CMHC analyst says more land available at lower prices is driving the change

Derrick Penner
Sun

Builders started construction on more houses in the Fraser Valley and fewer in Greater Vancouver in the first three months of 2007 compared with a year earlier, Canada Mortgage and Housing Corp. reported Wednesday.

And Canada Mortgage and Housing analyst Robyn Adamache said it is more than coincidence that housing is much cheaper in the Valley and becoming astronomically expensive in Greater Vancouver.

“I think it’s mainly an affordability factor,” Adamache said.

Abbotsford recorded that builders started work on 406 new homes from January 1 to the end of March — a 23-per-cent increase. Greater Vancouver’s starts declined 15 per cent to 4,329 units.

“Land availability and prices, which are more conducive to development compared to Vancouver, are driving growth in new-home construction in Abbotsford,” Adamache said.

In Greater Vancouver, the biggest decrease was in single-family homes where resale prices, Adamache noted, averaged $730,000 during 2006.

The 857 new houses begun in the first quarter represented a 40-per-cent drop from the first quarter of 2006.

In contrast, builders poured foundations for 102 houses in Abbotsford, an increase of 15 per cent from a year ago, where house prices last year averaged about $367,000.

Adamache added that Abbotsford’s average condominium prices are about $100,000 lower. While condo starts rose 27 per cent to 329 in Abbotsford, Greater Vancouver starts dropped five per cent to 3,472.

Peter Simpson, CEO of the Greater Vancouver Home Builders’ Association, said the continuing “push east” is not unexpected.

Simpson added that a buying-intentions survey at the end of his association’s recent first-time buyers seminar in Greater Vancouver showed that more expected they would buy townhouses and condominiums than houses.

“Their expectations now are that they’re not going to be able to buy a single-family home,” Simpson added, unless they are willing to move to communities such as Abbotsford, Maple Ridge or Chilliwack.

Adamache added that building slowed because of competition for labour. Some new home building will wait because workers are busy on non-residential construction projects.

Simpson said builders are also busy playing catch-up on existing construction projects following three months of nasty winter storms.

He added that a lot of housing developments are in the promotional phase, and as those begin later in the year, total starts will be close to last year’s final tally.

Adamache said she will likely revise her 2007 forecast for Greater Vancouver down slightly. However, the first-quarter of 2007 is still the second highest number of starts since 2001.

Across B.C., housing starts dropped 8.9 per cent to 7,228 units in the first quarter of 2007 compared with the first part of 2006.

Nationally, while March showed more strength than February, CMHC reported starts across the country down 10 per cent from 2006 and are “gradually trending lower.”

© The Vancouver Sun 2007

Letting air out slowly lessens consumer shock

Province

More moderate pace in housing starts is ‘a good sign,’ an economist says. Photograph by : Wayne Leidenfrost file, The Province

TORONTO — A gradual slowing of growth in Canada’s “unsustainable” housing is good for the economy since it helps avert the kind of bubble burst that sent housing starts plummeting by one-fifth in the U. S., an economist says.

Housing starts in March rose 7.6 per cent but the first quarter overall was down 10 per cent from last year, Canada Mortgage and Housing Corp. reported yesterday.

Canada also experienced a 6.4-per-cent increase in consumer spending last year. Shoppers spent $392.4 billion in retail stores in 2006, Statistics Canada said yesterday.

This country, which is set to outperform the U.S. this year again with positive outlooks for employment and economic growth, is on track to retain a healthy housing market despite the sluggish first-quarter results, Beata Caranci, a senior economist for TD Bank, said.

The housing agency reported a rise in the seasonally adjusted annual rate of housing starts to 210,900 units in March, up from 196,000 units in February. But the quarter was down about 10 per cent from the same quarter in 2006, Caranci said.

Housing starts in the U.S. have been down by about one-fifth during the last three quarters, she said.

“Here in Canada, you know it’s not a bubble because it’s not burst,” Caranci said. “The air is being let out of it slowly, whereas in the U.S., you actually heard the pop.

