Rent now, pray later: City has mixed success in creating affordable housing

Mike Howell
Van. Courier

Back in November 2010, Mayor Gregor Robertson joined developer Dale Bosa in a vacant lot at 1142 Granville St. for a typical photo opp to mark the beginning of a new housing project.

Shovels in hand, Robertson and Bosa dug up dirt for the cameras at a press conference to announce the construction of a 10-storey, 106-unit building on the downtown strip.

Another expensive highrise?

Not exactly.

The building, now known as the Standard, was the first of its kind to be developed under the mayor’s ambitious plan to create what many in Vancouver say is impossible: affordable housing for households earning between $21,500 and $86,500 per year, where a maximum of 30 per cent of income is spent on rent.

The Standard is a rental tower and was built under the city’s Short Term Incentives for Rental program, or STIR as it was commonly known. It launched in July 2009 and ended in December 2011.

The key word in the program’s name was incentive.

In the case of The Standard, Bosa and his BlueSky Properties Inc. company saved $638,000 in development cost levies, received an increase in density, had its application fast-tracked and wasn’t required to build as many parking spots.

In return, Vancouver got much-needed rental stock and the developer agreed to keep the units as rental for 60 years or life of the building, whichever is greater.

But what Bosa and other developers who signed on to the STIR program couldn’t agree to at the time of negotiations was a guarantee on cost of rent.

At that press conference in 2010, the mayor and Bosa projected the rent for all 106 of the 320-square foot studio apartments to be between $950 to $1,000 a month. A staff report to council that same year said the developer estimated the studios “will rent on average for $960 per month.” At the time, the average rent downtown for a similar apartment was $1,090.

Today, rents at The Standard range from $1,260 to $1,400 a month for a fully furnished studio apartment. And rents at other STIR projects, including one on Victoria Drive, are in the $1,800 a month range for a two-bedroom.

“I don’t recall that we ever published projected rents prior to starting construction,” said Daryl Simpson, senior vice-president of Bosa Properties, in an email to the Courier. “What is important for you to know is that at the outset we did not necessarily intend to rent furnished suites.”

With Craigslist advertising a bachelor apartment for $1,100 a month on Broughton Street in downtown and a 700-sq.-foot one-bedroom in Mount Pleasant for the same price, the question is this: Did the STIR program achieve the mayor’s stated goal of providing more affordable housing for residents?

A simple comparison of rents says no.

A more complex analysis comes from Vancouver’s chief housing officer Mukhtar Latif, whose report to council last year praised the program but also stressed patience with the concept and rent prices.

“An increased supply of rental housing is needed to meet growing demand, help mitigate rent increases, provide affordable housing for moderate income households and create a sustainable affordable market rental housing stock, recognizing that purpose-built rental housing with security of tenure becomes more affordable over time relative to new construction,” Latif wrote.

Under the STIR program, 19 projects resulted in the construction of 1,329 market rental units. That was nearly a five-fold increase in approved rental units when compared to the five preceding years.

Also significant was the units were built without any assistance from the provincial or federal governments in a city where vacancy rates averaged 0.9 per cent over the past 30 years.

The trade-off, however, was $8.9 million in development cost levies waived from the 19 projects. The money is normally used to build parks, childcare facilities and social and non-profit housing.

The city has argued the loss in development cost levies can only be measured on paper and the waiving of such fees was necessary to increase rental stock that otherwise wouldn’t be built.

For now, the city is continuing with a graduated form of the STIR program called Rental 100. As of last week, 539 more rental units had been approved or were under construction under the new version of the program.

Still, Latif has made it clear that city council cannot control the cost of rents and noted they “can be inflated during the period of construction by the allowable rent increases set out annually by the provincial residential tenancy office.”

Which is not good news for renters.

But the position of the Vision Vancouver camp is that something has to be done to build affordable housing even if the programs aren’t, as Coun. Geoff Meggs put it, “bullet proof.”

“We have to play with the cards we were dealt and some of our critics wish we were in some kind of magical universe where we could print money and force all kinds of things to be done,” said Meggs, who dismissed suggestions that developers were collecting windfall profits under the programs. “I maintain that providing thousands of rental units is a real contribution to housing affordability for families that have no possibility of buying a condominium.”

A COSTLY CITY
Meggs, who is seeking re-election Nov. 15, made those comments in an interview with the Courier prior to a public forum on housing affordability held earlier this year at the WISE Hall on Adanac Street.

His assessment of STIR was also an acceptance that home ownership is but a distant dream for many in Vancouver, where the average price of a detached home continues to surge above $1 million.

