to call off a planned expansion of its quarter-share properties after 206 quarters were pre-sold.

“What happens now is basically instead of making any money, you are breaking even in terms of revenue, the money you would have been making to help offset some of the mortgage stuff; instead, you’re writing a big cheque,” said Winter of the buyers’ dilemma when the tax hikes hit. “It makes it very difficult to make this a really viable thing unless you have lots of disposable income.

“It hurts the industry in general.”

At Poets Cove, Peter Parmar, general manager of the resort and spa, said increasing costs are having a negative impact on resale values. He said there are currently about 12 sales listings among the 46 units and while he said some listings have been prompted by changes in circumstances for owners, others have come about as a result of the rising costs.

“Some people are selling because the costs are getting out of reach for them,” said Parmar, who said at his resort even an owner who bought all four shares in a property and opted not to put it in the rental pool has been hit by the higher assessment.

Along with increased taxes, that resort has also faced strata fee increases coming from such expenses as a new generator and other unexpected costs. He said the owners are appealing the taxes and Poets Cove is bringing in strata management to try and cope with the rising strata fee issue.

“Some of them have gone up double, both strata fees and taxes,” said Parmar of the fees which are combined in a single monthly payment for each owner. “Where somebody was paying $500, it has gone up to $800 or $900.”

In one example, a cabin at Poets Cove saw taxes climb to $9,095 in 2006, up from $3,613 in 2004.

The Prescribed Classes of Property Regulation, BC Reg 438/81, provides for different classifications for STOCAPs.

Under that regulation, residential strata lots are assessed as business and other for tax purposes if 20 or more are:

– On one parcel or contiguous parcels.

– Used or available for overnight accommodation.

– Controlled or managed by a person who controls or manages 85 per cent or more of the strata lots.

– And are offered for rent overnight for periods of less than seven days for at least half the year.

© The Vancouver Sun 2006

Province

New housing costs continue to climb in Greater Vancouver but are relatively modest compared to other Canadian cities, the latest numbers from Statistic Canada released yesterday show.

In July the cost of a new Vancouver house pushed up by 0.5 per cent and so far this year costs have risen by 5.4 per cent.

While significant, it is a drop in the bucket compared with Calgary, where costs shot up an astonishing 4.6 per cent in July.

Cowtown was followed by St. John’s, Nfld., with a 2.9-per-cent monthly rise in the cost of new homes, Edmonton at 1.9 per cent, Hamilton, 1.6 per cent, Regina, 1.2 per cent, and Saskatoon, with a one-per-cent increase.

So far this year Calgary costs have jumped by 56 per cent, followed by Edmonton at nearly 30 per cent and Winnipeg at 9.7 per cent.

Overall, the cost of new housing across Canada so far this year has climbed 10.8 per cent.

Kitchener and Victoria posted decreases of minus 0.1 per cent and 0.6 per cent, respectively, due to competitive pricing.

StatsCan says rising costs for construction materials and labour rates, combined with strong market conditions are responsible for the increases.

© The Vancouver Province 2006

Skipping the inspection is tempting, but a big mistake in today’s competitive housing market

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Apartment and condo construction down, report says

Eric Beauchesne
Sun

OTTAWA — Home construction has slowed more than expected, and the sector — which has been an engine of overall economic growth — was already a drag on industrial activity as early as last spring, a pair of agencies report.

Housing starts fell 10 per cent last month to a seasonally adjusted annual pace of 213,700 — their lowest level in a year after three straight months of increases, pulled down by a drop in apartment and condominium construction, Canada Mortgage and Housing Corp. reported Monday.

Urban housing starts declined even further, by 11.3 per cent to 179,300 units in August compared to July. Urban multiples decreased 22.2 per cent to 87,800 units in August, while singles were up 2.6 per cent to 91,500 units.

The drop for urban housing starts was even greater in British Columbia, where they fell 21.2 per cent, the biggest percentage plunge of any province.

Double digit declines were also recorded in Ontario, the Atlantic region, and the Prairie region where urban starts were down 19.8, 18.0, and 10.0 per cent respectively. Urban starts were up 19.6 per cent in Quebec.

“Although this outcome was clearly softer than most were expecting, it is hardly a harbinger of doom for the Canadian housing market,” said TD Trust economist Eric Lascelles, noting that housing starts are still relatively robust.

Further, residential building plans are still holding up, which bodes well for an ongoing healthy pace of housing activity, and new home prices continue to rocket upward at nearly 10 per cent per year. This, Lascelles said, suggests that, if anything, housing starts are not currently keeping pace with demand.

But housing was already cooling last spring, a separate report from Statistics Canada suggests.

Overall, Canadian industries were operating at 85.5 per cent of their capacity in the spring, down from 85.7 per cent in the first quarter — the third straight quarterly decline, it said. “Most export-based industries and industries associated with the housing market reduced their capacity utilization in the second quarter,” it said

Industrial capacity, a measure of how busy businesses are, was also down from the 87.6 per cent peak reached during the late 1980s housing boom.

The reports, which followed news last week that job growth has stalled, add to evidence the economy is cooling off.

Rising house prices will continue to dampen demand for new homes in the latter part of this year, CMHC chief economist Bob Dugan said.

Bart Melek, BMO Capital Markets economist, also warned the storm clouds gathering over the U.S., a softening employment environment, and higher interest rates will all gradually erode activity in the coming months.

But mortgage rates “have moderated recently” noted J.P. Morgan economist Ted Carmichael.

© The Vancouver Sun 2006