“I think it’s comforting — while we’re seeing a little bit of a more moderate pace in housing starts, it’s a good sign,” she said. “It’s less shocking to consumers and confidence.”

The mild slowdown means there won’t be a meaningful impact on consumer spending related to a slower housing market, such as a drop in sales in furniture and appliances, Caranci said.

The positive consumer-spending trend seen in 2006 should continue, given the lack of shocks in the housing market and positive forecasts in employment and economic growth.

Canada’s domestic demand, which has outperformed the U.S. for the past two years, is expected to do so again this year and next.

TD Bank is forecasting 3.3-per-cent growth this year in Canada’s domestic demand, not including exports, and 3.4-per-cent growth in 2008. For the U.S., the forecast is two per cent in 2007 and 2.7 per cent in 2008.

Slowdowns in housing take up to 18 months to seep through to consumer spending patterns, since people take months to furnish new homes. In the U.S., spending actually increased in 2006, in the midst of the housing-market correction.

© The Vancouver Province 2007

Instant town on drawing board

Randy Shore
Sun

Columbia National Investments hopes to build a 36-hole golf course and resort village on the Dakota Ridge/Sechelt benchland

Real estate developer Columbia National Investments is planning to build a Whistler-style resort on raw land near Sechelt, using recently tweaked provincial legislation to create an instant town with municipal powers for taxation and public services.

The centrepiece of the community is to be a 36-hole golf course surrounded by view homes, hotels and condominiums with a village and retail development.

Bill 11, passed last month, allows the provincial cabinet to create “instant” municipalities in rural areas to promote resort development and grants special powers to resort communities to provide fire, sewerage and water services as well as facilitate special taxation powers and group marketing.

“The resort municipality legislation is going to allow us to build a resort on that hill,” said Steve Dunton, CEO of Abbotsford-based Columbia National. He says the proximity of the Dakota Ridge ski area qualifies CNI’s project for the powers described in the legislation, which he says gives the government considerable discretion in the kinds of resorts it approves.

“We just happen to have lands that fit right in,” Dunton said. “We should be able to move right ahead with our own resort municipality.”

According to a guide to the Mountain Resort Associations Act published last year by the Ministry of Community Services, the special municipal powers granted to Whistler under the Resort Municipality of Whistler Act of 1975 were a key element of the success of that resort, a record the government wants to duplicate.

Dunton says preliminary meetings with government officials have been positive. Solicitor-General John Les confirmed that, acting as Dunton’s MLA, he organized a meeting between CNI and Agriculture and Lands Minister Pat Bell earlier this year.

Premier Gordon Campbell announced in 2004 sweeping plans to double tourism revenue in B.C by 2015 by encouraging new investment in tourism infrastructure. Creating new resort municipalities is part of that effort.

Still in the early stages of development, Dakota Ridge offers cross-country skiing, snowshoeing and tobogganing in the winter, hiking, mountain biking and ATV and motorcycle trails in the summer.

The new legislation is a framework that paves the way for remote communities to develop resort infrastructure without troubling the legislature to pass new enabling law as was the case with Whistler, said ministry spokeswoman Anne McKinnon. The law is geared toward creating “instant towns” to develop alpine resorts in sparsely populated areas where there are few other economic drivers, she said. In the absence of those factors, proponents of resort developments are expected to work with local governments, she said.

“I told the [Sunshine Coast Regional District] to have a close look at this legislation,” said Powell River-Sunshine Coast NDP MLA Nicholas Simons, “because I can foresee the impact of this legislation on the ability of local government to have any say in their area.”

“CNI seems to think that they don’t need to bother the good folks at the regional district any more about their plans,” said Simons, a New Democrat. “It seems to me there should be a process where the local people and government have some input, particularly since this land is in the watershed.”

The Sunshine Coast Regional District has asked the ministry of community services for details of the act and for guidance, according to Ed Steeves, chairman of the SCRD and representative for the district of Sechelt. The board is concerned that CNI may be able to use the legislation to bypass the SCRD’s authority over development in the region.

