Weekly Buzz: Stress test fallout, new Lower Mainland mixed-use developments

Western Canada's top commercial real estate stories, featuring coverage on measures that should be taken to address affordability, mortgage stress test

Western Investor
April 26, 2019

Mortgage Application

The week’s top stories focus on how federal government intervention has affected mortgage applications and affordability, while new developments in Richmond and Burnaby are exemplifying the strength of the regions residential and lodging markets.

Here is Western Investor’s pick of the most buzz-worthy real estate stories published this week.


 Federal stress test caused up to $15B drop in new mortgages: economist – Western Investor

 It’s time to rethink the too-strict stress test, urges CIBC’s chief economist.

The federal government’s mortgage stress test has done its job and it’s now time to rethink the rules, according to a leading economist.

Benjamin Tal, chief economist at CIBC, published a report this week citing CIBC research findings that the B-20 stress test has been responsible for a $13-15 billion decline in new mortgage loan values since its January 2018 introduction.

The stress test on new mortgage applications, launched by the Office of the Superintendent of Financial Institutions (OSFI), ensures home buyers are able to cover their payments at the Bank of Canada's five-year posted rate or two per cent above their actual mortgage rate, whichever is the higher.

The CIBC research found that “the vast majority of the decline in mortgage originations in 2018 was due to fewer borrowers (down by 4.9 per cent), as opposed to a smaller average mortgages. Overall, according to various sources, B-20 accounted for 50-60 per cent (or $13-$15 billion) of the overall decline in originations throughout 2018.”

Tal said that the stress test was likely needed at the time, but it doesn’t account for rising average incomes, increases in home equity over the course of a mortgage term, or the reduced risk of longer-term mortgages. He also said that it is partly to blame for the rise in alternative lending.

Tal wrote that it is time to “revisit” the test, particularly the rule that buyers must qualify at two per cent (200 basis points) above their contracted mortgage rate. He wrote, “The stress test imposed on the market was probably necessary, since there was a need to save some Canadian borrowers from themselves. But is 200 basis points the right number? At the end of the day, there is no real science behind that number. Let’s remember that the rule was introduced in an environment of an already slowing market, and that since then, the Bank of Canada has hiked rates by 75 basis points, and the five-year mortgage rate has risen by 35 basis points.”

The economist also assessed the new First Time Home Buyer Incentive that was announced by the Liberal Party as part of the 2019 Federal Budget. The program is set to offer interest-free loans to first-time buyers up to five per cent of the purchase value on a resale home, or 10 per cent on a new-build home, in a shared-equity scheme with Canada Mortgage and Housing Corporation.

Tal said he believed the program would only be used by a small percentage of people. He wrote, “We estimate that, fully utilized, this plan will impact only three per cent of borrowers and 0.12 per cent of mortgage origination dollars — not quite a game changer.”

[Western Investor]


Bold moves needed now to resolve Lower Mainland livability crisis – Business in Vancouver

Projected population increases will keep land prices rising in the long term, so more radical action must be taken now, believes Business Council of B.C. representatives.

It is time to get serious about housing, transportation, regional planning and growth in the Lower Mainland.

When thinking about the region’s future and concerns about housing affordability and livability more generally, a useful starting point is demographics. B.C. government projections point to a significant increase in the combined population of Metro Vancouver and the Fraser Valley regional district over the next couple of decades, rising from almost three million today to 3.8 million by 2040 – an increase of 800,000 people. The expected rise is even larger than the 700,000 people added to the region’s population over the preceding two decades. Most of this increase was due to immigration. It is reasonable to expect this pattern will continue, especially considering the Justin Trudeau government plans to sharply boost immigration numbers in the coming years.

Given the steadily increasing population coupled with a constrained and limited land supply, it doesn’t take a graduate degree in economics to recognize the price of land in the Lower Mainland will continue to rise at a pace well ahead of inflation. Yes, there will be periods of softening prices, as currently evident in the real estate market. But over the medium and longer term, land prices are going only one way: higher.

How then to address the challenges of housing affordability, congestion, longer commute times and a declining quality of life for many residents?

Higher taxes on residential real estate to discourage non-resident demand and a greater focus on the supply of purpose-built rental housing may help, but realistically they won’t do much over time. If we are honest, there has been an inordinate amount of talk about the need to improve housing affordability with no substantive, longer-term solutions emerging from all the chatter. Instead, it is time for some bold and strategic action. It is time to develop infrastructure that supports regional connectivity, provides workers with tolerable commutes and allows for a broader array of more affordable options for would-be homeowners.

A new Fraser Valley “innovation corridor” anchored by a commuter rail system running from Chilliwack to the city of Vancouver would help address many of the region’s most pressing issues. It would also offer new opportunities for regional economic development and growth.

A rail system, perhaps like Greater Toronto’s GO train, would have many important benefits. By providing decent and predictable commute times, it would vastly expand the potential supply of more-affordable housing options. It would help alleviate traffic congestion. Sure, some degree of congestion will always plague the region. But if a rail system delivered an effective alternative to driving, policy-makers could then reasonably talk about tolls and other forms of road pricing to help manage congestion. More trips on transit and less road congestion aligns with the province’s greenhouse gas plans.

It would also provide an opportunity for some regional vision and “out-of-the-box” thinking. A well-designed rail system supports the development of a second urban business centre, something the region desperately needs if it is going to remain competitive as downtown Vancouver becomes increasingly cost prohibitive for more businesses.

Careful consideration should also be given to developing the “innovation corridor.” Rather than picking a particular industry sector to champion, government should focus on building infrastructure that enhances the benefits that will flow from having a larger and more robust regional urban agglomeration.

[Business in Vancouver]


Tallest residential tower in Western Canada to begin construction in Burnaby – Western Investor

A 64-storey tower is set to begin construction now that the site near Gilmore SkyTrain station has been cleared.

Construction on what will become Western Canada’s tallest residential tower is about to begin.

The site of Onni Group’s future three-tower Gilmore Place development is now cleared, according to urbanYVR. The first phase of the development will be home to three towers, the largest measuring 64 storeys – taller than any other housing tower west of Ontario.

The remaining two towers are 43 and 51 storeys, totaling 1,550 units across all three buildings. A podium on the sixth floor will connect the three towers.

The IBI Group-designed development will include 500,000-square-feet of retail space and 1 million-square-feet of office area.

Future phases of the Gilmore Place project will see a total of ten towers surrounding Gilmore SkyTrain station.

[Western Investor]


Two Marriott hotels coming to new Richmond mixed-use development – Western Investor

A business hub being developed in the Bridgeport area will include two new hotels and two office buildings.

A new major commercial development is underway in Richmond.

Chungwa Investment is developing Bridgeport Centre at 9466 Beckwith Road, designed by IBI Group. The property is just east of Oak Street Bridge and a short walk from the Canada Line’s Bridgeport stop.

The mixed-use project will include two midrise office buildings and two new hotels, Courtyard Marriott and Residence Inn Mariott.

The first office building, currently under contractions, will be 12 storeys and 130,000 square feet. The second will be 66,325 square feet.

Zoning for the area allows only for commercial and entertainment use. Residential projects are not permitted due to the Bridgeport proximity to YVR’s North Runway approach.

[Western Investor]

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