This week’s top stories focus primarily on the rental home markets, and how new regulations and policy might affect both landlords and tenants alike. New policy designed to cap rents with inflate costs for landlords, resulting in a decrease in demand that may be affecting resale prices and new condo projects. In the homeowner market, sales and prices have also taken a hit.
Here is Western Investor’s pick of the top commercial real estate stories published this week.
New legislation may end up harming the tenants it's designed to help, says Western Investor editor Frank O'Brien.
The Metro Vancouver area is a tough environment for tenants and it is about to get a whole lot worse because provincial and civic politicians are rushing to help.
The provincial government was the first to bring in naive legislation that, in direct contrast to what it is supposed to accomplish, will gut the construction of badly needed rental units.
Then the City of Vancouver’s new council piled on to make sure it can make Canada’s most demanding rental market even tighter and costlier. Like some neighbouring municipalities, Vancouver apparently believes it can demand condo builders deliver low-cost rental units at the same standard as strata units, and that taxpayers are capable of paying the rent for thousands of tenants, forever.
Meanwhile, existing landlords can relax in the knowledge that rents will keep rising, demand will increase and there will be less competition from new rental units being built.
Canada Mortgage and Housing Corp. (CMHC) has seen the signs. After a careful perusal of the Metro Vancouver rental market in his annual Housing Market Outlook report, released last month, it came to an obvious conclusion. Within the next two years, the federal housing agency forecast, the average Metro rent will increase 16 per cent and the vacancy rate will remain near the 1 per cent level.
CMHC’s forecast may be optimistic if B.C.’s current leadership proceeds with its plans.
The simplistic logic from many of B.C.’s politicians is that they can force builders and investors to build or buy apartments that they have no chance of making money on.
The province, for example, has struck down a planned 4.5 per cent annual rental increase allowed under its Residential Tenancy Act and will cap the allowable increase at 2.5 per cent in 2019. Yet landlord property taxes, utility rates and insurance costs have been increasing exponentially. BC Hydro rates, as one example, have risen 7.5 per cent since 2016 and will increase 3 per cent next year.
That clattering sound you hear is the downing of hammers at planned new rental projects.
Landlords fear arrival of new policy that could make it harder to raise rents.
Commercial has eight rental apartment buildings for sale in Metro Vancouver, and the prices for three of them have been slashed by more than $750,000 in the past four weeks.
The price drops reflect a cooling in what has been a white-hot multi-family market as investors fear tougher rent control regulations from the province and higher lending rates from the Bank of Canada, according to Cynthia Jagger, a multi-family specialist at HQ Commercial, one of the largest apartment building brokers in the province.
“A rental housing task force has made recommendations, but no one knows what the new rules will be,” Jagger said.
Landlords are understandably nervous. The province has already reversed a decision and reduced the maximum allowable rent increase for 2019 from 4.5 per cent to 2.5 per cent. The sudden policy change was the first of an estimated 30 recommendations from the government’s Rental Housing Task Force.
“We recognize supply is key to bringing down rental costs in the long term, but renters have told us they are hurting and need help today,” said Municipal Affairs and Housing Minister Selina Robinson.
A new B.C. rental policy, based on the task force recommendations, could be unveiled within weeks and instituted early next year.
The Urban Development Institute (UDI) has warned that up to 12,000 planned new rental apartments could be delayed or cancelled if the B.C. government imposes further restrictive rental policies.
In a survey of 30 B.C. rental builders, the UDI found that 12,631 rental homes, which are planned for communities across B.C., would be “at significant risk if restrictive policies are imposed.” This represents nearly two-thirds of the 19,972 rental homes now in development, according to the UDI. While some builders said they would still deliver rental homes because they were under construction, they were unequivocal in their opposition to potential vacancy control policies, the UDI found.
A key issue is a task force recommendation that would tie rent controls to a unit, rather than the tenant. Currently, if a tenant leaves, the apartment’s rent can be raised to the current market value, which can represent an increase far above the allowable annual rental increase.
“This would be the single most significant impediment to the construction of rental apartments,” said UDI president and CEO Anne McMullin. “With record-low vacancy rates, British Columbians need new rental homes, but this proposal puts those in jeopardy.”
Following October’s slight uptick, November’s transactions are hit with double-whammy of cooling market and slower season.
