This week’s top stories focus heavily on Vancouver’s attached housing market and how commercial developers and renters are feeling about the perspective shortage of new condos and rentals. New reports and data in both the Vancouver and Burnaby markets reveal a shortage of new condo builds and purpose-built rentals, respectively. In Victoria, builders say a new energy-efficient building code could raise the price of homes across the province and cause confusion among developers. Meanwhile, the port town of Prince Rupert continues to draw renters into the city, bolstering demand.
Here is Western Investor’s pick of the top four commercial real estate stories published this week.
Registrations of new condo builds are way down year-over-year – but it may just be until new projects complete. Is it time to worry that a shortage may be imminent?
Mandatory registrations of new Vancouver condominiums have fallen 28 per cent this year as starts have plunged, despite a white-hot pre-sale market that has driven new condo inventory to record lows.
Registrations of new homes with the BC Homeowner Protection Office (HPO) are seen as a harbinger of new home construction, since the warranty registrations are required before building permit applications, according to BC Housing.
As of the first half of this year, HPO had received registrations for 1,788 new Vancouver condos, down from 2,488 units at the same time in 2016.
Industry officials say the lower registrations may just reflect a pause in a booming cycle.
“No one I’m talking to is slowing down – it’s crazy busy out there,” said Bob de Wit, CEO of the Greater Vancouver Home Builders’ Association.
“There are some very large projects underway that will complete in the fall that are taking up productive capacity and limiting new starts and delaying warranty purchases for subsequent projects,” de Wit said.
“Construction costs are exploding and even developers who have projects pre-sold are scrambling to sharpen their pencils and retender, causing delays in starts,” he added.
The Victoria Residential Builders Association says the B.C. Energy Step Code will add costs to new projects without much effect on energy efficiency, Business in Vancouver reports. The additional costs with effect perspective homeowners and builders, as the extra costs will often be tied into mortgages and building materials.
But Casey Edge, executive director of the VRBA, said because the Step Code targets only new builds, which are already being built to high energy-efficiency standards, there’s a lot of added cost without a lot of benefit.
“For an additional $26,000 [on the cost of building an average Victoria house] you get to knock off half an air change; for an additional $58,000 you can knock off two air changes compared to what we can do now,” he told the Times Colonist.
Edge said the additional cost is likely to be wrapped into a mortgage and therefore will end up costing new homebuyers a lot more over the years.
“In some cases they’ll never get their money back,” he said, noting the energy savings are unlikely to balance off the added expense.
Veteran Victoria builder Ron Bickford said the industry is not against energy efficiency but, with the price of materials increasing and the scarcity of labour during a building boom already driving up prices, the addition of the Step Code makes building affordably in B.C. almost impossible.
“It may drive costs up as much as $100,000 [on larger houses],” he said. “And it means training.”
The VRBA is instead suggesting a staggered implementation of the code and is floating the idea of renovation tax credits for those with older homes.
“It encourages people to retrofit homes, and you’ll exponentially save more air changes per hour instead of doing this,” said Bickford.
Older homes with no insulation can have as many as 40 air changes per hour, Edge added.
The association has also suggested starting the Step Code at Tier 2 – basically the equivalent of the existing building standard – and, after establishing new training guidelines, adding more stringent tiers in five-year increments.
“This achieves the province’s goal of net-zero housing by 2032 affordably and responsibly and without undermining a code standard,” he said.
Edge said implementation of the new code is also a problem.
As initially proposed, the Step Code would allow each of the province’s 162 municipalities a choice of what tier of the code to adopt (the City of Vancouver has its own building code).
“This implementation creates confusion, multiple building practices, undermines a uniform code and deviates from B.C.’s agreement with Ottawa to harmonize with the National Building Code,” Edge said in a letter to the premier.
According to a Ministry of Municipal Affairs and Housing spokesperson, the NDP government is not ready to comment on the code because it is still stepping up to speed on the issue.
The northern seaport town of Prince Rupert was lauded years ago as the most promising area in B.C. Now, expansion plans, jobs and increased demand for housing has bolstered the city’s rental market, reports BIV, making it one of B.C.’s markets to watch.
A decade later, the latest expansion program has boosted container capacity at Prince Rupert to 1.35 million 20-foot equivalent units (TEUs), a 50% increase from 850,000 TEUs two years ago.
While the increase is significant and the activity has created jobs, the numbers show how reality has lagged behind the port’s ambitions.
