Tuesday, February 25, 2020

Is British Columbia’s condo industry about to fall off a cliff?

For the last five years, there has been an incessant whisper at the margins of the real estate industry that has kept the idea of crashing markets and popped real estate bubbles in the public consciousness. Overextended buyers, overheated markets, overpriced properties – the reasons for anxiety are real.
Who would have thought that everything would one day come to a screeching halt because of condo insurance?
That is the scenario facing British Columbia, where insurance rates for strata corporations have risen beyond what most can afford to pay.
No lender will finance the purchase of a property lacking insurance, meaning units in uninsured buildings will have to fine either cash buyers or no buyers at all. Condo towers, because of their size and the potential for widespread damage, will be hit especially hard.
The issue first arose in the fall of 2019, when murmurs of the insurance increases were making their way around the province’s real estate industry.
“Back then, I don’t think it was on too many people’s radar,” says investor and Pemberton Homes agent Vanessa Roman. “It’s now on everybody’s radar because more and more buildings have had their insurance come up for renewal. I would say there isn’t a strata corp in BC that isn’t aware of the potential problem.”
According to Darlene Hyde, CEO of the British Columbia Real Estate Association, the scope of the problem remains hard to gauge.
“It’s like the nose of the camel is coming into the tent,” Hyde says. “We don’t know how big this is going to be. We don’t know how much premiums are going to go up. We’ve heard some individual, anecdotal stories that are pretty scary.”
One such story involves a property in Abbotsford where Roman says an unfortunate strata corporation saw its premiums rise by 700 percent.
“Last year, their premiums were $66,000. This year, they’re $588,000 – just for the premium,” she says.
Why are condo insurance rates rising in BC?
When asking about the root of the issue, the phrase “a perfect storm” frequently pops up. There are multiple reasons behind the spike in insurance rates. Any one of them would be relatively innocuous on its own, like a sliver of light underneath your bedroom door at night. But taken on simultaneously, these factors combine to form an eye-melting flash of lightning that has the potential to set the roof on fire.
Part of the blame can be laid on the strata corporations themselves. In an attempt to attract tenants, many stratas have cut their monthly maintenance fees to paltry levels, resulting in empty coffers when the time comes for major cash outlays, like sudden insurance rate hikes.
Roman says many strata corporations have also tried to keep their own costs low by opting to get insurance from companies offering the lowest rates. These companies, operating in a highly competitive environment, have suppressed normal rate increases for years in an attempt to nab and keep stratas as clients.

 “So everybody wants to pay nothing for this strata,” she says. “When you have people on strata councils saying, ‘Okay, we can go with this insurance provider, or this one, which is 20 percent more but gives us more coverage,’ everyone is like, ‘Let’s go with the cheaper one. And by the way, we don’t want our rates to go up either.’”
The insurance industry is also playing its part. The suppression of insurance rate increases means strata corporations, rather than gradually spending more each year, are paying for years of below-market increases all at once. And with the global insurance industry having to pay out for unbelievable catastrophes – the wildfires in Australia alone will cost billions and billions – those funds will need to be replaced.
What happens next?
The current situation is untenable. Its solution remains purely theoretical at this point.
“I think there will be an industry solution or it will be backstopped by the government. It’s too big a problem to ignore,” Hyde says.
Roman suspects that the BC government will either expand the Insurance Corporation of British Columbia’s mandate to cover condos in addition to automobiles or create a new crown corporation to provide condominium insurance.
“But that’s going to take time to set up. Meanwhile, you’re going to have mortgages that are being renewed, or strata insurance policies that are being renewed and they’re going to have to deal with the ramifications of that,” she says.
Roman expects a massive drop in the value of condos over the next six to seven months. Prospective owners won’t be able to find financing. Any owner of a newly uninsured property who must renew her mortgage will have to either pay the remaining amount in full or sell – for cash. In a province already plagued by affordability issues, that kind of cash will be in short supply.
“I think you’re going to have a big influx of condos that are selling far, far below market value because they’re not going to be able to be financed. And buyers are going to have to hold onto their properties for a while because we’re going to have the crash, you’re going to have the recovery period and, during that time, you’re probably going to have high monthly strata rates,” Roman explains.
Investors still planning on getting their feet wet in the BC condo space have options for protecting their capital. Roman is advising her clients to get their building’s claims history for the last five years and to find out which claims have gone through the strata corporation’s insurance.
Hyde says the BCREA has already added a clause to the contract of purchase and sale that helps realtors and clients determine the insurance status of the condo they’re looking to buy. The Association is lobbying the Ministry of Municipal Affairs and Housing to create a similar law.
“We’re hoping the combined forces of industry can find some solutions,” Hyde says, adding that she is anticipating no shortage of constructive dialogue when the Insurance Bureau of Canada hosts the next roundtable meeting of the IBC Commercial Task Force upcoming summit on St. Patrick’s Day.
By then, we might all be ready for a drink.

