The employers have more buying power

Aiman Attar
REM

Many of us have laid off some stellar and talented employees due to the economic halt the COVID-19 lockdown has caused.

The good news is that the downturn in the economy will create an influx of incredibly qualified candidates in the job market searching for their next career move. Not everyone will be waiting for their existing employer to re-hire them. This also means that the employers have more buying power than the candidates. In a thriving economy, it would be quite the opposite, where there would be multiple employers making an offer to one superb candidate.

With massive layoffs across the real estate industry, candidates have started to doubt whether they even want to return to their previous jobs. Some are considering changing industries. A lot of administrative staff and sales reps have had a moment to rethink whether they want to stay in this field simply because there is no longer a healthy source of income. In a downturned economy, many sales reps will either join teams to survive or begin searching for salaried employment to weather through the storm.

COVID-19 has made a lot of us go through a soul-searching exercise. Some of us will learn from this while others will just sink into the abyss.

There will be employers that will be reactionary and hire in a rush, making costly decisions, while a select few will take this time to have a proactive recruitment process in place along with an onboarding manual to ensure business continuity.

Here is what you need to do in order to be set up for success:

1. Salary CMA

Moments before the economy ground to a halt, candidates were earning more money in 2020 than in previous years. Although when the market rebounds we may hover in a quasi-recession, this does not mean that we pay salaries based on a recession (which often means lower wages due to influx of candidates). If the quasi-recession ends in a few months, all candidates you hired at a lower rate will quickly find other employment opportunities offering top dollar.

This is a delicate discussion because many business owners, brokerages and salespeople have experienced profit and revenue loss during the lockdown, so finances are genuinely tight. However, it can come across as vulture-like to feast on hiring great candidates for $40,000 who were previously making $50,000-$60,000 to do the same work they did prior to COVID-19. We highly recommend that you seek advice from a business coach or a recruitment coach prior to making any decisions on salaries to ensure you are aware of current market intelligence.

2. Job description

Create a job description that is realistic and reasonable for who you want to bring on and how much you want to pay based on a CMA of their skill set and salary. Hint: Do not pay a 10-year veteran $20 an hour and expect them to answer calls after hours! Be sure to post your job on all social media channels and free job boards.

3. Choose the right fit

There are seven steps when choosing the right candidate. Do not assume that if someone has five years of experience for one brokerage or team that they would automatically be a great hire for your business. Having the right recruitment process, thorough interview questions and one-day paid assessment, ensure that you make the right hire.

4. Offer and onboarding

Once you find the perfect candidate, you want to be sure that you have all your ducks in a row. A proper legal employment offer is the first thing a great candidate looks for and if you do not have one ready, it can make candidates very wary of the employer.

The second most important step is the onboarding process. Do not wait until your new hire starts to order a desk, laptop and phone. Nothing is worse than starting a new job and having nothing ready for you to begin working. And part of onboarding is training your new employee – even if they have years and years of experience. How you do business is always slightly different from how someone else does theirs.

Congratulations – You have just made your hire. Now it’s time to live under one roof with your work wife/husband for the probationary 90 days to see proof in the pudding. If it is not working out in the first three months, then know when to pull the plug.

So, question is: Are you ready? Have you planned? Are you going to take what comes your way or will you have a process in place when the market rebounds?

© 1989-2020 REM Real Estate Magazine

Developer donated bulk of the land to the community, paid for all the infrastructure and faced 14 years of delays

Frank O’Brien
Western Investor

Building construction has started on the controversial 530-acre Southlands community in Tsawassen, 30 years after the land was purchased and 14 years since a development proposal was first pitched to Delta council.

Approved in 2016 after years of often raucous debate, the resulting Southlands project is unique in that 80 per cent of the land has been given back to Delta as publicly owned farmland, community gardens and 100 acres of parks and natural areas, said Sean Hodgins, now president of Century Group.

Southlands was removed from the Agricultural Land Reserve by the province in the early 1980s. 

Considered the biggest “agri-hood” in North America, Hodgins said the concept was always for retention of some agricultural space since his father, George Hodgins, bought the site in 1990, but he conceded Century Group had originally planned on holding about 70 per cent of the site for private development.