October may have shown a slight uptick in Metro Vancouver home sales since September's dismal activity, but the latest statistics from the Real Estate Board of Greater Vancouver show that transactions dropped again November.
There were 1,608 residential sales on the MLS in the region in November, which is a 42.5 per cent drop from the 2,795 sales in November 2017, and an 18.2 per cent decline in one month since October.
The total was also 34.7 per cent below the 10-year average for November home sales, making it the slowest November activity since 2008, when the last recession hit.
With the market cooling, many potential sellers are sitting on the sidelines. The number of new listings in November dropped 15.8 per cent compared with November 2017 and a 29 per cent compared with October 2018, at just 3,461 new home listings.
With sales so slow last month, the number of homes for sale as of the end of November totalled 12,307, which is 40.7 per cent more than November 2017 and a 5.2 per cent decrease compared with October 2018.
Phil Moore, REBGV president, said, “Home buyers have been taking a wait-and-see approach for most of 2018. This has allowed the number of homes available for sale in the region to return to more typical historical levels. This activity is helping home prices edge down, across all property types, from the record highs we’ve experienced over the last year.”
Metro Vancouver real estate is now sitting firmly in a balanced market. For all property types, the sales-to-active listings ratio for November 2018 is 13.1 per cent (a balanced market is between 12 and 20 per cent for a sustained period). Breaking this down by property type, the ratio is 8.9 per cent for detached homes (firmly in a buyer’s market), 14.7 per cent for townhomes and 17.6 per cent for condos (both balanced markets). This compares with October’s ratio, where condos temporarily crept back into seller’s market territory.
The composite benchmark price for all home types in Metro Vancouver stood at $1,042,100 as of the end of November. This is 1.4 per cent lower than November 2017 and 1.9 per cent less than October 2018.
“Home prices have declined between four and seven per cent over the last six months depending on property type. We’ll watch conditions in the first quarter of 2019 to see if home buyer demand picks up ahead of the traditionally more active spring market,” added Moore.
Sales and prices by property type and area
Detached houses continued to see the steepest price declines. There were 516 single-family home sales in November, a 38.6 per cent decrease from the 841 detached sales recorded in November 2017. The benchmark price for a detached home in the region stands at $1,500,100, which is a year-over-year decrease of 6.5 per cent and a 1.6 per cent drop since October 2018.
Condo towers rising in Calgary and Edmonton and price rallies across Saskatchewan and in Winnipeg point to stronger-than-expected 2019.
Battistella Developments, a homegrown Calgary builder, is bringing a 19-storey concrete tower out of the ground in the Beltline, nakedly aiming its 177 condominiums at the investor market.
This is in a condo market that even the Calgary Real Estate Board describes as oversupplied and where the rental vacancy rate is at 6 per cent.
But Nude, as the tower is called, sold 20 condos in the first month of marketing, though it won’t complete until 2021.
“We are bullish on the Calgary rental market,” Chris Pollen, Battistella’s director of sales and marketing, told Western Investor in November. He explained that the rental vacancy rate in the Beltline is closer to 3 per cent and that recent new concrete rental towers in the zone are fully tenanted. Unlike B.C., Alberta has no foreign-buyer tax, no speculation tax and no rent controls.
Rental investors, many from overpriced and underperforming Vancouver, may like the numbers.
While most investors have been ogling the Nude’s studio and one-bedroom apartments that start at less than $200,000, Pollen said that a two-bedroom, 800-square-foot penthouse with city views sells for $515,000 and would rent for up to $2,500 per month. Buyers can purchase with a 10 per cent down payment spread over a year as construction continues.
Battistella is not alone in deciding to pull the trigger on impressive multi-family residential projects in Alberta.
In Edmonton, Langham Developments is forging ahead with a twin-tower residential project that will boast 650 condos. Langham has started pre-sales and hopes to break ground next year on the first tower.
According to Canada Mortgage and Housing Corp. (CMHC), this may be an even more ambitious play than Battistella’s.
“There are signs of overbuilding in Edmonton’s multi-family market,” stated CMHC’s annual Housing Market Outlook, released in November.
CMHC, however, noted that Alberta’s economy “continues to recover from two years of recession” and forecast a steady rise in employment and in-migration, both of which have been declining following the 2014 oil-price crash.