Monday, February 24, 2020

Condo Smarts: At tax time, get strata to consult with accountant

The lines of taxation get blurry when strata corporations run a commercial enterprise or use or lease property to a significant benefit of the corporation that results in financial benefits to the owners.

Dear Tony:

Our strata corporation is a multi-building community in the Fraser Valley. We host five guest suites solely for owner use at a minimal cost to cover expenses, rent 20 additional parking spaces at $25 per month and receive revenues from a lease with Telus for the communication towers on one of our buildings. We also rent the caretaker suite in our building at market rates as we have not had a resident caretaker for a number of years.

One council member has raised concerns over our revenues and insisted we are probably going to pay taxes on the revenues. Our property manager has advised us to not file a tax return as we have never filed a return before and strata corporations are non-profit associations so we don’t pay any taxes.

We are confused about the obligations. Do strata corporations ever have to pay taxes on revenues? Strata fees are not revenue they are simply a method of owners contributing to their own expenses.

— Sheila M.

Dear Sheila:

While tax time is approaching for personal returns, strata corporations returns are determined by their fiscal year end.

All strata corporations in British Columbia must file an annual tax return. Strata corporations are defined as non-taxable corporations under the Tax Act, they are not non-profit associations. There are limits to this exemption and there are strata corporations who have been taxed based on certain levels of revenue and source.

Your strata corporation may also be required to collect GST on non-residential strata fees and strata fees on units in a rental pool, or if your strata corporation is engaged in commercial activities. The routine operations of a strata corporation are generally not taxable. Your monthly strata fees, special levies, interest on your operating account, contingency funds and special levies, fines and penalties imposed for bylaw violations and resident user fees for parking spaces and guest suites are all generally non-taxable.

The lines of taxation get blurry when strata corporations run a commercial enterprise or use or lease property to a significant benefit of the corporation that results in financial benefits to the owners. For example, if your strata corporations owns and manages a commercial marina, a golf course that operates as a commercial entity, or uses their common areas to enter into commercial lease agreements with service providers for communications towers, billboards, public parking lots or signage, those revenues could be deemed to be taxable.

There are strata corporations who have been audited and required to pay taxes on a variety of revenues. Don’t assume your commercial revenues are exempt in a small strata. The number of units in the strata corporation is not necessarily relevant. In addition to the potential for taxable revenues, strata corporations also have an obligation to report funds paid to non contracted employees, including members of council and owners who are paid for on site services and remunerated council members who are not working as an independent contractor.

If your strata corporation generates any external or commercial revenue or retains any staff, consult with a qualified accountant to assist your strata corporation in filing your annual tax return. For those self managed and purely residential strata corporations who are not generating external revenues, you will need a T-2 short form, a copy of your annual financial statement and an information return.

The return is easy enough for strata council to file on behalf of their strata corporation. If there is a chance your strata corporation has a taxable benefit, you will receive a letter from Canada Revenue Agency requesting additional information.

Tony Gioventu is executive director of the Condominium Home Owners Association. Email tony@choa.bc.ca

Saturday, February 22, 2020

B.C. finance minister optimistic province’s real estate market will become more affordable, despite supply slow down

British Columbia’s budget is forecasting that the historic boom in new housing construction is over and that home sales will keep rebounding, an indication that prices will soon rise once again.

Although demand is expected to keep eclipsing supply, Finance Minister Carole James said she is cautiously optimistic that real estate will become affordable for the average citizen over the next year. During the past two years, as her government introduced a host of new taxes to tamp down speculative demand, Ms. James has refused to say how much the market needs to correct or define what constitutes an affordable piece of real estate.