Statistics show more than 50 per cent of households in Vancouver are renters. And with Vancouver continuing to rank at or near the top of least affordable city in the world, the percentage of renters is expected to increase. So are the number of people seeking housing outside Vancouver.

“It’s becoming increasingly impossible for many, many people – perhaps, even the majority – to contemplate living in Vancouver, never mind owning a place to live,” Meggs told the crowd of about 150 people at the WISE Hall in May. “It’s something that I’m very worried about because it seems to me that housing is a right and it’s important in a city that’s going to function properly.”

With the city unable to control the economic forces that lead to high housing prices, the sales pitch by Meggs and Latif to keep people in Vancouver is that renting is cheaper than owning a home.

A city staff report provided an example of the cost of purchasing a $390,000 two-bedroom East Side condo. Here’s the math: First take a 10 per cent down payment and couple that with monthly strata fees of $150 and property taxes of $135 for a total of $40,000. Then assume the mortgage is at five per cent. Amortize that over 25 years for a cost of $2,550 a month. The purchaser would require an income of $102,000 per year.

To rent a two-bedroom East Side apartment, a deposit of $2,200 would be required before paying the monthly cost of $1,455. Income required would be $65,000.

What’s not factored into the city’s analysis of renting is the uncertainty of long-term tenancy, problem landlords and rent increases. Also, there’s the cost of a parking spot at a residence, storage fees and, if it applies, other expenses such as childcare that limit what a person or family can pay for rent.

Add it all up, as Greg Clark did this year when completing his taxes, and renting in Vancouver is expensive for a family. He and his wife Christine, a couple in their early 40s, have two young daughters and need to work full time to afford their 850-sq.-foot two-bedroom apartment on Victoria Drive, where they pay $1,750 a month. Greg does home renovation work and Christine is a yoga instructor.

“It’s definitely tough to save money,” said Clark, noting the family’s childcare costs were $16,000 last year and he paid $1,200 for a parking spot. “A lot of people are in situations where if they stop what they’re doing, they won’t be able to stay in the city. There’s no wiggle room. You really just can’t take some time off.”

That said, Clark is happy with his apartment, which is close to Trout Lake and its community centre. Commercial Drive, a handy transit hub and an elementary school are also nearby.

The building is another STIR project and built by Cressey Development Group. Known as The Porter, the building is one of two on the property along Victoria Drive, near the Croatian Cultural Centre. The entire complex has 200 units and rents range from $885 a month for a 480-sq.-foot studio to $2,100 a month for a 1,030-sq.-foot three bedroom.

Clark believes more rental buildings of this type should be in Vancouver and he favours alternative housing options such as duplexes, townhouses and laneway houses. Such variety, he said, could assist a category of renters – and buyers – who can’t afford a million-dollar fixer-upper.

He doesn’t know if he’ll ever afford a house in Vancouver and he and his wife have talked about moving to a smaller town “to get more quality living out of your day-to-day and not spending your day-to-day figuring out how to pay for it all.”

For now, the family is staying put.

Ironically, he noted, he and his wife lived in Brooklyn, New York for a few years and left their $1,800 a month apartment to try to get ahead in Vancouver, where they both attended university.

Then one day, Clark heard on the radio that Vancouver had surpassed New York as the least affordable city in which to live.

“It’s, unfortunately, a reality that we’re living with,” he said.

UNITS SNAPPED UP
But as it did with Clark and his family, the lure of Vancouver’s beauty and its temperate climate continues to attract people from all income levels.

So when Cressey Development advertised The Porter units for rent last spring, the developer wasn’t surprised that both buildings filled up within two months of opening the doors.

Why the interest?

“It’s the shortage of housing options,” said Hani Lammam, the vice-president of development for Cressey.”There’s so little housing options that anything that comes on the market is quickly swallowed up.”

Up until the STIR program was created, Lammam said, the development community lost interest in building market rental housing after the federal government cancelled tax benefits in the 1980s that made projects feasible.

The majority of the city’s purpose-built rental stock was constructed in the 1960s and 1970s and is badly in need of renewal.

Some landlords have renovated their buildings but that has meant evicting tenants. Many tenants can’t afford to move back in because the rents get jacked up to pay for renovations.

With Cressey’s project on Victoria Drive, the city agreed to waive $640,000 in development cost levies, allow for more density, decrease the number of parking spots and fast-track its application.

“We do this because we believe in the long-term viability of rental housing and it’s a good business decision,” said Lammam, noting it’s a strategy that will give the company steady cash flow once the mortgage is paid.