Of the 430 acres at Southlands transferred to Delta, his company is leasing back 50 acres to curate the Southlands farm, which is then subleased to local farmers.

Hodgins said Century Group is currently working with producers Snow Farms and Salt & Harrow to grow produce that will be sold at the Southlands farm market.

The farm market square, including a heritage house, barn and an agricultural support building, was built by Century Group but will be owned by Delta.

The journey is far from over, however.

“We haven’t really started yet,” Hodgins said on May 15, explaining that the first homes, being built on spec, will not be complete until this September with the construction of four cottages and the first of 72 townhouses in the initial phase. Currently, Century Group is installing all the infrastructure needed, on its own dime. The complete residential component of Southlands will take eight to 10 years to build.

Reflecting on what has become a “lifetime of work” Hodgins said the delays and the associated costs in getting development approval is common in municipalities across Metro Vancouver. 

“I can understand why housing prices are so high,” he said. 

Copyright © Western Investor

Virtual staging has blossomed during the pandemic

Diane Slawych
REM

Every industry has been affected by COVID-19 in one way or another. And while the fallout has mostly been negative, one niche business that has experienced a positive impact is that of virtual staging.

For Young Kim, founder of Vancouver-based Bella Staging, business had been ramping up before COVID-19, but then it got even busier, prompting him to add four new designers to his team of 11.

Unlike conventional staging, in which the contents of a home are removed and replaced with attractive rented furniture and décor to help improve a home’s sale price, virtual staging is done on a computer. It uses a combination of photography, 3D modeling software, Photoshop and renderings, to produce images of spruced-up rooms and achieve a similar result.

The advantages of virtual staging are that it costs considerably less, and, in this time of social distancing, property owners can still show their home in the best light without having movers carrying furniture in and out of their homes in the midst of a pandemic.

Kim believes social distancing could be one reason why business is growing. “I think people know about virtual staging but haven’t been inclined to use it,” he says. “A lot of Realtors are traditional and not adopting new technology but this has forced them to try it out and say this is pretty good, instead of conventional staging.”

A self-described techie nerd with a background in web development and a “keen” interest in real estate, Kim came across virtual staging a few years back and believed his designers could do a better job and make the photos look more realistic.

He was pleased with the results and asked local Realtors in Vancouver to send them photos of empty units in order to test the market. “People liked what we did and looking at the competition, their pricing was high. It was a good time to get in the market. We could streamline the operation to keep prices low and provide good quality photos.”

The process is fairly simple. A client – they include Realtors, developers and builders – submits one or more photos (the average is about three to five) of a room or rooms they would like to have staged. For optimal results, Kim says the submitted photos should be professionally shot and have a minimum resolution of 3,000 x 2,000 pixels. The company charges about $22 US (or roughly $29 CDN) per photo.

The staged images are sent back to the client, who may request further edits or revisions at no extra charge. Normally clients can get the final images in one to two days, though with the increased demand lately Kim says it now takes about two to three days.

The company offers three main types of services. With virtual staging, the client sends photos of empty rooms and their designers fill it with beautiful furniture to make them more attractive on MLS and social media and any other marketing materials they have.

A second type is virtual furniture removal and staging, which is often sought in cases of tenanted apartments/homes or properties with furniture in them that can’t be removed. The company will remove the existing furniture using Photoshop and replace it with more modern pieces. A third service is virtual renovation, which Kim says works best for properties that will likely be reno jobs. They can show what the home would look like with new flooring and appliances, or by adding a hot tub on the patio, for example.

It’s been three years since the company began offering virtual staging services, initially starting in the much larger U.S. market (hence its U.S. dollar pricing) where it still gets fully 70 per cent of its business.

Domestically, the company receives about 50 to 70 photos a day from clients across Canada. “COVID has exponentially increased the number of orders we’re taking on a daily basis,” says Kim, who adds that a lot of people have learned about virtual staging through word of mouth or by attending the company’s presentations to brokerages.

“We started our marketing efforts in Canada last year and so far it’s been great,” he says.

“People realize instead of spending $20,000 to stage a home, they can spend $100 and get good results.”