On Tuesday, she said her government still wants prices to come down, but sees the increasing number of real estate transactions as a sign that more people priced out of home ownership are now reconsidering entering the market. She added that her ministry’s construction forecasts have been surpassed by actual starts in recent years.

“People actually have some hope of getting in the market, they’re actually starting to look again,” Ms. James told reporters. “I don’t think there’s anyone who would say we’ve reached affordable housing in British Columbia, but what you aren’t seeing is the kind of spikes you were seeing with the speculative real estate market.”

Private and non-profit real estate developers say these two factors are likely to make housing less affordable.

The balanced fiscal plan introduced Tuesday forecasts only 35,000 new units of housing will be started in 2020, a decline of 22 per cent from the historic high of nearly 45,000 new units in 2019. This key predictor of future housing supply is expected to fall over the following two years to hit the historic 30-year average of 30,000 units a year. (This official forecast is more conservative than an average of 39,000 starts forecast by a group of 13 private-sector economists that advise her ministry.)

Meanwhile, the budget predicts a recent rebound in sales will continue, with more than $56-billion in residential property sold this coming fiscal year. The budget also pegs the amount of revenue brought in from the property transfer tax to rise slightly to $1.5-billion – roughly the same amount the levy generated in 2015 right before the price of real estate in Metro Vancouver skyrocketed.

Jill Atkey, chief executive officer for the BC Non-Profit Housing Association, welcomed the new $56-million investment for 200 more temporary modular housing units to put a roof over people who are living on the street. But she said she was disappointed the province did not increase its housing funding by the $190-million now needed to meet the government’s own ambitious target of building 114,000 new units of housing over the next decade.

“What they committed to they can’t actually deliver on now that construction costs have risen 11 to 13 per cent,” said Ms. Atkey, whose organization represents some 800 non-profit housing providers. “We are not really going to start to turn the corner on this crisis in a way that we had anticipated a couple of years ago."

Ron Rapp, a former developer who now heads the Homebuilders Association Vancouver lobby group, said the provincial government still has to do more to remove the barriers to creating more housing. The predicted downturn in new construction will only hurt home buyers as it compounds the “profound imbalance between demand and supply,” he added.

Metro Vancouver’s most desirable neighbourhoods could see housing prices rise more than the regional average, Mr. Rapp said.

Bryan Yu, deputy chief economist at Central 1 Credit Union, said the NDP government’s previous measures helped bring a “temporary pause” in the rise of home prices, but that will end this coming year as home prices continue their recent upward trend. One silver lining is that more real estate money should flow into the provincial coffers, he said.

“The ramp-up in sales should provide some lift into the revenue cycle as well," he said.

NYC woman 'ecstatic' as judge orders 20 floors cut from already built condo

Olive Freud says she has no sympathy for developers ordered to deconstruct and cut 20 floors from their condo

CBC Radio · Posted: Feb 21, 2020 6:00 PM ET | Last Updated: February 21

Olive Freud at a rally to stop development of the condo at 200 Amsterdam Ave. in New York City. (West Side Rag)

Olive Freud just sent a wake-up call to any developers looking to skirt the law.

On Feb. 13, a judge in New York ruled that a new 668-foot tall condo exceeds legal zoning limits. The Upper West Side building used a zoning loophole to get approval, which the court ruled should never have been granted.

The massive condo is nearly complete. But according to Justice W. Franc Perry, that doesn't give the developers a pass. And now, he has ordered them to lop off 20 completed storeys from the highrise building.

As It Happens host Carol Off spoke to Freud, who lives in the neighborhood and has been organizing the campaign to fight the development. Here is part of their conversation.

What did you think when you heard what this judge ordered the developers of the condo unit to do?

We were ecstatic. It's been a while and it drags on but we finally got the judge to say the right thing.

How advanced is this construction?

Well, the structure is there. I don't think there's anything on the inside.

And how tall is it?

It's 668 feet. It's a tall, thin building and it's near Lincoln Center. The tall buildings there are about 300 feet high. But this really sticks out, honey. It's the tallest building in our neighborhood.

The nearly completed 668-foot condo tower at 200 Amsterdam Ave. on the Upper West Side of Manhattan. (Gary Hershorn/Getty Images)

OK. So, it's 52 stories tall, right?


And 20 of those stories have to come off.

