Density bonuses provide unintended consequences, says Elizabeth Murphy

Elizabeth Murphy
The Vancouver Sun

The City of Vancouver continues its relentless crisis capitalism to address the ongoing housing affordability problems that are, in part, its own creation.

The recent city proposals are to use a density bonus scheme to create more “affordable” rental housing supply. This looks remarkably like a repackaging of the failed Short Term Incentives for Rentals (STIR) program cancelled in 2012 and the subsequent Rental 100 program, but now with more density bonuses.

At least the city is now acknowledging that supply alone is not the answer. 2016 was a record year for new unit starts, about double the 10-year average. Yet affordability continues to worsen as most of the supply is expensive and disconnected from local incomes. The city’s proposals attempt to address this, but through potentially problematic means.

At a news conference on July 23, the city outlined the incentive options for developers, including extra density, parking relaxations and development cost levy (DCL) waivers. The Oakridge Municipal Town Centre pilot program will include a variety of housing around the Oakridge Centre mall. Midand highrise housing in the area would have to be either 100 per cent rental, with 20 per cent of those units meeting below-market affordability targets, or a blend of 30 per cent social housing units and 70 per cent strata or condo units. Following the Oakridge Town Centre pilot, the options would be considered for expansion across the city.

The affordability targets are based on no more than 30 per cent of household income spent on housing for incomes of $30,000 to $80,000 per year. This is essentially the same affordability targets the city used under their controversial 2009 rental program STIR.

Former director of planning Brent Toderian outlined three main problems with STIR: It did not create much rental; huge height and density increases were necessary to secure very few rental units or amenity contributions; and STIR unit rents were high.

The city found that mixed condo/rental STIR projects were the most problematic since they were generally larger in scale and inflated land values, but any community amenity charges (CACs) earned went back into the project to cover the rental. The subsidies were an average of $70,000 per unit, whereas the 100 per cent rental STIR projects were only $5,000 per unit. Loss of CACs for rental subsidies will need to be covered by the capital plan.

STIR was replaced in 2012 with the Rental 100 program. All projects are now 100 per cent rental, again aimed at the same income levels of about $30,000 to $80,000. It also limits where the projects can be located (on arterials and close to shopping areas) and to a maximum six storeys so they are wood frame with lower construction costs.

However, these units are mostly small in size, still have high rents, and have not provided affordability. The program also targets many locations that have existing older, more affordable rentals, and the demolitions result in a net loss of affordability. The projects are generally out of scale with the surrounding area.

The new program would require more height and density bonuses to achieve the secured lower rents. This will reintroduce many of the problems the original STIR program was cancelled for, especially for mixed social housing/condo projects.

Size matters for a number of reasons, not only because the buildings will not provide a proper fit for the neighbourhood. The increased height and density inflates the land values around the site as it sets precedents that increase development pressures on older, more affordable surrounding housing stock.

For the city to warn developers not to pay too much for land won’t work, as we have seen in the Cambie corridor. Assemblies and speculation have continued since the Canada Line was built, in spite of city warnings about development fees that would take back most of the land lift. The market just prices in the inflation.

The Cambie corridor is already overstressing infrastructure and much of what has been planned is yet to be built out, such as the Oakridge mall towers and the RCMP site. The Canada Line is at peak hour capacity and expansion is difficult and costly with no funding allocated. In some instances, it is questionable if expansion of some of the stations are technically possible.

Any DCLs or CACs generated will go toward the rental subsidies, so amenities such as parks, recreation, daycare, schools and public art will need to be fully funded by capital planning. Generally, amenities are not being adequately implemented in areas that are up-zoned and waiving development fees will only add to that problem.

The city has already admitted there is enough existing zoned capacity to exceed future growth to 2041. Vancouver is approving new unit starts at a record pace. In fact, massive rezoning has contributed to land cost inflation. Adding more programs that increase development pressures may exacerbate land inflation.

The lesson from STIR was that smaller 100-per-cent rental projects yielded more rentals with fewer subsidies and fewer negative impacts on the surrounding areas. Adding more density bonuses to get a few below-market rents may just be counterproductive.

The city alone cannot provide affordable housing. Rental subsidies are best done through provincial and federal programs. The city’s tools are limited and density bonusing has other unintended consequences that can make the problem worse.