Cressey is building another market rental building only a few blocks from Bosa’s tower at 1142 Granville St. It is also being done under city’s STIR/Rental 100 program.

Located on the newly created Continental Street, near the on-ramp to the Granville Bridge from Pacific Street, the building will feature 89 studio and one-bedroom apartments.

The city waived $640,862 in development cost levies. Lammam said the projected rents are expected to be in the $2 per square foot range. Asked if the rents will increase once the building opens in the middle of next year, Lammam replied, “We can only have projected rents two years in advance, so we’re guessing.”

Tom Durning of the non-profit Tenant Resource and Advisory Centre, which provides renters in B.C. with legal education and information about residential tenancy law, said rent increases are never good for people.

But Durning, who lives in the West End, is keenly aware of the need for more rental housing in a city that continues to attract people from across the country and all parts of the world.

Climate refugees is what he calls them.

“I don’t know if the city is being misleading with the rents they put out there with these [STIR and Rental 100] projects, but I was taught years ago that any housing is good housing,” Durning said. “And I have to think that if the units were built without the incentives, the rents would probably be a lot higher.”

FAVOURING DEVELOPERS?
Both the STIR and Rental 100 programs haven’t been without their critics, with the loudest voice coming from the West End Neighbours society.

The neighbourhood group, which includes director and failed 2011 mayoral candidate Randy Helten, mounted a legal challenge arguing the city is giving away too much to developers.

In fact, the city allowed five of the 19 projects to include the construction of market condos for sale, which meant the developer could both make a profit and collect rents – on top of the incentives granted by council.

“The rezonings that council is approving through these programs are effectively licences to print money,” Helten said. “In return, communities are losing a lot of their character in place of density and height. In fact, what is being produced are very small rental units that the very top of the market will bear.”

In May, B.C. Supreme Court Justice Susan Griffin dismissed the petition, saying she found the society’s position “falls into the category of criticism of council’s political choices.”

Added Griffin: “That is not a matter on which the court ought to weigh in. Instead, the forum for these arguments is the ballot box.”

The West End group has since appealed the ruling.

Before the matter went to court, the city’s chief housing officer Mukhtar Latif responded to the petition in a report on the STIR and Rental 100 programs.

Council accepted a major amendment which now states developers interested in Rental 100 will have to build 100 per cent rental housing instead of mixing in rental units with private units.

In doing so, council said fees will only be waived where the agreed upon average rents for initial occupancy do not exceed the following specified rents by more than 10 per cent:

• $1,443 per month for a studio
• $1,517 per month for a one-bedroom
• $2,061 for a two-bedroom
• $2,743 for a three-bedroom

“[The change] is supported by the key learning from the review of the STIR program, that city incentives are more effective and provide better value when applied to 100 per cent rental projects versus mixed residential projects,” Latif wrote.

And here’s another reason city staff wanted to go this way: “These amendments to the [development cost levy] bylaws would also address a legal petition filed in the B.C. Supreme Court by the West End Neighbours, which challenges the city’s current process for determining eligibility for [waiving development cost levies] for affordable rental housing.”

The West End group’s petition challenged the city manager’s authority to select which developers are eligible for development cost levies to be waived. The petition also argued the present bylaws don’t adequately define the definition of “affordable” and “for profit.”

“The subjective nature of what is ‘for-profit’ and the relative nature of ‘affordability’ creates considerable room for disagreement, but I also find that it creates considerable room for council to exercise its judgment,” Griffin said. “I conclude that this is what it has done.”

FUTURE RENTING
When voters head to the polls in November, those paying attention to Vision’s campaign will have heard the candidates boast about the increase in rental units in Vancouver.

“We’re seeing new housing built that meets the needs of people who live and work in our city,” the mayor said in August in announcing that more than 50 per cent of new rental and social housing approved in the past decade was done in the past two years. “Our housing plan and programs are working and the shovels in the ground prove it.”

Voters will have also heard Vision’s talk about the need for more co-op housing and its recent move to create a housing authority, which aims to hold and use city land for so-called affordable housing.

Then there’s the surge in laneway houses and more secondary suites that are creating vacancies for those set on living in the city.

But those present at the public forum on housing affordability at the WISE Hall in May will have also heard Meggs say the city is still very much in a rental housing crisis.

“I am personally very proud of the work we have done in this area but I’m very, very painfully aware that it’s inadequate,” he said.

At that same meeting, the audience called for rent controls, placing higher taxes on the rich to pay for housing and curtailing the immigration of wealthy investors who think nothing of tearing down a million-dollar home to build a palace.

One audience member likened Vancouver to having turned into one big luxury train for the few who can afford to ride it, with the rest of the population making feeble attempts to sneak on.