It's not that easy to explain. The zoning law determines square footage that they can build. And this building stands on 10,000 square feet. But when they started building, when they went to the building department with their plans, they came out with 110,000 square feet.

That's what the lawsuit is about — that it's an illegal zoning lot. You can buy air rights but you have to buy them, right.

What was the zoning loophole that they exploited to do this?

These people went in and they zigzagged all around the place, picking up little lawns and pieces here and there — completely illegal.

They bought the rights based on these little bits of land they had and then they could transfer it.

Yes. They call it the 39-side zoning lot, the gerrymandered zoning lot.

That was the shape of their zoning lot that they claimed that they had?


Now, how does it change your neighbourhood, this construction, this building?

It's a precedent we can't allow. There are other developers who are just looking around to see if they could do something like that. Of course, all the developers want tall buildings. The apartments on top they sell with views. But what does it do to the people who live below?

I mean, it's taking our space, our sun, our light and leaving us in the shadows.

Exclusive by @CTannenhauser: Judge rules that the city should revoke a permit for Upper West Side's tallest building, which is almost finished.

It's height would actually have to be reduced:

It seems, though, that the city approved of it — this 39-sided zoning lot. So it went through legally, right?

Yes, that's very peculiar. The Department of Buildings, the developer brings them this and they just say, "yes."

You know, I couldn't imagine how could anybody get 668 feet? We had to go to land use people and to lawyers to be able to understand how they had done it.

Why do you think the judge sided with you? I mean, this is something they usually say, "Well, it's too late now. It's been done."

Yeah. That's what they always say, right? And that's one of the things that I hope other people don't go in for this and say it's a done deal.

If it's illegal, and it's harmful, the community should get up. We were the first ones that made this noise. That's why it's being broadcast all over.

It was reported in The New York Times how rare this is — that you have to go back to 1991 where a developer was forced to reduce a 31-storey building to 19 storeys. So not many people do what you and your neighbours did.

No. Most developers, they make a lot of money here, but they put up legal buildings — and this one was not. It was definitely illegal, the zoning lot.

There are other things that are going on now that we're aware of this. We're looking around and trying to keep making sure that developers put up buildings according to the law.

Freud called the condo development 'a precedent we can't allow.' (West Side Rag)

Do you have any sympathy for these builders at all?

Not at all. We started this lawsuit when it was a hole in the ground. They knew that they were on treacherous ground. They knew that there was going to be a lawsuit. They're so arrogant, they thought they were going to win. I guess they win over everything that they do here in New York that's been allowed. This is something new.

It's their money and it's our lives, our quality of life. I mean, I like living in this city. I love the city. But we have a right to some space and air and light, also.

What about the people who I understand have already bought some of these luxury apartments in this building?

I don't really believe that. I hope they're aware now — anyone who wants to put money into this — that things can go wrong.

But are you worried, though, that as you say, it's not over? And do you think that another judge will say, "Well, you know, like all the other times that it's too far gone, let them go."

Well, it's illegal. The point of the lawsuit is that he has to have a legal zoning lot and I don't know how they're going to get past that.

Do you think other developers in Manhattan will pause before they try and pull something like this again?

I think so. And if we don't win it means that all over the city developers can do this. It makes a whole farce of the whole zoning. They go down the sidewalk and pick up another lot someplace else.

Thursday, February 20, 2020

Victoria is the only property market in Canada still flashing high vulnerability

Victoria is the only real estate market in the country still showing high vulnerability, but the overall risk of a housing crash in the country remains moderate, according to the Canada Mortgage and Housing Corporation.

“The evidence of overvaluation remains low as housing prices remain close to the levels supported by housing market fundamentals,” Bob Dugan, the CMHC’s chief economist told media as the agency released its latest quarterly report Thursday.

The Canadian Real Estate Association’s home price index rose 0.8 per cent in January compared to December, marking its eighth consecutive monthly gain. The benchmark index is now up 5.5 per cent from last year’s lowest point in May, CREA said in a report last week.

Victoria, capital of British Columbia, “continues to show a high degree of overall vulnerability,” but CMHC added that the imbalances are easing.

“Moderate evidence remains for overvaluation, however, declining inflation-adjusted home prices combined with growing personal disposable income and population have further narrowed the imbalances b
etween observed and fundamental prices in the third quarter of 2019.”