© 1989-2020 REM Real Estate Magazine

Realtor.com has seen listing visits, saves, and shares in its website skyrocket

Candyd Mendoza
other

After staying at home for almost two months, homebuyers have been itching to get out and get on with this year’s homebuying season.

Since the first wave of shelter-in-place orders took place on March 16, realtor.com has seen listing visits, saves, and shares in its website skyrocket. In a recent survey, over 70% of realtor.com users said they registered on the site so that they could save homes as a way to track price cuts and shortlist the homes they plan to tour post-coronavirus.

Since the lockdown in March, realtor.com has seen a 30% increase in listing views for single-family homes and condos, a 76% increase in saved homes, a 95% increase in shared homes, and a 14% increase in time spent per each user.

“Data suggests that home shoppers who had paused their search are now picking it back up, and the spring homebuying season won’t be lost, but merely pushed into the summer months,” realtor.com Chief Economist Danielle Hale said.

Hale noted that tools such as virtual home tours and Livestream open houses have been popular among prospective buyers amidst the COVID-19 shutdown.

The rate of visits to listings featuring virtual tours jumped 29% in March – twice as high as those without. Around 64% of the respondents had taken a virtual tour, and of those, 45% said they prefer listings with virtual tours.

Sixty-five percent of realtor.com users said they found virtual tours a useful resource in their homebuying process and believed it would continue to be so post-pandemic. However, only 8% thought virtual tours could be a substitute for in-person tours.

When asked what they liked about a virtual tour, responses included:

• 52% saying that virtual tours help them eliminate homes that aren’t for them
• 43% said it give them a look of the details of a home without having to step inside
• 38% said it helps them create a shortlist of homes they want to see in person
• 30% said it allows them to see more homes more quickly, without having to drive around to open houses.

“While many consumers don’t see virtual tours as a replacement for in-person viewings, they have emerged as a valuable tool to learn more about a home, see details up close and help narrow down the search,” Hale said. “We believe virtual tours will remain an integral part of the home search, even when shoppers feel more comfortable visiting homes in-person again.”

Copyright © 2020 Key Media Pty Ltd

Victoria realtor reports from the frontline

Whitney Garside
Western Investor

It’s like it happened overnight. One day, in the middle of March, I was representing a buyer on a single-family home in Saanich. Offers from the weekend were to be reviewed Monday morning.

We put in an offer early in hopes it would discourage other potential buyers, but we knew this home was a hot commodity and competition was inevitable. The weekend open house had more than 200 attendees, and by the end of the weekend, there had been more than 50 private showings.

It felt like the crazy market of 2017 and 2018 was back. Spring had sprung and the market was hot.

By Monday morning, the listing agent had 16 offers in hand, and many prospective buyers were on pins and needles. Going in well over the asking price with an appealing offer, my buyer was the successful bidder. She was thrilled.

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Three days later, the market hit pause.

I was really excited about a new listing in Gordon Head. The home was in a great location near the University of Victoria, with a huge lot and a mortgage-helper suite in the basement. This one, I thought, was sure to sell quickly with the spring flowers blooming and the market abuzz.

Then COVID-19 hit. Just like that. There was a new vocabulary for everyone to adopt. Phrases such as social distancing, self-quarantine, self-isolation and pandemic versus epidemic were being heard everywhere I turned. And what was this curve that everyone wanted to flatten?

Overnight, the world changed, and in turn, the real estate market — and my career — was turned on its head.

Soon after the outbreak began, real estate agents were classified as an “essential service” because of the many reasons that clients must sell or buy.

There are buyers who have sold their homes and must buy within a certain timeline, and there are moves triggered by divorce, separation, death, job transfer or change in income.

Thus, life as a real estate agent must go on — we need to continue supporting buyers and sellers.

We have had to put many safety measures in place. Physical distancing is the norm, with only two people allowed in a home at a time. We use gloves, masks, hand sanitizer and a signed declaration for buyers and sellers to acknowledge the risk due to COVID. We pre-qualify buyers before showings.

We have adopted new practices, with virtual showings, virtual open houses and more FaceTime walk-throughs.

For a commission-based employee, the unknown can be worrisome. Real estate agents are faced with many monthly fees that don’t stop because of an unexpected pandemic.