There are many ways to add more rentals. The city should be prioritizing options that individuals can do such as conversions for more secondary suites as an incentive for character house retention that could provide thousands of units across the city.

Huge density bonuses that provide relatively few new rentals have unintended consequences. The lessons from STIR should be learned from and not repeated.

© 2017 Postmedia Network Inc.

Steve Randall
Canadian Real Estate Wealth

There were 2,960 home sales in the Greater Vancouver area in July, a drop of 24% from June and 8.2% below July 2016, led by an 11.9% decline in detached home sales.

However, sales were 0.7% above the month’s 10-year average, the Greater Vancouver Real Estate Board said.

“Housing demand is inconsistent across the region right now. Pockets of the market are still receiving multiple offers and others are not. It depends on price, property type, and location,” Jill Oudil, REBGV president said. “For example, it’s taking twice as long, on average, for a detached home to sell compared to both townhomes and condominiums.”

Inventory in Metro Vancouver was 9,194, up 10.1% from a year earlier and 8% above the level of June.

Benchmark prices were $1,612,400 (up 1.9% year-over-year) for detached homes; $616,600 (up 18.5%) for apartments; and $763,700 (up 11.9%).

Copyright © 2017 Key Media Pty Ltd

Steve Randall
Canadian Real Estate Wealth

For the second consecutive quarter, new condo apartment sales in the Greater Toronto Area have reached a new high.

Urbanation reports that 12,138 units were sold in the second quarter of 2017, a rise of 62% and the highest volume on record for the second quarter. The 12-month sales of 35,954 is 36% higher than the previous 12-month peak of 26,421 set in the first quarter of 2012.

“While the current pace of new condo sales shows a remarkable level of confidence in the GTA housing market, activity has reached an unsustainable level for the near-term. Market fundamentals, however, still appear supportive of prices” said Shaun Hildebrand, Urbanation’s Senior Vice President.

Despite a record breaking 11,849 of new units in Q2 2017, demand continued to outstrip supply leading to 80% pre-sold by the end of June. The inventory level was at a 15-year low of 6,794 units, 2.3 months of supply.

The average price for all sold units in active development was $647 psf, growing 10% year-over-year and returning to double-digit growth for the first time since Q1-2012.

Copyright © 2017 Key Media Pty Ltd

At Jasmine, the spaces are inviting, inside and out

Mary Frances Hill
The Province

Jasmine at the Gardens

What: 23 townhomes, the sixth collection of homes in the Gardens community 

Where: 10880 No. 5 Road, Richmond

Developer and builder: Townline

Residence sizes and prices: Two and three-bedroom homes, from 1,218 to 1,627 square feet, from the low $900,000s

Sales centre address: 140 – 10880 No.5 Road, Richmond

Sales centre hours: noon — 5 p.m., Sat — Thurs

At Jasmine at the Gardens, i3Design principal Lisa Perry and developer Townline have designed with details intended to meet homeowners’ need for balance.

Interiors demonstrate that Jasmine is a pleasant haven offering a respite from workaday life without cutting residents off from urban amenities, a space that provides access to the outdoors without sacrificing privacy. 

The designer has also crafted a space that appeals to those priorities with smaller touches and large features alike, such as a well-placed window and a rooftop patio.

A rendering of a home at Townline’s townhome community in Richmond shows a long, narrow window high above the living room seating area. It’s an uncommon spot for a window, but it makes perfect sense; it’s high enough that it brings in plenty of light, though the light doesn’t glare into a TV screen, as it would if it were placed lower on the wall. It offers both natural light and privacy, Perry explains.
“I like that it allows the homeowner to always see the sky, or the tops of trees from their living space rather than look at the neighbours’ or a house next door. It’s such a nice touch in a higher-density community,” says Perry, who worked on Townline’s earlier projects on the 10-acre site, including Azalea, Magnolia, Camellia, Calla and Dahlia. 

At Jasmine, Townline used similar monochromatic colour schemes to those it used at the most recent community, Calla, and added a third scheme: a high contrast look of white gloss cabinets against dark floors, which creates drama in Jasmine’s larger space.
“Since the Jasmine townhomes are bigger than the condos in Calla, we felt it was a great opportunity to use this high-contrast look,” says Perry. 