Average Victoria home prices rose 1.4 per cent in January to $858,500, compared to the same period last year, according to the Victoria Real Estate Board.

Vancouver, another major real estate market that has seen sky-high prices in recent years, is also showing signs of easing, amid government tightening.

In Toronto price acceleration and overheating indicators are currently below their critical thresholds, but “market activity continues to rise, displayed by the sales-to-new listings ratio trending towards a sellers’ market and the accompanying stronger price growth,” the CMHC said.

In fact, the risks in the Toronto housing market remained moderate for the second quarter in a row, after being consistently classified as high risk for the previous three years. But Dugan cautioned that overheating and price increases remained a concern to watch for.

Earlier this week, the federal government said it is setting up a new benchmark interest rate for determining if people qualify for an insured mortgage using actual borrowing costs rather than advertised rates. Home buyers will need to qualify at the contract rate or a new benchmark based on 5-year fixed insured mortgage rates, plus 2 percentage points in both cases, the government said Tuesday. Those changes come into effect April 6.

Dugan said the corporation is aware of the possible impact of the federal government’s recent changes to mortgage stress tests and is watching the situation closely.

“It’s something that we’ll obviously monitor,” Dugan said. “The adjusted stress test for mortgages remains an important measure to ensure that Canadians, especially first-time home buyers, take on mortgages that they can afford.”

Markets in Quebec and Atlantic Canada were also considered low-risk, but the report said there was some froth on new construction in Montreal and Moncton.

The risk of a housing crash in the Prairies also remains low, CMHC said. Most markets in the three western provinces saw vacancy rates fall or stay flat, said Dugan, easing the regulator’s concerns about a possible oversupply of new construction.

“The rental market vacancy rates remain below critical thresholds,” Dugan said.

The only market in the west where CMHC kept its moderate risk assessment was Regina, where the vacancy rate for rental apartments is 7.8 per cent, a level which raised the CMHC’s concerns about oversupply.

Budget 2020: No new relief for renters or homebuyers

Zero new housing measures or changes to housing policy from provincial government, which uses Budget 2020 to reiterate existing 10-year plan

British Columbian renters or would-be homebuyers looking for relief will be disappointed today, as the B.C. Budget announcement contained no new measures or changes to current housing policy, beyond funding already slated within its existing 10-year housing plan.

Finance minister Carole James took the opportunity to laud the progress of the province’s Homes for B.C. plan, which she said was spending $1 billion a year on building new affordable homes across the province. The plan, which was announced in 2017, aims to have 114,000 such homes built over one decade.

The minister also took the chance to repeat a previous announcement that the B.C. government is funding an inquiry into money laundering in real estate and other sectors.

James said in a statement, “Already, more than 23,000 homes for families, seniors, and individuals are complete or underway in 90 communities. Budget 2020 includes funding for new homes as well as funding for a public inquiry on money laundering. By cracking down on money laundering, stopping fraud, targeting speculators, closing loopholes, and making renting more secure, government is working to make housing more affordable for British Columbians.”

Despite rental prices increasing beyond wage growth and inflation, and home prices now creeping up again following a recent correction, there were no additional measures to help renters or would-be homebuyers.

However, there was better news in the supportive housing sector, which did see some new funding announced.

The B.C. Budget website said, “New investments in Budget 2020 will open an additional 200 supportive homes for people and communities in need. With this new investment, government's commitment to supportive housing now stands at 4,900 supportive housing units. In addition, two new 60-bed navigation centres — shelters with enhanced services — will open for people with complex challenges.”

Change to mortgage stress test

The B.C. Budget came on the same day that the federal Liberal government made a tweak to the federal mortgage stress test, which has been widely cited as a key reason for the recent price correction in many housing markets.

The qualifying rate for insured mortgages (those with less than 20 per cent down payment) will now be calculated at the weekly median five-year fixed rate from mortgage insurance applications, plus two per cent. This replaces the previous calculation, which was the Bank of Canada’s average posted interest rate, or the mortgage applicant’s contracted rate plus two per cent, whichever was the higher.

The new measure, which goes into effect April 6, is set to ease the qualifying rate from some lenders from the current 5.19 per cent to 4.79 per cent.