In the meantime, rental towers continue to go up, so do rents and the city’s target is to have 5,000 market rental units built by 2021.

So to the question: Will they be affordable?

The answer, it seems, depends on what a person can afford or is willing to pay to stay in Vancouver.

© Vancouver Courier

Other

Growth in Canadian economy was essentially flat in July following six consecutive monthly increases. Contributions to growth at the industry level were made from manufacturing, government, and construction while notable declines were recorded in mining and oil and gas extraction.

Based on the first month of GDP data for the third quarter, we would estimate that the Canadian economy grew a modest 2 to 2.5 per cent from July to September. That would mark a significant slowdown from the second quarter mark of 3.2 per cent and provides cover for the Bank of Canada to keep rates unchanged for quite some time.

BCREA Economics Now

Kelly Putter
Other

When you hear the name Sotheby’s don’t be embarrassed if your mind automatically conjures up images of caviar, luxury automobiles and champagne flutes of free-flowing Dom Perignon.

But that would only represent a small and clichéd side of the Sotheby’s story in Canada.  Lifestyles of the rich and famous it is not. Hard work, ingenuity, a high set of standards and a bit of Irish luck is more like it. That’s what the company will continue to ride as it enters its second decade.

Acquired recently by Canadian asset management company Dundee Corporation, Sotheby’s International Realty Canada has heavy-duty expansion plans that include 10 new offices in the next three years and potentially as many as 50 new offices in the next five to seven years.

How the company rolls out that kind of growth will likely be how it’s always performed – by adhering to exacting rules around branding, marketing and a code of conduct for its 400 licensed agents. To hear Sotheby’s president and CEO Ross McCredie put it, the company would never hasten the process for the sake of numbers. Having uncompromising standards, after all, can be a time-consuming undertaking.

“The one thing I’ve learned in this business is not to rush it,” says McCredie, 47. “If we find the right people then we’ll go there but the whole concept of building an office overnight is a big mistake and it doesn’t work. A lot of offices will have 1,600 agents working in one office and that doesn’t fit with our model and our brand.”

McCredie tells the story of a Quebec broker who joined Sotheby’s after making the tough decision to leave her previous firm. The reason? The firm had hired a broker who the week before had been her mechanic.

“I’m not saying you can’t do that but the point was she saw the company kept adding more people and it meant nothing to them as a brokerage owner. The question is, is this truly a profession they will be successful in? When someone joins Sotheby’s we make sure we get the right people and we make sure they understand how difficult this business is. Because I would say two-thirds of the people who go into real estate won’t make it and most of those brands and  brokerages out there know that but they don’t care. We care.”

Currently with 30 offices in B.C., Alberta, Quebec and Ontario, the luxury housing brokerage has clearly blossomed from its start in 2004 when it had one office and 10 sales reps. The Sotheby’s business model, which puts quality ahead of quantity and views mediocrity as the enemy, is what wooed Dundee to the company, says McCredie.

“Prior to working at Sotheby’s I worked at Intrawest as a developer and from my view everything was so fragmented and the industry was all over the map because there was everything from great shops to mediocre shops and mediocre agents,” says McCredie. “And I thought, here is a huge opportunity to pick a powerful brand like Sotheby’s and build a great institution or sales centre for our outstanding clients.”

A self-described control freak, McCredie convinced Sotheby’s of London to provide him with the first master franchise ever awarded outside the U.K. Today, Sotheby’s Canada is the largest international master franchise of all Sotheby’s offices operating in more than 60 countries. The Canadian franchise is in the top five internationally. It has operations in the country’s key metropolitan and resort real estate markets, seven of which are in Ontario.  In 2012, the company was ranked 22nd on Profit Magazine’s annual list of fastest-growing Canadian companies.

But Sotheby’s isn’t resting on its laurels no matter how gilded. Discount brokerages and new unproven entrants in the real estate market will continue to challenge the more traditional players, says McCredie, but he believes there will always be a market for clients wanting a brokerage that offers full service.

“We’re selling service and you get the same level of service regardless of whether you’re selling a $400,000 condo or a $4-million Rosedale mansion,” he says. “And the same code of conduct. That’s why we don’t allow our agents to put their pictures on the backs of buses.  We’re very controlling on how people market themselves, how they conduct themselves.”

Last year, Sotheby’s was forced to fire a successful sales rep whose sales tactics left a little to be desired. “We look at how business is conducted and how it reflects on the brand and if any individual behaves in a certain way that we don’t deem appropriate… If we don’t have the right people, we get them.”