The costs are similar to those for a small business, and although we don’t necessarily have the expense of a bricks-and-mortar location, we still have to pay for licensing, dues, insurance, education, office fees and all the hidden costs required to run a successful business.

As a Victoria native who has worked for more than 10 years as a real estate agent, I feel confident that with people working together and following safety measures, the real estate market will survive and thrive again.

In the meantime, let’s throw on some gloves and keep on moving.

 

Copyright © Western Investor

RateSpy says mortgage stress test might be more lenient

Ephraim Vecina
Mortgage Broker News

Canada’s mortgage stress test might become a bit more lenient as early as this week, RateSpy.com predicted.

The forecast came in the wake of the Bank of Montreal deciding to cut its five-year rate to 4.94%. This move might be a decisive factor in the minimum stress test rate falling to around 4.99%, RateSpy said.

“It’ll mark the first time since January 2018 (when OSFI’s stress test began) that this benchmark rate has been under 5%. And, if one more bank matches BMO’s and RBC’s 4.94%, it could drop another 5 basis points,” RateSpy said in its analysis last week.

Even such a seemingly minute decline will prove valuable to the average Canadian household.

“If it does go to 4.99%, a household making $100,000 a year with 5% down and no other debt can afford about a $2,000 bigger mortgage, versus today,” RateSpy said.

However, in a recent report, Deloitte Chief Economist Craig Alexander said that risks to Canadian finances will remain pronounced even after the outbreak has eased.

“One of the great legacies of the current crisis is that after the pandemic has passed, we’re going to have more indebted households,” Alexander said. “So I think the issue around leverage isn’t going to go away; in fact, I think it will become more acute.”

Copyright © 2020 Key Media

Post-COVID-19 could bring about some changes

Paul Danison
REM

How long has it been since we began hearing these words every day: COVID-19, coronavirus, pandemic? How long before we try to forget them?

Who knows – it could be awhile. But the new words will probably change us – change the way we live, play and work, and will possibly bring a more massive digital transformation closer to home sooner than predicted.

Take housing, renting, and all that’s associated with the search, the transactions and the move. Post-COVID-19 could bring about some changes to enhance the process, making it more efficient, easier and maybe even more enjoyable.

People are searching for rentals again, says Matt Danison, CEO of Rentals.ca. “Rentals.ca has experienced its all-time high in traffic numbers in the first week of May, surging 59 per cent compared to the first week of April,” he says. “Renters who put off moving when the pandemic hit are now starting to resume their apartment search in the hopes that Canada’s lockdown will end in the coming weeks.”

Guy Tsror, data scientist at Local Logic in Montreal, agrees.

“At its worst point since COVID-19, the rental market lost 27 per cent of user search traffic across Canada,” he says. “But since that low point in mid-March, the market has rebounded with the search traffic for the last two weeks of April exceeding the last two weeks of January.

“People still need homes, and we see that the initial shock of COVID-19 has subsided, and consumers are back out there looking for homes online.”

Local Logic looked at how users interact with its proprietary Location Scores to understand what matters to renters now, compared to pre-pandemic days.

Unsurprisingly, people in Canada looking to rent care about proximity to grocery stores much more than before the outbreak – 13.5 per cent increase compared to January averages.

The graphic shows renters care much less about public transit (a 14-per-cent drop), and they are much more interested now in cycling (a 17.3-per-cent increase).

“Since COVID-19, renters’ lifestyle demands have changed and have not rebounded to pre-COVID times; we see renters are looking to live in more cycling- and pedestrian-friendly areas, with better access to groceries and better access to schools,” says Vincent-Charles Hodder, CEO of Local Logic. “Conversely, renters care less about being close to quality retail shopping, public transit, daycare and quiet neighbourhoods.

“Only time will tell if this is a permanent change in lifestyle demand or if this will begin returning to normal as non-essential businesses reopen and consumer confidence returns.”

Rentals.ca put together seven predictions – digital and otherwise – that might stick long after the coronavirus is gone to reshape the housing/rental market.

1) More landlords and renters will embrace online virtual leasing, 3-D and virtual tours.

It’s not like 3-D and virtual tours are something new; they just have not been commonly used. More tenants will begin paying rent digitally than ever before.

2) Some short-term rentals in urban areas will convert to long-term rentals.