During a visit in August 2007, this columnist heard how the facility would trigger a re-naissance in a city planned a century earlier as the northern terminus of the Grand Trunk Pacific Railway (now part of Canadian National Railway Co.). Prince Rupert had taken its hits from the decline of the fishing industry and the closure of the Skeena Cellulose pulp mill in 2001.
Prince Rupert Port Authority and Canada Border Services Agency hiring sprees a decade ago spurred plans for a new subdivision in a city whose population plummeted from 16,714 in 1996 to 12,815 in 2006.
A decade later, the population remains just 12,687, but the rental market has strengthened considerably. Vacancies have dropped from 15% on an inventory of 629 units when the container terminal opened in October 2007 to 4.9% on a stock of 825 units at the end of 2016. Rents have grown with supply, rising from an average of $561 a month in October 2007 to $726 a month at the end of 2016.
It’s a different story with retail development. Terrace remains the retail hub for locals even though Walmart took over the space formerly occupied by Zellers after Calgary-based Royop Development Corp.’s plans for a shopping plaza were shelved.
Then there’s the question of the container terminal itself.
Part of B.C.’s claim to being Canada’s gateway to Asia – and Asia’s gateway to North America – Prince Rupert anticipated increasing its initial capacity of 500,000 TEUs to two million by 2012 and four million by 2015. The expansion that port operator DP World completed last week falls short of these targets, and comes on the heels of a 5% decline in containerized traffic last year, when the port handled 7.4 million tonnes (the port’s annual report doesn’t express the volume in TEUs).
Housing data suggests the city lags behind its neighbours in providing purpose-built rentals. How does this shortage effect renters and prices in the area? The Burnaby NOW reports.
As vacancy rates have shrunk and rents soared, Burnaby has lost more purpose-built market rental housing over the past six years than any other Metro Vancouver municipality.
Since 2006, Burnaby has seen a net loss of 478 units, while Vancouver has added 2,227, according to Canada Mortgage and Housing Corporation (CMHC) data.
That stat, included in a housing presentation at a Vancouver city council meeting this summer, prompted a jab from Coun. George Affleck on Twitter.
“Wow. Vancouver can’t build all the rental units alone,” he tweeted. “Our neighbours need to step up too.”
The only other Metro municipality besides Burnaby to see a net loss of units was White Rock, which shed 25, and Affleck said some communities aren’t doing enough to make sure rentals are built.
“Each city should be doing whatever they can to certainly not lose rental housing,” he told the NOW. “I just don’t think that’s good community building to lose rental housing.”
Supply and demand
While the issue is complex, UBC real estate economist Thomas Davidoff said the supply of rental units does impact the price of rent in the region.
“When you build more units you’re absorbing people who are willing to pay a lot to live here,” he said, “and the more you build, the less willing to pay you have to be to cross the threshold into occupancy.”
Vancouver has added to its market rental stock over the past decade by hanging on to existing stock and through policies like Rental 100, which provides incentives for developers to build rentals, according to Davidoff.
“I think Burnaby’s a quite different environment,” he said.
David Goodman, founder of the Goodman Report, a resource on trends in rental apartment sales, agreed.
He has criticized Vancouver for not doing enough to encourage developers to build new purpose-built market rental housing but said that city is “light years” ahead of Burnaby.
“It’s a philosophical and political decision: let the province and the feds look after rental housing; it’s not our job,” Goodman said of Burnaby. “In the process, of course, Burnaby has certainly enriched their coffers with hundreds and hundreds and hundreds of millions of dollars from the development community.”
Burnaby ended the 2016 fiscal year with more than $1 billion in reserve funds, and a chunk of that has come from developers who pay for increased density when they build condo towers in place of old low-rise apartment buildings.
The city could afford to forgo some of that money, according to Goodman, and use it to provide incentives to developers to build rentals instead of allowing the city to become “top heavy” with condos, an approach he said impacts the “social fabric” of the community.
“The irony is, here is sort of an NDP government in Burnaby who are basically saying, ‘Not our problem. You want rentals? Let the market do it,’” Goodman said.
But the market is unlikely to “do it,” according to UBC's Davidoff.
“People really want to build condos in this day of extremely high valuations,” he said. “Why be a landlord and go through all the hassle, when you can build a building, get paid a fortune and walk away. That’s what I’d do, definitely. The only reason I wouldn’t is if the city was like, ‘Well, we’ll give you an incentive if you keep it rental.’”