While the Sotheby’s name invokes thoughts of high-end, multi-million-dollar properties, the company’s challenge, says McCredie, is letting people know that it also handles real estate that falls into lower dollar categories.  Still, the Sotheby’s sweet spot is the top 40 per cent of the real estate market.

Part of the company’s marketing machine is exclusive software that helps agents manage the entire real estate portfolio for clients plus its capacity to market real estate nationally and internationally. It’s obvious that McCredie takes pride in the company’s ability to inform clients on the good, the bad and the ugly of the Canadian real estate market.

“The whole point to everything we do is, if you were my sister and you were thinking of buying a condo in downtown Toronto and you were seeking advice, I’d give you good solid advice backed with good data points, whether it’s positive or negative.”

The high-end real estate market – homes valued over $1-million – is booming in Vancouver, Toronto, Calgary and Montreal. That has other sales reps taking notice and rebranding themselves to target the higher-end market.

“They’re reacting very much to our marketing and in many cases they copy a lot of our marketing and our language around what we do but at the end of the day they don’t do what we do in terms of marketing. I  believe there will always be a full-service real estate brokerage model that high-net-worth individuals want and we think we own that space – that is my own quite arrogant view. We think we’re the only ones in Canada.”

Copyright © REM 2014

Ever wonder why you’re not getting more referrals? Mike Blaney of Limelight Marketing explains why – and what you can do about it

Mike Blaney
Other

Do you ever wonder why you are not getting referrals from your sphere of influence; the friends, family, clients, business associates and alliances who know you best?

It usually boils down to two or three problems, all of which we are guilty of at one time or another.

1. You are not asking them for referrals.

2. They don’t know you need referrals.

3. You don’t follow up and acknowledge referrals.

Why don’t people automatically refer business to you?

For the same reason you are not referring business to them. People are busy, they forget about you in their day-to-day life, they are not sure what exactly you do or that you even want referrals.

Our basic human nature is to help others, but we also don’t want to impose ourselves on others. In the absence of a clear message from you that you are building your business on referrals, it is implied that you are doing fine without them.

I think there are four main elements involved in generating referrals:

1. Networking – business and social;

2. Marketing – all of the visible, written aspects of spreading your brand;

3. Communication – verbal activities related to contacting your sphere of influence; and

4. Responsiveness – the follow-up of the referral and the recognition of the person referring.

You need to be good at all four of these elements to build a successful referral business.

Networking

Networking is all of the activities, both social and business that bring you into contact with potential customers or clients. These activities should turn total strangers into warm prospects and potential referral business with a few simple follow-up steps. When you make a connection with someone and earn the right to contact them again, you need to concentrate on building trust and communicating what you do effectively. You might send them a handwritten thank-you note, an email or letter with your business card acknowledging your new relationship and your willingness to help each other.

Marketing

Your marketing efforts – which include all of your printed material, website, brochures, email stationery, etc – are the tools you use to communicate your brand and build awareness of your business. Pay careful attention to the message you are sending. When you meet people, are you making excuses for your business cards? Are you adding additional information on the back that you should have had printed on there in the first place? If you have a picture on your business card, does it look like you? When you follow up with a referral does all of your marketing material communicate the same, professional image?

Communication

Communicating with your sphere of influence is vital to your success. Before the advent of email we used to phone or write letters to our sphere of influence. Now it is too easy to fire off a quick email or send a newsletter electronically and think we are actually reinforcing our relationships. Don’t fall into the trap that any communication is good communication. Pick up the phone. Talk to people. Tell them what you do. Ask how they are doing. Ask if you can help their business and ask them for referrals.

You need to develop follow-up systems tailored to the strength of the relationship you have with your sphere of influence. You can communicate too much. For example, your friends are part of your sphere of influence, but you might communicate four times a year through a birthday card, Christmas card, invitation to an event and a meeting at a social gathering. This might be all they need to remember that you would appreciate their referrals.

For clients who have recently worked with you, you should have a follow-up system, which might consist of: an immediate thank-you card; a personal letter within six weeks; a telephone call at the three-month mark; and then a monthly newsletter. The actual system you develop is going to be one that you can sustain and effectively communicates your message.

Responsiveness

Your responsiveness to both the referral and the person referring is also critical to the long-term success of a referral relationship. Bottom line is that, when we refer someone, we want to feel appreciated by both the person we are referring and the person who we referred them to. If you do not respond in a timely, professional manner, it is a reflection on our judgment and it doesn’t take too many complaints from people we are referring to cut off referrals.

Conversely, if we do not receive recognition for a referral, it does not take long for us to feel unappreciated and fall back into forgetting about your business.

