December 1, 2017
A National Rental Shortage, Vancouver’s Foreign Buyer Ban, and How Legal Pot Could Impact Your Resale Value: Weekly Real Estate News Recap
Vancouver Proposes Foreign Buyer Ban
The City of Vancouver is aggressively tackling its lack of affordable housing, and an outright ban on foreign buyers may be in the works. A move to “restrict property ownership by non-permanent residents” is among a slate of measures being voted on by City Hall, as well as a speculation tax and an increase to the luxury tax.
Such a ban would mimic New Zealand’s actions; the island nation opted to fully ban foreign purchases earlier this month, as rampant real estate speculation had pushed home prices out of reach for the average kiwi.
Gil Kelley, general manager of planning, told City Council that foreign buying, and the resulting “excessive supply of global capital” contributes to a “perfect storm” in Vancouver, in addition to favourable tax policies, low interest rates, and developers who target investors rather than end users.
The proposal is part of Vancouver’s three-year Housing Action Plan, which was released in tandem with its 10-year Housing Vancouver Strategy. The city’s long-term plan will focus on increasing density as well as introduce new policies to decrease real estate speculation and ensure real estate purchased in the city is lived in by Vancouverites; Vancouver real estate is the least affordable in the country at an average price of $1.4 million – 12.5 times the region’s median household income of $79,930.
Over the next decade, the plan’s goal is to build 72,000 new homes; 12,000 of those will be for low-income residents, while 20,000 will be earmarked as purpose-built rental. The new developments will include 30,000 new condo units, 5,000 townhouses, and 1,000 coach houses.
It will also introduce several new rental initiatives to better protect tenant rights, such as a dedicated renters’ protection manager, and establish rental-only zones. A Moderate Income Rental Housing Pilot Program will increase incentives for new housing development with bonuses based on density goals, with new policies that will allow townhomes and low-rise apartments to be built in neighbourhoods currently zoned for single-family housing, especially in areas close to schools and transit hubs. Not only will this create housing close to services and amenities, it will also increase the numbers of families and children in such neighbourhoods, where they’ve become a rarity due to steep affordability.
The City will also be focusing on reducing “excessive speculation”, which it says “has contributed to distorted land and housing prices and is a key barrier to creating new housing that is affordable in the near and long-term.”
Ontario Offers Millions to Rental Developers
The province has revealed it has earmarked millions of dollars in rebates for developers who create purpose-built rentals – a badly needed incentive that will help boost the supply of missing middle housing, say housing experts.
A total of $125 million has been set aside over five years to offset development charges for such projects, as part of the Ontario Fair Housing Plan.
“We believe everyone deserves a place they can call home. Building more rental housing not only helps individuals and families find places to live, it creates strong, vibrant communities,” stated Minister of Housing Peter Milczyn.
Individual municipalities will make the call as to which developments will receive the rebates, prioritizing neighbourhoods with steep demand and scant supply (luxury developments will be exempt from rebate eligibility). According to the Ministry of Housing, only 6 per cent of housing built over the last 20 years has been purpose-built rental. Two-tiered rent cap rules introduced in the early 90s (repealed in the FHP) effectively incentivized developers to focus on more lucrative condo development rather than rentals.
“Providing rebates for development charges for new purpose-built rental housing is one of the 16 comprehensive measures under Ontario’s Fair Housing Plan to bring stability to the real estate market, protect renters and homeowners investments, increase housing supply, and help more people find a home that fits their budget,” stated the province in a release.
It also announced it will develop 2,000 new housing units on provincial land, two thirds of which will be rentals.
A National Rental Shortage
Ontario’s new measures can’t come soon enough, as it’s getting tougher – and pricier – to acquire rental housing in Canada’s biggest cities, reveals the latest Rental Market Survey from the Canada Mortgage and Housing Corporation (CMHC). Based on a study of 17 major centres across the nation, the Crown corporation finds the average vacancy rate fell to 3 per cent from 3.7 per cent in 2016, following two years of growth, attributing tighter rental conditions to “recovering demand in Canada’s oil producing provinces”.
However, the vacancy situation is much more dire in Canada’s largest cities, namely Vancouver and Toronto, where rental supply hovers at historic lows at 0.6 per cent and 1 per cent, respectively.
In fact, Toronto officially has the most expensive rent in the country, at an average of $2,301 for a two-bedroom unit, followed by Vancouver at $1,874, and Ottawa at $1,566.
That’s because supply has plummeted to a 16-year low in the Greater Toronto Area, the CMHC reports. The average apartment in the region now costs $1,300 per month, up 4.5 per cent from 2016. Part of the issue is the extremely poor affordability of the home ownership market, which has prompted more residents to stay in rental housing for longer.
“Rising costs of home ownership forced more people to seek and remain in rental accommodation. The resulting average vacancy rate for private purpose-built apartments in the Toronto CMA declined to reach its lowest level in 16 years,” the report states.
It also finds that with too few rental-purpose units being constructed to meet demand, the secondary rental market – leased out condo units – continues to be the “de-facto new rental accommodation supplier”, and that rampant demand has prompted landlords to hike their rent rates on new leases, which has contributed considerably to rising average rents in the city.
Criticism for the National Housing Strategy
Last week, the federal government unveiled its National Housing Strategy, a decade-long plan to spend $40 billion on various affordable housing initiatives. Designed to support the most housing-vulnerable, the Strategy will invest in the creation of 100,000 new affordable homes, the repair of an additional 300,000, as well as various community housing and homelessness reduction initiatives.