“The dark floors help to ground the space and create a great background for furnishings. The white cabinets with the marble-look backsplash and stainless steel appliances are chic and fresh – important when the kitchen is part of the living and dining space.”
It came as no surprise to Perry that the rooftop decks offered in some Jasmine at the Gardens townhomes have proven to be popular among buyers. 

She advises that homeowners with these rooftop patios invest in a water-tight storage box for furniture cushions and a pergola or a big umbrella for hot summer days. Otherwise, as far as designating open space for outdoor “rooms”, homeowners can use the same principles as they would indoors.
“You don’t have walls so you have to create ‘rooms’ with the furniture and décor,” Perry says. “You can define a seating area with an outdoor rug or you can divide a big open space with planters to create living and dining zones.“

© 2017 Postmedia Network Inc.

Average price for a home of any kind tops $1 million in Metro

Aleksandra Sagan
The Province

The typical price of a home in Metro Vancouver surpassed $1 million for the first time last July, the Real Estate Board of Greater Vancouver said on the one-year anniversary of British Columbia’s 15 per cent surtax on foreign homebuyers.

The board says the composite benchmark price for all residential properties in the area — including detached homes, townhouses and condominiums — is currently $1,019,400, up 8.7 per cent from July 2016.

The benchmark price for detached properties in Metro Vancouver is about $1.612 million, for attached properties $763,700 and for apartments $616,600.

Jill Oudil, the board’s president, said it wasn’t a surprise to see the benchmark creep over seven figures.

“It’s just an indication of the supply and demand that we’ve seen throughout the last while,” she said, noting in particular high demand and low supply for condominiums and townhomes.

The benchmark price for Metro Vancouver condominiums has jumped 18.5 per cent since last year, according to the board, and for townhomes it increased 11.9 per cent.

While home prices continued to edge up, there were more listings and fewer sales in the area last month.

The board says there were 2,960 residential property sales in the region — down 8.2 per cent from a year ago — and 5,256 properties were newly listed for sale last month. That brought the total number of listed properties above 9,000 for the first time this year.

Oudil said the spike in listings could be due to a typical seasonal slowdown in home purchases as people tend to push house hunting to the side during the summer months.

Still, she added that some pockets of the city continue to experience high demand and multiple offers for properties, while other areas have slowed.

The board released the figures one year after the province’s former Liberal government imposed a 15 per cent foreign buyers’ tax.

Oudil said the board doesn’t track foreign investment but does conduct a poll of its members, which provides some insight.

“We haven’t seen that did make any drastic changes to our market,” Oudil said of the tax.

“We don’t believe that increasing taxes will necessarily change pricing and it certainly doesn’t increase supply.”

The new NDP government has said it’s reviewing whether the tax and other measures were effective.

© 2017 Postmedia Network Inc.

Foreign buyers tax in the spotlight

Cheryl Chan
The Province

When the B.C. Liberal government slapped a 15 per cent tax on home purchases by foreigners in Metro Vancouver last year — the first such tax in Canada — it was meant to cool skyrocketing prices and improve housing affordability for local residents. 

But a year later, the jury is still out on the tax, which is under review by the ministries of finance and housing under the new NDP government. 

The tax has curbed the number of foreigners buying properties in Metro Vancouver. Ministry figures show a significant decline in foreign buyers since the tax took effect on Aug. 2, 2016, from 13 per cent in June 2016 to less than one per cent in August 2016. In recent months, the number has hovered in the three to four per cent range, although it is higher in Richmond and Burnaby. 

But when it comes to the figure that matters — price — the tax seems to have fallen short. 

After a small decline following the introduction of the tax, prices began to rebound in February and soon exceeded pre-tax levels. In July, the benchmark price of a residential property in the region surpassed $1 million, according to the Real Estate Board of Greater Vancouver. 

“We don’t see a great change in the market specifically due to the foreign buyers tax,” said president Jill Oudil, adding July’s data is very similar to the 10-year average. “We have seen a very active market continue, especially where condos and townhouses are concerned.”

Listings are up about 10 per cent while sales are down eight per cent in July compared to the same month last year, but that’s not enough to exert any downward pressure on prices. 

And as demand increases, supply has not kept pace.

