This week’s top stories focus primarily on the residential housing market, from a new, wider-reaching speculation and vacancy tax announced this week, to a real estate analyst forecasting home prices for the next few years. Meanwhile, cannabis legalization on October 17 has affected retail licenses and coloured landlords’ opinions on cannabis use in rental buildings.
Here is Western Investor’s pick of the top commercial real estate stories published this week.
Metro Vancouver's current housing slump will last until 2021, but will be followed by dramatic doubling in single-family prices, predicts analyst.
A real estate analyst who accurately predicted Metro Vancouver’s housing crash a year ago says the current slump will stretch out for three more years.
One year ago, Dane Eitel of Eitel Insights forecast that 2018 sales of detached houses in Metro Vancouver would collapse and the average detached house price would fall from the $1.8 million peak in May 2017 to $1.6 million by the third quarter of this year.
As of September, detached housing sales had indeed plunged 40.4 per cent from a year earlier and the benchmark price had hit $1.54 million, according to the Real Estate Board of Greater Vancouver. The average detached sale price was approximately $1.58 million.
Eitel, who applies stock market-style analytics to the housing market, now forecasts that the detached house price in Metro Vancouver will sink in stages to a bottom of $1.4 million by Q3 2020 and trade at the level for another 18 months. The turnaround will begin in January 2022 – and it will be dramatic, he predicts.
“By the end of 2023 we will be back up to the 2017 peak pricing [$1.83 million]. But the breakout will be historic. Especially for those who purchase at or anywhere near the bottom,” Eitel told Western Investor.
He is forecasting that in the following five years to 2028, the average Metro Vancouver detached house price will skyrocket to around $2.8 million – a 100 per cent increase from the 2021 bottom of $1.4 million.
The continued slump to 2022 is not what the B.C. Real Estate Association (BCREA) is forecasting. The BCREA contends the current downturn is a government-caused blip and recovery is already underway.
According to the association’s calculations, the B.C. market has turned from its trough in June, and since then has seen a relative increase in activity of around 3.5 per cent, on a seasonally adjusted basis.
Cameron Muir, BCREA’s chief economist, said “The B.C. housing market is evolving along the same path blazed by Ontario and Alberta, where the initial shock of the mortgage stress-test is already dissipating, leading to increasing home sales.”
But Eitel said that 40 years of Greater Vancouver detached house sales and average price cycles reveals a trading pattern is established that will play out over the next decade.
He noted that the last long-term cycle began in October of 1987 and ran to 1996, during which time average house prices increased 190 per cent and peaked at $286,000 in February 1995. The average price then dropped 19 per cent to bottom out in December 1996. Prices did not recover to the earlier price peak until November 2002, six years later.
We are seeing a similar pattern today, Eitel said.
In exchange for Green Party’s backing, NDP agrees to three key amendments to tabled legislation, including reduced tax rate for out-of-province Canadians.
The B.C. Green Party, which has been vocally opposed to the NDP’s speculation tax, has reluctantly agreed to support the legislation after three changes are made, the parties announced October 18.
The Ministry of Finance said it will support the Green’s three amendments “in the spirit of compromise,” even though the finance minister made it clear she only agrees with two of them.
The key change to the legislation is the third amendment, that out-of-province Canadians who own B.C. homes in the affected areas pay the same 0.5 per cent rate as B.C.-resident owners, not the one per cent set out in the existing legislation.
Andrew Weaver, B.C. Green Party leader, said, “[A] key concern of mine was that Canadians should be treated equally. We are one country and even if they don’t pay income tax in B.C., Canadians pay federal taxes that benefit our communities. The third amendment was an area of compromise and I am pleased that it will lessen the impact for Canadian homeowners, while keeping other critical provisions of the bill intact.”
The first two changes, which the NDP said it agreed with, are:
• for there to be an annual review between the Ministry of Finance and the mayors in the affected municipalities to see how the tax has affected their regions; and
• for all revenues from the tax to be spent on affordable housing projects in the affected regions: Nanaimo-Lantzville, the Capital Regional District, Metro Vancouver, the Fraser Valley and Kelowna-West Kelowna. The statement said, “This will ensure residents of those areas will be able to see the benefits of the tax in their own communities.”