“We have heard a proposal for such a development from CNI, but no plans or drawings,” Steeves said. “We are waiting for those.”

Steeves said he is aware that CNI is clearing the property and that they have recently acquired a gravel mining permit. But he said any further development of the land would face serious challenges securing a supply of water and disposing of sewage.

CNI is flying in American golf course designer Rees Jones for a helicopter tour of the 879-hectare (2,200-acre) property near Sechelt. A 36-hole golf course would require about 160 hectares (400 acres).

Jones has designed more than 100 golf courses, mainly in the U.S., and has remodelled dozens of others including the sites of seven U.S. Open venues, five PGA tour courses and three Ryder Cup courses.

“I want to give Rees the pick of the land for the golf course and then we will work around that,” said Dunton. “This is the canvas for a signature golf course.”

Jones said he looking forward to working with the ocean views in designing the course.

“With sandy soils and excellent local vegetation, it has the makings of a great golf experience,” Jones said. “Golf is a place where you escape the travails of life, so the isolation of this area makes it ideal.”

Columbia National purchased three major properties on the Sunshine Coast last year, the Sechelt bench lands near the Dakota Ridge winter recreation area, a 125-hectare parcel near Port Mellon and a 325-hectare property at McNabb Creek at a total price of $32 million.

CNI has logged about 80 hectares (200 acres) of the parcel to date with most of the wood going to the Port Mellon mill, Dunton said.

© The Vancouver Sun 2007

City zoning is key to development possibilities for 349 West Georgia

Ashley Ford
Province

Once the world’s largest welded-steel structure, this building is looking for a buyer. RIC ERNST – THE PROVINCE

Vancouver’s main post office is officially up for sale.

Canada Post spokeswoman Colleen Frick confirmed yesterday that the sprawling, 49-year-old building that occupies a strategic block at 349 West Georgia is on the block.

But even if everything proceeded as hoped for with the complex sale, “the earliest we could move would be 2009,” she said.

Canada Post says the vintage plant, “given its age and location, severely limits processing and operational movement.”

Don Vassos of CB Richard Ellis in Vancouver, who is brokering the sale, said he must find a buyer and also locate space that will continue to give the post office a presence in the downtown core.

“It is a huge sale and a big plot of land and is quite complex,” he said.

“Part of that complexity depends on what the city will allow to be built on it. It depends on what zoning is fixed to it.” Frick said Canada Post is committed to maintaining a “retail presence in the downtown core somewhere.”

The current property is thought to be worth at least $60 million to $70 million under its current zoning. The big unknown is what the city may allow to be developed on the site.

City officials could not be contacted yesterday for comment, but a city rezoning specialist has been assigned the file.

With the Vancouver economy booming there will be intense competition from potential investors from the office/commercial and residential sectors.

Canada Post had earlier said it wants a new single-storey location built where rush-hour traffic is not such a big issue.

Frick said the building currently houses the processing operations for Lower Mainland letter mail, Canada Post administration and two letter-carrier depots.

It employs 1,700 workers and is the country’s third-largest mail-processing operation.

Now known as the Vancouver Mail Processing Plant, it opened for business in 1958. The $13-million, five- storey building was the largest welded steel structure in the world when it opened.

© The Vancouver Province 2007

Landlords in driver’s seat

Ashley Ford
Province

Vancouver’s Bentall V office tower is already fully leased. Photograph by : Arlen Redekop, The Province

Vancouver’s office-space crunch is on with a vengeance downtown and fleeing to the inner suburbs offers little relief for potential tenants, says the latest office-market report from Colliers International. Paced by a vibrant economy and competitive housing projects for rapidly diminishing downtown land, the downtown vacancy rate is at 3.1 per cent — down from 5.4 per a year ago.

“This is one of the tightest markets we have seen since 1980,” said Shawna Rogowski, director of research at Colliers.

“In that year, the rate reached just 1.5 per cent. In 1981 it was 1.8 per cent and the next year it rose to 9.4 per cent. It doesn’t appear that will happen anytime soon.