There is no foolproof system for building referral business, but I do know this about most businesses:

–You need to be actively networking in business and social environments to grow your sphere of influence.

–You need to use the phone and written communication more than you use email.

–You need to communicate effectively what you do and what types of referrals you are looking for.

–You need to respond promptly to referrals.

–You need to thank people for referrals.

–You need to refer to people in your sphere of influence.

© 2014 Real Estate Weekly

Tara Perkins
Other

Hilliard MacBeth is staking his reputation on the controversial idea that there will soon be a housing crash in Canada.

Mr. MacBeth, an Edmonton-based portfolio manager with Richardson GMP Ltd., has written a book called When the Bubble Bursts: surviving the Canadian real estate crash.

The book is coming out in a few months and it is certain to cause a stir.

So who is Mr. MacBeth? He obtained a BA in economics at the University of Alberta in 1971; he’s had a lengthy career as a stockbroker and financial adviser, and at the moment he says that he and three of his colleagues manage about $209-million for roughly 175 households; he’s a former chairman of the Alberta division of the Investment Dealers Association of Canada; and in 1999 he wrote a book called Investment Traps and How to Avoid Them that, among other things, pointed to problems with mutual funds and warned generally against buying high and selling low.

He dropped by The Globeand Mail’s offices to share his thoughts (this interview has been edited and condensed).

How did the book come about?

I wrote a book in 1999 called Investment Traps and How to Avoid Them and I talked about the buy-high trap, which at the time was the technology or dot-com stocks. I’m getting the same sense today about the real estate market. Bubbles have characteristics that are very common – a period of rapidly rising prices, people telling each other stories as to why it makes sense, people feel regret for missing out, and the media gets involved in writing stories about the bubble. We tick all four boxes in this bubble. Some of my clients have been with me for 35 or 36 years, and I started noticing them getting more and more obsessed with real estate either on their own behalf or as the bank of mom and dad on behalf of their millennial offspring.

How bad do you see it getting?

There’s a money manager, Jeremy Grantham, he’s head of GMO in Boston, I met him about 10 years ago. He had his team of research analysts search out all the bubbles they could find, historic bubbles, and every single one of them corrected all the way back to the trend line that was in place prior to the bubble. So the housing bubbles in Canada, the U.S., Ireland, Portugal, Spain, Australia started in about 1999 or 2000. To get back we’d have to have a 50-per-cent drop in prices.

We talk about the Canadian market, but is it truly a national problem?

It is. I’ve got clients in Vancouver, Toronto, Calgary, Edmonton. In Toronto, generally they talk about foreign buyers buying condos 20 at a time in high-rise buildings downtown, which I’m sure is true. In Vancouver, they talk about people trying to get their money out of China. In Edmonton, they talk about the oil sands and development there. And in Calgary, well, it’s Calgary. So everyone’s got their own story.

You’re worried about debt levels?

Debt is a very serious problem. When you look back at the dot-com bubble and the macroeconomic picture, it was a very minor thing because most people didn’t take a huge chunk of their life savings and put it into dot-com. They bought Nortel Networks, and there are always exceptions but the average person did not take today’s equivalent of $200,000 and put it in Nortel. And they didn’t borrow any money to do it – if they did put that much in, it was cash they had saved up. I lived through the early 80s when there was a housing bubble and debt bubble (in Alberta), but it was nothing like this. The difference then was that interest rates were 14 per cent and you could only qualify for a fairly small amount of money on a loan.

What’s your advice to consumers?

It’s kind of radical, yet in a way not radical at all. You have to talk different demographics in Canada. There’s a demographic which isn’t the millenials and isn’t the baby boomers, they’re people in between 30 and 50 years old, and they have the highest debt level. So the advice is that people who have a lot of debt should sell and rent. The number one advice would be to sell the condo, because condos are a terrible investment, they’re not even an investment at all. The houses are going to correct obviously, perhaps even more than condos, but there’s always a market for single-family homes – at some price you can always find a buyer for any single-family home in Toronto or Edmonton or Calgary because there’s always going to be a shortage of those. You might not like the price, but you could sell. But condos, literally, I could see a situation where you just can’t find a buyer.

Do you own a house?

We do. The difference is is it an investment or a lifestyle choice. I’m anticipating that I’m going to consume some of the household investment that we have, my wife and I, for the rest of our lives, and we’re okay with that. But that’s not what I hear from people who are 20, 30, 40 years old, they see it as an investment. Now, there is one aspect of housing that actually does rise in value over time at the rate of inflation, and that’s the land. Which you don’t get with a condo.