The longer short-term rentals in the larger cities remain vacant, the sooner their owners could put them back into long-term rental stock. Or, they might have to put the units on the market if they can’t afford the mortgages. This could give renters more options, help open up supply a little in cities such as Toronto, Vancouver and Halifax with tight vacancy rates, and might even help to lower rents. But the biggest short-term problem for short-term rentals are new laws prohibiting them in some jurisdictions.

3) Cleaning will take on a whole new meaning in apartment buildings.

Cleaning will become a bigger industry with stricter rules or guidelines on how to clean, what to use and how to stay safe while cleaning. Janitors and cleaners already wear gloves, but now they will probably don masks, coveralls that are washed every night and use spray bottles of disinfectants known to kill the coronavirus. The rags, brushes and equipment used to clean will need to be cleaned and disinfected or trashed.

Cleaners might be trained better for the coronavirus, and they could get a temperature check before coming to work each day. This will become a more expensive task for landlords and property managers.

4) More claims will flood tenant/landlord boards.

The renting landscape in the shadow of COVID-19 is confusing and chaotic and things could get worse unless cooler heads prevail.

Rent strikes were planned for April and May, evictions are banned, rent hikes are frozen, job losses are mounting, government assistance is on the way – soon they say.

Once the coronavirus war ends, the landlord/tenant war could escalate and play out in tenant/landlord board hearings and maybe even in more litigation. Tenant/landlord tribunals are already overloaded and backlogged; this could get worse post-COVID-19.

5) People will not move as much in the short term but expect a spike in the recovery.

When the worst is over, moving vans will start rolling again as optimism gets us moving again. Most moves will only be delayed during this bleak time. While more renters will be on the move, count on fewer homeowners making a move.

6) Rents could fall in the short term, and affordable housing will be even harder to find.

Imagine if you can, Toronto and Vancouver with a healthy three per cent vacancy rate, and rents falling by the end of the year rather than rising. A few months ago that would have been laughable. But because of COVID-19, Canada will have less immigration, fewer international students and with the border closed, not nearly as many seasonal and part-time workers. All typically are renters.

And, because of No. 2 above, some-short rentals will be converted to add to the rental supply.

So, with fewer renters and more supply, rents could slide down overall this year, but the higher end of the rental market advertised as luxury rentals could be more affected.

“With the record number of layoffs, there will be more demand than ever for affordable housing,” says Danison. Also, in some areas, building affordable housing has slowed or even been halted for a while.

7) Coworking spaces in apartment complexes could become the hottest new amenity.

Working remotely is not new. Many in the gig economy know nothing of office politics. And, coworking spaces were becoming popular in new apartment complexes before COVID-19 hit.

A few other trends to consider post-COVID-19:

• A new way of living for seniors. Senior housing, buildings and units could be redesigned with new protocols on how to better protect them. More seniors die from this virus than any other age group, so a lot of thought will be given to how to protect them. This will be an evolving, creative process of how we protect the older among us.
• The dream of buying becomes more of a dream. The nightmare of COVID-19 could extend the trend of renters staying renters longer.
• With vastly increased food delivery, will apartments have a designated area for the exchange of food and goods between delivery services and tenants? Not a bad idea.
• Will international students be caught in a pickle of looming deadlines to leave their residences and the dwindling number of international flights? What will they do, caught in between school and going home?

One last point: Character, creativity and community are often developed out of adversity. Think back to the 2008 “Great” recession or even to 1929 Great Depression.

Entrepreneurs and creative companies will come together with innovative solutions to the housing crisis stemming from the 2020 COVID-19 pandemic. Count on it.

© 1989-2020 REM Real Estate Magazine

According to Canada’s latest census, 67.8% of Canadians own their own homes

AJ Hazzi
Canadian Real Estate Wealth

According to Canada’s latest census, 67.8% of Canadians own their own homes. If you’ve worked hard enough to count yourself amongst Canada’s homeowners, congratulations – you now own one of the most desirable assets in the world. 

As we approach the end of this decade, interest rates are all all-time lows, and the US Federal Reserve and the People’s Bank of China are racing to out-print one other to avoid a cataclysmic debt default. This means the era of ‘easy money’ is not quite over. In an easy-money economy, hard assets like commodities, precious metals and property become increasingly valuable.