“We know that charging taxes does not increase supply, and low supply has been very relevant in what’s going on in our market,” said Oudil. 

But Josh Gordon, assistant professor at Simon Fraser University’s School of Public Policy, says the continued rise in housing prices doesn’t indicate the tax is ineffective, but highlights its inadequacy in tackling a complex problem. 

“Just because prices didn’t come down doesn’t mean it didn’t have an effect,” said Gordon. “Prices could be substantially higher if they didn’t introduce the tax.” 

The foreign buyers tax wasn’t expected to achieve affordability on its own, even among its supporters, including him, said Gordon, who believes it is the influx of foreign money — not foreign buyers — that’s largely responsible for the disconnect between real estate prices and local incomes.

Gordon said the potential of the tax was dimmed in January after the government introduced its first-time homebuyers loan program, a move he says “blatantly undermined the initial impact of the tax.” The loosening of the tax in March to exempt foreigners with work permits didn’t help. 

“In housing markets like Vancouver, a lot rides on expectation and psychology of the market,” he said. “The other moves suggested in quite an obvious way that the government was going to prop up the market. It wasn’t going to allow prices to fall.”

The tax also doesn’t capture significant portions of foreign money pouring into the housing market, said Gordon, such as money brought in by wealthy immigrants or speculative schemes made by a local proxy that’s financed with foreign money.

He said the province needs to close loopholes, enforce regulations, and implement a more comprehensive, long-term strategy, such as the NDP’s proposed two-per-cent speculation tax targeting people who buy property here but do not pay income tax.

Doubling the tax to 30 per cent and applying it to the rest of the province, which is what the B.C. Greens have suggested, is not going to be effective, he said. 

Since the tax was introduced, it has spawned an attempted class-action lawsuit led by a buyer who argues the tax is unconstitutional. The lawsuit is awaiting a certification hearing in November. 

Metro Vancouver’s tax has also been copied by Ontario, which implemented a 15 per cent tax on foreign buyers tax in April as part of a number of measures to cool down an overheated market. 

© 2017 Postmedia Network Inc.

Lachman Balani
Canadian Real Estate Wealth

As a mortgage broker I have been asked very frequently in the last couple of months how I think the rising loonie (Canadian dollar) that has reached 80 cents vis-a-vis the US dollar (USD) will affect the real estate market in Toronto.

Well, the 10 percent rise in the loonie since May technically means that the economy is robust and that some of that positivity should rub off on real estate and send prices rising if one was only looking at locals buying for personal use.

However, since April property sales and prices in the Toronto region have fallen, mainly due to the 16 point plan implemented by the Ontario government in April to cool sales and prices by clamping down on international buyers and local speculators.

The rise of the loonie, even if it reaches 83.33 cents to the USD in the short term as predicted by the topnotch Paris based firm Day by Day SAS , will have a limited uplifting effect on the real estate market in Toronto.

Already prices in Toronto have toppled by 15% and more from their highs in April of this year. This has not escaped the foreign buyers’ attentions who have to pay a 15% tax if they wish to buy property in the Greater Golden Horseshoe(GGH) area- this means Toronto and  the surrounding southern Ontario region. However, most of these buyers usually have their money in USD accounts, so they will enter the market only when prices drop another 10% so as to bring the Toronto prices in line with what they were in April in USD terms. As this happens negative sentiment will lead the downward spiral to overshoot and prices might fall even further than expected.

Also the Bank of Canada recently raised the prime rate prompting higher variable mortgage rates. Besides this, the Canada 5 year bond yield has gone up by a meteoric 80% rise since May! 5 year fixed mortgages, which are dependent on this 5 year rate have shot up quite substantially as well to the 3% region or higher from 2.5%. This also will affect the property prices and should send them reeling as new buyers grapple with the notion of higher monthly payments.

So this potent combination of the 16 point plan of April, higher interest rates and yields has in the short term tamed the Toronto real estate market that had seen a runaway increase which by March of this year had reached over 37% from last year. Though prices have fallen since, the year on year rise is still in the double digits. The rise of the loonie is overshadowed by the aforementioned developments.

For the time being the sellers’ market in Toronto has turned into a buyers’ market with homes selling at more or less the listing prices without any bidding wars, which is a good sign for local buyers, but they need more respite. Prices need to go down a bit more.