When do you think the correction will happen?

The housing market pretty well dries up starting in about October, November and then the new wave starts in February or March. I would think that, depending on the price of oil, depending on world economies and all that, we’ll see next spring, next summer.

© Copyright 2014 The Globe and Mail Inc.

Other

Canadian retail sales declined 0.1 per cent in July following six consecutive monthly increases. Sales were lower in 5 of 11 retail sub-sectors. In inflation-adjusted terms, retail sales were flat.

In BC, retail sales fell 0.4 per cent on a monthly basis, but were 6.4 per cent higher compared to one year ago. Through the first seven months of the year, retail sales in BC are up a robust 5.7 per cent. At that pace, retail sales on on pace for their fastest growth since 2007.

For more information, please contact:

Cameron Muir	Brendon Ogmundson
Chief Economist	Economist
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The many overseas buyers and sellers of BC real estate may be hitting the headlines – but what if you’re one of those many?

Richard Bell B.A. LL.B.
Other

Welcome to British Columbia, where non-residents can (and frequently do) buy property and, unlike some countries, pay no extra taxes or fees because of non-residency. It’s one of the many factors that make BC an attractive place for overseas buyers to put their money into real estate – a phenomenon that is hitting the local headlines on a regular basis.

However, if you are one of those non-resident buyers or sellers, there are some important considerations to take into account – and it is not quite as simple as the headlines would have us believe.

Buying                                                  

Mortgages: Mortgage qualifications in Canada are different for non-resident buyers than for resident buyers. Non-residents should consult with a lender or mortgage broker to understand the qualifications. They will need to open a Canadian bank account and will need to do so in person with identification acceptable to the lender.

Documentation: Non-resident buyers do not need to be present in BC to execute closing documents. A number of lawyer and notary firms use technology to streamline the closing process for non-resident buyers. Documents can be forwarded electronically and executed in front of a lawyer or notary in most foreign jurisdictions. It is important to make arrangements for the transfer of monies well in advance of closing.

Taxation: Non-resident buyers should also consult with a Canadian tax professional to discuss tax treatment both during the period of property ownership and on disposition. A non-resident owner of rental property will be subject to a 25 per cent withholding of taxes on the gross rental income. Administrative rules require that the owner or agent remit these amounts to the Canada Revenue Agency. A non-resident owner may file a special form to have the withholding taxes reduced, which essentially treats the non-resident as a resident with respect to the rental income.

Selling

Clearance: When a non-resident sells property, they need to obtain a clearance certificate from Canada Revenue Agency. This is necessary to ensure that the non-resident pays any applicable tax arising from the sale of the property. When a non-resident sells property the purchasers must withhold a portion of the sale proceeds until a non-resident seller has provided a clearance certificate. The holdback is normally 25 per cent but could be higher depending on the use of the property.

A non-resident seller should retain the services of a tax professional to assist in obtaining a clearance certificate. This should be done as soon as possible as the process can take eight to 12 weeks. Under circumstances where the holdback would not leave sufficient funds to payout an existing mortgage at time of closing of the sale, a seller can claim hardship to expedite the issuance of a clearance certificate. A clearance certificate will only be issued once the tax is paid. Canada Revenue Agency will review the particular sale transaction to determine whether or not capital gains tax is payable but will also require payment of any other taxes outstanding or payable by the seller.

Claiming expenses: The seller can claim certain expenses in determining the adjusted cost base, including Property Transfer Tax, GST, legal fees on the original purchase and any capital improvements made, including strata assessments. The commission and tax and legal fees on the sale are not deductible for purposes of calculating tax owing at the time of the sale. The seller can claim these expenses by filing a Canadian tax return subsequent to the sale.

© 2014 Real Estate Weekly

Millennials seeking instant gratification in their homes need to be careful not to overextend their finances. Barry Magee of Sutton West Coast Realty offers advice

Barry Magee
Other

At one stage in most people’s lives there comes a time when you become tired of paying rent. Maybe there are pet restrictions that you no longer want to deal with, noisy neighbours or a landlord that never fixes things. Whatever the small reasons are, the primary reason always comes down to this – you want your own space.

Millennials (otherwise known as Generation Y) are definitely the internet generation and always seem to be in a hurry. How many times have you been at a dinner party in recent years where a topic is raised that no one is sure of the answer to, so the solution is “let’s Google it”? The internet is the most common way first-time buyers do their research, and this trend is only increasing.

Which is all fine, but being so used to instant gratification can provide some challenges, especially when you are dealing with something as important and complicated as the real estate process.