With major equities trading at all-time highs, corporate earnings in decline and Trump’s trade shenanigans ongoing, it’s never been riskier to enter traditional financial markets. While I’m sure your financial advisor would love it if you bought more commission-generating stocks, I’d like to present a strategy that can better capitalize on the low-interest era and generate passive investment returns through your golden years.

The equity optimization manoeuvre If your home is valued around $1 million and you’ve paid off at least half of that, you’re now sitting on a $500,000 home equity nest egg.  Now is a good time to put your biggest asset to work. To illustrate, here’s a real-life case study about a couple from BC’s Lower Mainland, Gordon and Cathy, who realized their dream of retiring comfortably in the Okanagan using just $500,000 in home equity.

Gordon and Cathy own a Coquitlam property valued at $1.2 million with $300,000 left on their mortgage. Since their kids moved out, Gordon and Cathy no longer need a 3,000-square-foot house on a quarter-acre property – and they’ve always had their minds set on retiring in the Okanagan.

They found a beautiful new 1,800-square-foot townhouse in vibrant South Pandosy Village with an asking price of $750,000. Using the $1.2 million sale proceeds from their Coquitlam home, they paid off their remaining $300,000 mortgage balance and moved to Kelowna, flush with $900,000 in cash. By negotiating a cash discount on their new townhome, they took possession with $200,000 in cash left in the bank.

So far, so good: They made it to the Okanagan debt-free. There was just one problem: Their monthly cash flow was inadequate to live the lifestyle of their dreams. Owning their own home felt nice, but they were left wondering if there was a better way forward. Cathy and Gordon happened to read an article of mine and contacted me for some advice. We sat down together to map out their options.  

The plan The first step was to unlock the huge chunk of equity tied up inside their largest asset, their home.  Owning your own home is great, but it produces zero cash flow. In fact, homeownership costs you money in property taxes, home insurance and upkeep. 

Gordon and Cathy were a little old-school; they didn’t like the idea of using leverage, but eventually decided that investing a piece of their home equity in high-yield instruments made good financial sense.  This way, they would still own their home and benefit from an appreciating housing market while being free to make cash-producing investments.

Given the Okanagan’s growing population, low mortgage rates and the strength of the local housing market, they decided to buy an investment property in Kelowna.

The problem Gordon and Cathy were no longer working, which means they couldn’t qualify for a new mortgage or a bank line of credit. Was this a dead end?

Hardly. I introduced them to a lending product through the chartered HomeEquity Bank that was created specifically for Canadians looking to improve their lives in retirement. The CHIP program lets Canadians access up to 55% of their home equity without paying any monthly payments – you read that correctly – until the property is either sold or passed on through the estate. 

They qualified instantly for a $250,000 loan at a deferred 5% interest rate, which they used to purchase an income-generating property in Kelowna. These were the three options I mapped out for them:

1. A vacation property. The couple set their sights on a short-term rental property for $375,000 at Playa Del Sol, just down the road from their Pandosy townhome. They bought the property with 65% down using the $250,000 loan. Net of expenses and management fees, their vacation property generated more than $30,000 in cash per year.

A side benefit of owning this vacation property is that they can list it for rent on HomeExchange.com in the shoulder seasons of early June and late September, which lets them earn credits toward stays at member properties anywhere in the world.

2. A small apartment building. The advantage of multi-unit investment properties is that they’re financed using the bank’s commercial lending department. The decision to lend has much less to do with the borrower’s income and more to do with the income potential of the asset.

Typically, these properties are leveraged at 25/75, meaning Gordon and Cathy’s $250,000 loan would provide $1 million in investment capital. In this range, a turn-key building like a six-plex can easily rake in $80,000 to $90,000 per year in rent for an 8% to 9% cash-on-cash return.

3. A hands-off investment. A private equity fund called Cash Offer Canada buys distressed properties, fixes them up to force appreciation and then markets them as rent-to-own opportunities for purchasers who need a leg up toward homeownership. The fund targets 18% to 20% annual returns with a consistent hurdle rate of 12%. 