But will this last? The long term outlook – 9 months or more- is that the loonie will ease which will jack up prices as foreign buyers and local speculators jump in. However should interest rates rise, which seems to be the scenario currently, the lower loonie will have to vie with higher interest rates which will act as a headwind and stabilize prices followed by single digit increases rather than the double digit ones of the past two years.

In short, for the time being, the rising (or declining) loonie cannot contend with government regulation nor interest rates and yields. Its power to decide the direction of the real estate market is very limited at this point.

Copyright © 2017 Key Media Pty Ltd

Joannah Connolly
REW

There were 1,937 real estate sales in the Fraser Valley in July this year – of all property types including commercial and industrial – according to Fraser Valley Real Estate Board (FVREB) figures published August 2.

That is 1.3% lower than July last year and 24.7% down from June’s property sales, reported the board.

However, 1,744 of those July sales were residential properties, a figure that is higher – albeit by just one single unit – than the 1,743 Fraser Valley home sales recorded in July 2016 and the second-busiest July for home sales seen in the past seven years

The price of a typical Fraser Valley home (all types combined) is now $730,300, which is 14.8% higher than in July last year and an eyebrow-raising 3.8% increase in a single month, compared with June’s $703,900.

Gopal Sahota, FVREB president, said, “Even though activity has eased off for the summer, we’re continuing to see the same trends we’ve seen all year. Namely, strong demand for attached-style homes and slight but steady increases in pricing.”

New home listings in the Valley were 3.3% higher than one year ago, at 2,864 units, but that’s 8.5% fewer than were listed in June.

With home sales slower in July compared with the previous month, the number of available units for sale rose 12.2% month over month to 4,145 homes, which is 1.2% higher than July last year.

Home Type Breakdown

Of the 1,744 Fraser Valley home sales in July, 753 were detached houses, which is 28.4% down from June’s 1,052 sales. This was the only property type to see a year-over-year decline in sales, down 9.1% from July last year.

The 447 attached home sales (townhouses etc, but not condos) represented a 3% lift year over year but a decline of 22% compared with June’s transactions.

A total of 544 condos exchanged hands in the Fraser Valley in July, which is 20.4% below the previous month’s record-breaking numbers but a whopping 13% higher than July 2016.

The hot condo sales seen in July meant that total active condo listings as of the end of the month were nearly 11% lower than one year previously, at 726 units. However, because of the even-hotter condo market in June this year, that total was 14% more than June’s paltry 637 available condos.

Both townhomes and detached houses saw month-over-month and year-over-year increases in the number of available homes for sale as of the end of July.

Benchmark Prices by Property Type

Benchmark prices show no sign of slowing down in the Fraser Valley market, with the price of a typical Fraser Valley home (all types combined) now at $730,300, 14.8% higher than in July last year and up 3.8% since June.

That increase is largely driven by yet another leap in local condo prices, for which the benchmark is now set at $341,100. Although this is relatively affordable compared with Vancouver prices, it is 33.3% higher than the same month a year previously, and a leap of 4.9% in a single month.

Townhomes and other attached units saw the next-steepest price increases, with the benchmark price of $485,900 a rise of 18.1% year over year and 4% month over month.

Detached homes, although rising in price the slowest, still saw a benchmark price increase of 10% compared with July 2016 and 3.4% since June this year.

© 2017 REW.ca

Canadian Real Estate Wealth

The 15% tax on many foreign home buyers in British Columbia will be reviewed along with some other government housing policy.

The province’s new housing minister Selina Robinson said Monday that policies including the interest free loans available to first time buyers would also be reviewed to assess their impact on affordability.

Ms. Robinson said there were no plans to scrap the foreign buyers’ tax at this stage but she believed that it was having less impact now than it did when it was first introduced to the Metro Vancouver market a year ago.

Prices in the market have continued to rise despite the tax and Tsur Somerville, the director of the University of British Columbia Centre for Urban Economics and Real Estate told CTV News that some buyers have avoided the extra 15% by either not self-identifying as foreign buyers or by choosing presale condo which are not covered.

The new housing minister said that the proposed tax on vacant properties is also part of the policy review.

Copyright © 2017 Key Media Pty Ltd