“This current cycle started in 2004 and shows no sign of relief. Investors are still attracted to the city and it remains a very popular place to do business,” she said.

While there are plans for new space, the only new triple AAA space coming on stream this year is the expansion of Bentall V on Burrard Street. But the additional 75,000 square feet will have no impact as it is already leased.

There are rising concerns about where future office space will come from and the city’s jobs-and-land-use plan says the downtown will need about 65 million square feet of space to accommodate job growth over the next two decades. It could run out of office space within five years under current zoning regulations.

That is about 10 million more square feet than is currently permitted under existing land-use regulations.

A Vancouver moratorium on new housing near the business district has been in place since 2004, but hasn’t helped much except to curb residential demands, Rogowski said.

Colliers bluntly says there is “no relief with the addition of new supply in the near future.”

The immediate result is landlords have the upper hand and tenants are staring at new record net rate leasing rates approaching $40 a square foot. “Landlords have the upper hand,” the report says.

“They are able to ask for higher rates from tenants who would like to renew. With the lack of supply, tenants are challenged to find new space, especially at far lower costs that would justify moving to a new location . . . any developer who can have an office building complete and ready to be occupied before 2010 is at a major advantage.”

Moving to the suburbs and cheaper space is also fast becoming an illusion. Burnaby, Surrey, Richmond and Vancouver’s Broadway are all doing well and rates are starting to rise in all these locations. Class-A vacancy rates along Broadway stood at 2.1 per cent at the end of the first quarter, 2.3 per cent in Burnaby and a seemingly robust 22.3 per cent in Surrey.

But that is primarily due to the entire vacancy of nearly 260,000 square feet at Surrey’s 104 Avenue Centre. Take that out and the rate would tumble to just 4.4 per cent, the report said.

© The Vancouver Province 2007

Housing here won’t be hurt

Ray Turchansky
Province

The U.S. mortgage crisis won’t affect Canada’s housing market directly, experts say. Photograph by : The Associated Press

EDMONTON — The havoc that sub-prime mortgage lending practices are wreaking on the U.S. housing industry won’t likely be an issue in Canadian housing, but there could be widespread economic fallout to Canadian investors.

“Last year I made fun about how they gave away money, and anybody would get these mortgages, these low-documentation loans,” said Brad Willock, senior portfolio manager with RBC Asset Management Inc., speaking to the Salloum Wealth Management Group.

Willock explained sub-prime and why it’s not a big issue in Canada.

“Sub-prime is a type of mortgage lent to somebody who is of low credit quality, either with low income or no credit history or they’ve defaulted on a loan in the past or they have no means of paying. There’s another category of mortgages called Alt-A, somewhat less sketchy, but still sketchy.

“In the States, the banks write the mortgage but don’t care if they get the money back because they don’t hold it any more: They package it up and off it goes.

“Most of the risk is held in the hands of hedge funds. These mortgages were put into baskets and sold off as a bond, typically a high-yielding bond, and most of the buyers were wealthy folks who put their money into hedge funds and pension plans.

“A lot of hedge funds bought insurance against defaults, and some are going to prosper because of it.

“But in Canada, the Royal Bank keeps your mortgage, the TD keeps your mortgage. You have to pay them or they’ll come and get you and take your house. Also, there are five major banks in Canada. In the U.S. there are 3,000.”

Benjamin Tal, senior economist with CIBC World Markets, says there will not be a direct effect on Canadian housing.

“We have a very boring market in Canada,” said Tal. “The sub-prime market is only five per cent of mortgages in Canada, and interest-only [with no principal paid down] is only one per cent, as opposed to 20 per cent in the U.S.”

Willock says the sub-prime situation will take several years to unwind and will eventually matter to Canadians.

“If $750 billion [US] isn’t getting repaid, banks would take a hit, interest rates would rise, that would put the U.S. most assuredly into a recession, and guess who’s still our biggest customer?”

© The Vancouver Province 2007