Gordon and Cathy appreciated the idea of a steady $30,000 annual cash flow and watching their capital grow in the diversified fund. But what they liked most about this plan was not having to take out a new mortgage or do any property management.

Armed with knowledge and a willingness to do the uncommon, Gordon and Cathy were able to generate enough cash flow to enjoy life in their dream retirement spot. You might remember that they still have that $200,000 left over in the bank, too. It’s a good thing, because their kids just called – they need a loan so they can make a down payment on their first home.

Copyright © 2020 Key Media Pty Ltd

First-Time Homebuyer Incentive inadequate

Clayton Jarvis
Mortgage Broker News

On May 12, two Conservative MPs addressed their concerns over the federal First-Time Homebuyer Incentive in an open letter addressed to Canada Mortgage and Housing Corporation CEO Evan Siddal and Minister of Families, Children and Social Development, Ahmed Hussen.

The letter’s authors, Tom Kmiec and Stephanie Kusie, both from Calgary, criticize the program’s cost and its failure to capture the interest of consumers. Kmiec was highly sceptical of Liberal projections, released in May 2019, that saw 100,000 Canadians eventually leveraging the shared-equity program. The CMHC’s annual report for 2019, published earlier this week, found that only 2,950 Canadians were approved for a shared-equity mortgage through the FTHI.

“[T]hese 2,950 approvals are a far cry from the target of 20,000 that CMHC had set for the program’s first six months of operation,” the letter reads. “Indeed, it seems that the program has been a complete failure and any notion that it will come close to assisting 100,000 aspiring homeowners is now scuttled.”

The FTHI has been a constant target for Kmiec, who debated the program in the House of Commons with Siddal in May 2019. He has gone after it in multiple Facebook posts dating back to April 2019.

“I knew that the Liberals’ shared equity mortgage scheme was doomed to fail because the vast majority of Canadians don’t want to co-own their home with the federal government,” Kmiec told MBN by email. “More importantly, gambling on the real estate market with taxpayer dollars through the purchase of equity shares in Canadians’ homes is not an appropriate role for government.”

Kmiec is also concerned that the program, along with the CMHC’s commitment to purchase $150 billion in mortgage-backed securities from Canadian lenders, exposes taxpayers to the risks associated with insuring that level of mortgage credit. He says the measures taken over the past decade to reduce CMHC’s liabilities have been undone.

“These measures will have a significant impact on our county’s finances for decades to come,” Kmiec writes. “Now is the time for the government to be eliminating wasteful programs, such as this First Time Homebuyer Incentive, to help limit the devastation the pandemic will have on our economic health.”

 In his comments to MBN, Kmiec explains that the FTHI “does nothing to help” first-time buyers qualify for a mortgage that wouldn’t otherwise be approved. Because one of the conditions for the program is that a borrower must qualify under the existing down payment and underwriting criteria, he says the almost 3,000 people who signed up for the program “would have all been able to qualify for a mortgage and purchase a home without the FTHI. The only appeal of the program to these 3,000 individuals would be the slight reduction in the monthly mortgage payments, which will end up costing them a significant share of the equity in their home when it is time to sell.”

The equity component of the program may indeed be the sticking point for many Canadians, says Streetwise Mortgages’ Dalia Barsoum, who compares the program, rather unfavourably, to mortgage deferrals.

“There are downsides,” she says, particularly for homeowners having to pay back amounts far beyond what they originally borrowed to get into the housing market. Owners in rapidly appreciating markets like Toronto or Montreal could, in twenty years’ time, possess properties that have doubled in value. Based on CMHC’s own figures, it’s clear that few Canadians are excited by the prospect of cutting the government a cheque for five percent of those gains.

But Barsoum thinks cancelling the FTHI is short-sighted.

“They shouldn’t eliminate it,” she says. “It’s not for everybody, but there are people who will benefit them who have no other options.”

Kmiec’s attacks on the First-Time Homebuyers Incentive all have one thing in common: they come with no proposed alternatives. MBN asked the MP to provide his own ideas for helping first-timers, specifically urging him to go further than pointing out the obvious fact that supply needs to increase. The response received may underwhelm most readers.