However, a number of affordable housing advocates say the plan falls short, failing to address the affordability challenges of the middle class who are facing some of the highest real estate and rental costs in recent memory, as well as extremely tight rental vacancy.
Said Jim Murphy, CEO of the Federation of Rental Housing Providers of Ontario, “We’re increasingly concerned that those in the middle, who probably wouldn’t qualify for most of these programs, are still facing hardship. They can’t afford to own with an average price of $1.3 million (for a detached resale house in Toronto in October). Increasingly, rent is becoming difficult, not only in terms of price but in terms of supply and finding a place.”
He adds that the federal government should offer developers incentives to create more rental-purpose housing, such as HST rebates.
His sentiments are echoed by Paul Kershaw, the founder of BC-based affordable housing advocate Generation Squeeze. “We need social housing, but that is by no means where the affordability challenge stops in our country,” he says, adding that the government could introduce measures such as a vacant homes tax, and encourage municipalities to rezone neighbourhoods to allow for more density to improve housing supply.
Most Homes Built in October Were Condos
The most recent data from the Building and Land Development Association (BILD) reveal condos and stacked townhomes overwhelmingly accounted for newly-constructed homes last month, at 91 per cent (4,884 units out of a total 5,377). That’s an 18-per-cent year-over-year increase and the highest October on record, with sales 81 per cent higher than the 10-year average.
Low-rise homes, such as detached and semi-detached houses and non-stacked townhouses, accounted for the remaining 9 per cent, sitting 64 per cent below the 10-year average.
However, prices continued to rise across all new home types, with new low-rise homes fetching an average of $1.22 million, and up to $1.55 million for detached houses. Condo prices, while comparatively lower at an average of $677,456, are rapidly appreciating out of reach for buyers with smaller budgets, says BILD CEO and President Brian Tuckey. The average price per square foot is now $791, with unit sizes at an average of 871 square feet.
He adds pressure is being heaped on the high-rise segment as low-rise options remain far too expensive for most, pushing typical house buyers into the condo market to compete alongside the usual investors, first-time buyers and downsizers.
“October data shows that the new home buyer is left with very little choice when it comes to purchasing a new home,” he says.
“Provincial intensification policy has our members building more high and mid-rise dwellings making housing choices a challenge. The cost of a single-family home is out of reach for many consumers pushing them to buy a condo over a house. As a result we are seeing record breaking condo sales and higher prices this year for new low-rise homes.”
Slower Sales Forecasted for BC
The British Columbia Real Estate Association (BCREA) has released their fourth quarter report and forecast, predicting sales activity is headed for a downturn over the next two years. Sales will reach 102,350 in 2017 says the report, which is 9 per cent lower than the 112,200 sold in 2016 – a record year. They’ll fall another 10 per cent in 2018, though will remain above the 10-year average of 85,000.
This is despite strong economic and jobs growth in the province – employment is at a 20-year high, with 180,000 jobs added since 2015.
However, BCREA says a multitude of “headwinds” will effectively cool buying activity, including rising interest rates, OSFI’s B-20 mortgage qualification rules, and a decline in migration from nearby provinces. It is also anticipates more rate hikes in 2018, with the average five-year fixed rate coming to 3.44 per cent, and the Bank of Canada qualifying rate at 5.15 per cent.
Sales will also be squeezed by decade-low housing supply, which will continue to put upward pressure on prices. “The imbalance between supply and demand has been largely responsible for rapidly rising home prices,” BCREA writes.
Real Estate Industry Hazy on Impact of Legal Pot
As federal legislation to legalize marijuana looms, questions remain over the subsequent provincial rollout, selling and enforcement of the drug. However, it’s also unclear on what the implications will be for the real estate market, where just a single pot plant can land a home on the black list.
Homes where illegal drugs have been produced can be stigmatized, which comes with a number of tricky implications for prospective buyers, including the inability to get a mortgage or home insurance for the property.
This can be the case even in homes where only a few plants have been grown, says John Greenlee, a mortgage agent with the Mortgage Centre. He recalls a particularly hard-to-sell home that had been labelled as a grow-op despite no modifications being made to the home. “At this place, the person just had one or two plants in a pot, which would be similar to someone having a lemon tree in their house,” he told Zoocasa.
However, once pot is legalized, Canadians will be allowed to grow a maximum of four plants up to 100 centimetres tall inside their homes – a change that could pose both structural hazards and risk of stigma for the next owner says Ontario Real Estate Association CEO Tim Hudak.
“The concern that Ontario realtors have is that once this becomes legal, you’re going to see a lot more [home marijuana growing] in the province,” he told Yahoo Finance. “This means risks to home owners and it also means concerns about disclosure for potential home buyers.” He includes mold, electrical and fire hazards, and water damage among the potential issues from indoor marijuana growing.
Hudak says OREA is currently working with the Canadian Medical Association and Canadian Association of Chiefs of Police to come up with recommendations to give to the Ontario government, as it sorts out the finer points of legalization. He also wants the province to require home sellers disclose whether plants – and how many – have been grown in the home.
“Don’t you think you have a right to know if a place was used as a grow-op or how many plants were there?” he adds. “Somebody has to look out for the future buyer of the home.”