“While we strongly support the intent of the first two amendments, we are of the view that the third amendment lessens protections against out-of-province speculative investment,” said finance minister Carol James. “We believe it is fair to ask those who do not pay income tax in B.C. to pay their fair share. But in the spirit of compromise, we will support this amendment.”
Weaver said, ““While this is still not the approach I would have taken, these amendments will improve the bill and will mitigate many of the key issues I have identified. The housing crisis is British Columbians’ number one concern and our caucus is committed to working with government to address the role that speculation has played.
"One of my key issues with this tax is that it was a blunt instrument applied to communities with unique circumstances. My amendments to include local governments in an annual meeting to review the tax, and to dedicate any funds raised from this tax to affordable housing in their communities, strike a far better balance.”
The newly renamed speculation and vacancy tax still has to pass legislation, but is likely a done deal now that it has the Green Party's backing.
All homeowners in the affected areas will have to complete a form to declare their property's use, whether as a primary residence, a rental home or an empty home (in the City of Vancouver, this will be in addition to the Empty Homes Tax declaration form).
Ahead of legalization, most property owners believe cannabis use will decrease the value of their residential assets.
The majority of landlords polled in a new survey have responded negatively to cannabis use in rental units, going so far as to offer lower rent to tenants who agree to not smoking in units.
The survey conducted by real estate website Zoocasa was conducting in anticipation of cannabis legalization, coming into effect across Canada tomorrow (October 17).
A whopping 88 per cent of landlords say they plan to prohibit smoking in their buildings, with 65 per cent willing to consider lowering rent for tenants who don’t smoke cannabis inside their suites. Sixty-four per cent of Canadians agree that building management or strata councils should have the right to ban cannabis use.
Tenants seem to be on the same page – with only 35 per cent of respondents who identify as renters affirming their right to smoke cannabis inside their homes.
Stigma towards cannabis use remains high among homeowners and buyers, despite impending legalization; sixty-four per cent of property owners still believe smoking inside of homes with decrease the property’s value. Fifty-seven percent believe growing cannabis inside a home for personal use would decrease its resale value. Prospective buyers agree, with 52 per cent saying they’d be less likely to purchase a home if they knew marijuana had been cultivated there.
Cannabis retailers are also seen as less-than-desirable neighbors, with only 31 per cent of Canadians comfortable living near one. Fifty per cent of Generation Xers (those born between 1961 and 1981) believe a dispensary in the neighbourhood would devalue their home.
B.C. has 173 paid applications for private cannabis-retail stores; 0 licences – Business in Vancouver
New statistics show it is likely a pipe dream to have any private cannabis-retail stores by year’s end.
Entrepreneurs have paid the B.C. government application fees for 173 potential cannabis-retail stores but none of those applications has been approved even conditionally, the B.C. government revealed October 11.
Data up to October 10 show that of the 173 paid applications, 111 have been deemed incomplete and 62 have been referred to local government or Indigenous First Nations.
The region with the most applications is the Interior and northern B.C., with 72.
Surrey and the Fraser Valley stands out as the region with the fewest paid applications. Only 11 paid applications are in that region and seven of those were deemed incomplete. Four have been forwarded to local governments or Indigenous First Nations, the government noted.
art of the explanation for the seeming scarce interest in opening a cannabis-retail store in Surrey is that the city is not yet accepting applications. It is unclear if Surrey, like Richmond, will refuse to allow any cannabis-retail stores to operate.
Cannabis Compliance Inc. vice-president Deepak Anand, on October 2 tweeted that he enquired about requirements that the City of Surrey has in order for an entrepreneur to get a cannabis-retail licence.
“At this time, we are not accepting applications and do not have any detailed information available,” the City of Surrey wrote to Anand in response. “We are working through number of issues [sic] related to the upcoming legalization of cannabis, and the retails [sic] sale of cannabis and therefore, ask you to review information available from the Province of British Columbia.”