“We can expect that the COVID-19 pandemic and the subsequent government-enforced shutdown of the economy will lower real estate prices across the country. We can also expect to see continuing record-low interest rates as the economy enters into recovery. Now is not the time for anymore sweetener from the taxpayer. The federal government should work with provincial governments to reduce barriers and red tape to residential construction that are impeding new housing construction stock across the country.”

Changes to the program do not appear imminent.

“Now is not the time to cut support for Canadians,” Jessica Eritou, spokesperson for the Office of the Minister of Families, Children and Social Development, said in a statement to MBN. “It is especially important to invest in programs that put home ownership within reach of more middle-class families.  We will continue building on our historic commitments to giving more Canadians a safe and affordable place to call home.”

Copyright © 2020 Key Media

A shift to work from home helps to improve productivity

Conor Sen
Bloomberg

The coronavirus is going to change the way we work whether we like it or not — at least for the short term and maybe longer.

To take just one example: Twitter said it would let employees work from home even after the Covid-19 crisis has passed. Although it’s too early to say how much of a lasting change in work culture we’ll get, even a temporary shift such as this should be great news for residential real estate in at least two types of communities: the exurbs of high-cost coastal cities and second-tier cities with similar amenities but more limited job markets than their larger coastal peers.

A shift to work from home helps to lift the constraint of physical proximity for workers with certain kinds of jobs, allowing them to consider a wider range of places to live than when they had to be in the office five days a week. This has benefits both at the individual and the collective level. In a region such as the San Francisco Bay Area, with lots of tech jobs but expensive and limited housing, the average commute time is 32 minutes. If a person there worked from home one day a week, that’s an hour a week not spent commuting. If these practices are adopted by most white-collar employers, that would take a lot of vehicles off the road during peak commuting times, reducing congestion and shortening drive times for everyone else.

Reduced commuting and less traffic in a region makes living in the exurbs more appealing than it otherwise might. Workers can get more house for their money without having to make the sacrifice of long daily commutes. In a corporate culture where working from home is standard, it might also mean housing preferences change. A home office, or a “Zoom room,” might become as standard in the exurbs as a two-car garage.

Some companies might take this even further and embrace large-scale remote work, allowing employees to live anywhere that has a fast internet connection. The biggest beneficiaries here will probably be metro areas with similar cultures and amenities as the higher-cost coastal regions people are leaving, but have lower housing costs. John Burns Real Estate Consulting has been highlighting shifts in the strength of various housing markets since the onset of the crisis and it has identified the five best housing markets at the moment as Salt Lake City; Austin, Texas; Nashville, Tennessee; Raleigh, North Carolina; and Tampa, Florida. That list could grow depending upon how powerful the dispersion trend becomes as the economy recovers, extending to additional midsize metro areas in the South and West.

If there’s a loser here, it’s the real estate and businesses whose value stems from proximity to the job centers in pricey metro areas. Dry cleaners, lunch spots and bars close to offices will suffer if there are fewer workers in the area. Prices for housing, particularly older, lower-quality housing, that’s close to offices may decline as well. Commercial office valuations may also fall if companies reduce the amount of space they lease. Recessions and downturns are always a chance for companies and individuals to cut costs where they can. If remote work is as productive as in-office work, it gives companies the chance to save money on office space and possibly on labor (provided they will be able to pay workers less to live somewhere cheaper).

A large scale adoption of this trend could both reduce geographic inequality and fuel economic growth. So many of the fruits of economic growth during the past generation have gone to knowledge workers in cities such as New York and San Francisco. But because the housing stock in both cities is relatively limited, much of the increase in wealth in those areas has gone to the owners of real estate. This has led to soaring rents for residents, negating the broad-based spillover effects that should have benefited the rest of the community from all that wealth creation.

But if higher-paid knowledge workers are able to move to places with lower housing costs, there will be money left over that isn’t going to paying the rent or mortgage. It means more money can be spent on dining, travel, leisure and other labor-intensive local services. And it means that economic growth won’t be as concentrated in coastal metros, spreading the wealth to the rest of the country. The growing concentration of wealth in coastal metros has seemed unsustainable for a while. Perhaps a shift in corporate culture that embraces work from home is just the catalyst we needed to break the pattern and bring about a more sustainable and equitable model of economic growth. 

Copyright Bloomberg News