It’s quite common for a single person to pay $1500 a month for rent in Vancouver, and with that budget they can see that owning isn’t too far off. If you are in the financial position to do so, it can be rather tempting to jump head first into the local condo market. But it’s always important to take your time and analyze the situation. Rushing into any investment is never smart and the real estate market is certainly no exception.

The key challenge for Millennials is always saving for a down payment. After all, how many young people know the definition of the word “save” these days? With credit so readily available and encouraged, savings is pretty much the last thing on Generation Y’s mind. Not that I want to generalize and paint everyone with the same brush, but this is a reality in this day and age. If the bank of mommy and daddy isn’t available to come to the rescue, condo ownership can be out of the question. Saving is difficult in our society of consumption, and most younger people who are buying for the first time aren’t in their prime earning years, which also presents a challenge.

When it comes to the “I want my own space” part of the equation, many first-time buyers have a specific list of wants. When I take a new client condo shopping I always suggest they make two lists, one being a “must have” list, the other being a “nice to have” list. A must-have list could be comprised of number of bedrooms, neighbourhood, price range, and type of building. A nice to have list could feature a gas stove, a balcony, hardwood flooring as well as any other attractive features.

In my experience, most first-timers want everything on their list, don’t want to save for a down payment and want to extend their credit as far as possible by choosing as many upscale features as a home can have. While the desire for nice things is human nature and is only natural, overextending yourself financially is never a good option, and can lead to difficulties down the road.

Being excited about the possibility of owning a property is a great thing, and something to enjoy – but being realistic through the process is always advisable. The goal is to ensure freedom, both in your everyday life as well as the eventual financial freedom owning real estate brings. Live it, enjoy it, get excited, but try to be patient as well. You will thank yourself for it.

© 2014 Real Estate Weekly

BC invests $609.6 billion in new housing construction in July 2014, far outstripping national average, reports Statistics Canada

Joannah Connolly
Other

BC poured $609.6 billion into new housing construction in July 2014, a 10.6 per cent increase year over year, according to Statistics Canada data released September 23.

BC’s residential construction investment yet again far outstripped the national average year-over-year rise of 0.7 per cent to $4.076 billion, and was second only to Alberta in terms of its annual increase.

Broken down by property type, compared with July 2013, BC invested 25.9 per cent more in row homes (townhomes), 17 per cent more in single-family homes and 2.3 per cent more in condos. However, investment in duplex housing fell 2.7 per cent year over year.

Across the country, townhome investment increased the most, at 19 per cent higher than last July, followed by duplexes at 7.5 per cent.

© 2014 Real Estate Weekly

David Reevely
Other

Ontario builders will be allowed to construct six-storey buildings out of wood starting in 2015, the province announced Tuesday.

The limit for wood-framed buildings has been four storeys. Politicians from Northern Ontario have pushed for the change for years, hoping that it’ll spur demand for northern lumber.

Advocates of wood construction say that rules requiring steel or concrete skeletons for taller buildings are obsolete in an era of “engineered” wood products, now that layers of wood can be laminated together to make beams and joists whose properties are as predictable as any steel beam.

“It is gratifying to see Ontario listening to the needs of Northern communities with today’s announcement,” said Liberal Natural Resources Minister Bill Mauro, who represents Thunder Bay-Atikokan. “The goal of increasing the use of wood in Ontario’s construction industry has been achieved.”

Critics say cutting down trees isn’t environmentally friendly and masonry buildings last a lot longer.

Also, obviously, wood burns in a way that concrete and steel don’t. Modern sprinklers and fire-resistant walls minimize the risks from fires in completed buildings, although they are more vulnerable during construction, several studies have found. British Columbia has allowed six-storey wood structures since 2009 and they haven’t proven to be more dangerous than other kinds of buildings.

Stairways in such buildings will have to be made of fireproof materials, the government said in a written announcement, and roofs will have to be fire-resistant.

A tall wood building under construction in Kingston burned last year, trapping a crane operator at the tip of his machine before he could be plucked off by a helicopter. The cause of the fire has never been officially determined, though last August the Ministry of Labour laid almost two dozen charges in the case. They included having inadequately inspected fire extinguishers on the job site.

(That building followed the old rules but took advantage of quirks in the regulations and had more levels.)

Besides creating demand for Ontario lumber, wooden buildings are supposed to fill a tricky gap in urban construction. Lots of people seem to be content to see buildings of about six storeys added to downtown neighbourhoods where cities like Ottawa and Toronto want more people to live, but those buildings are rarely cost-effective for developers if they have to be made out of relatively expensive concrete and steel.

© 2014 Postmedia Network Inc