James Laird, co-founder of Ratehub.ca and president of CanWise Financial, said, “Canadians who are getting insured and insurable mortgages can expect to qualify for a little bit more than what they can today. Homebuyers who cannot currently qualify for what they want, but are close, should redo their qualifying calculations using the new stress test. This change will be welcomed by the mortgage industry and consumers.”

Glacier Media Real Estate

Editorial: B.C. budget figures reveal deterioration in province’s financial affairs

Tuesday’s provincial budget showed, in telling fashion, just how insecure our financial situation has become. In her budget for the year ahead, Finance Minister Carole James put the surplus at a mere $227 million, and $179 million for next year, representing a combined total of just $406 million.

On an overall revenue base of $60.6 billion, these are rock-bottom figures, signalling a serious deterioration in the province’s financial affairs. And James has no-one to blame but herself.
In the last two years of former premier Christy Clark’s Liberal regime, that government racked up combined surpluses totalling $3.45 billion. James inherited this strong position, and immediately spent it.

The economy is not to blame for such tiny surpluses. In 2020, B.C. is forecast to have the second highest economic growth rate of all the provinces, and the lowest rate of unemployment.
James will say she is investing the wealth she inherited. And there is some truth in this.

She announced spending of $2 billion over three years to improve child-care services.
Seven billion has been earmarked over 10 years to boost the supply of affordable housing, and several new hospitals and schools are coming on line.
Of course, as with any NDP government, there are tax increases. A new tax bracket has been introduced from the top one per cent of income earners, who already pay 15 per cent of all federal and provincial income taxes.
And the province is going to tax sweetened carbonated drinks, arguing that these contribute to poor dental health as well as obesity.
But let’s look more closely at the spending plan. James plays an old Ministry of Finance trick by announcing expenditures grossed up over several years to make the figures sound more impressive.
Fair enough. Everyone does it.
Yet behind the pumped-up numbers, the realities on the ground tell a different story.
Some patients at hospitals in Victoria are waiting as long as five years for varicose vein surgery.
Patients at Cowichan District Hospital may wait a year and a half for knee replacement surgery and more than a year for hip replacement surgery.
Some patients at Nanaimo Regional General Hospital wait almost a year and a half for dental surgery.
And across Island Health as a whole, while more than 85 per cent of MRI exams are supposed to be completed within the health authority’s target period, less than half actually meet that benchmark.
These are close to Third World conditions, and they are symptoms of a broader reality.
Although James’s government has ploughed some money into surgeries and MRI scans, we are nowhere near a satisfactory state of affairs.
The same is true in virtually every sector of the social safety net.
And the reason is that our governments will not set priorities. James’s budget speech is a litany of offerings for every good cause.
But in the meantime, the truly essential services are lagging further behind.
In reality, our provincial government, like others across Canada, is so overextended there is no room left to address real need.
And alarmingly, with our aging population, those needs are accelerating faster than government revenues are growing. Hence the ultra-thin surpluses that James is forecasting.
Then again, what happens when the economy takes a downturn? We know the answer to that. Mountains of debt.
The bottom line is that with this budget, and the two before, James has ignored a basic principle of government financing. In years of economic strength you build up surpluses to see you through the inevitable lean years that will lie ahead.
But the minister doesn’t get this. She notes in her speech that “the old practice of hoarding a surplus at the expense of people is over.”
This is exactly wrong. If you don’t “hoard” surpluses while you can, it is “people” who will pay when a downturn arrives. And those who pay most are those who are most vulnerable.

Wednesday, February 19, 2020

B.C. Budget 2020: Housing funding up, property transfer tax revenue down

B.C. Finance Minister Carole James welcomed the “moderation” hitting the province’s housing market in her budget speech Tuesday, but that cooling also comes with property transfer tax revenue forecasts decreasing by hundreds of millions of dollars.

Meanwhile, the 2020 budget sees B.C.’s NDP government increasing funding for affordable housing to record levels, but there is still no sign of a renter’s rebate, a major promise of their 2017 election campaign.

The 2020 budget provides $4.2 billion over three years for housing initiatives, described as a “record total.” That includes $1.35 billion in combined program and capital funding for housing 2020-21, more than doubling the funding level from 2017-18. That investment is forecast to increase to $1.41 billion in 2021-22 and $1.49 billion in 2022-23, which includes funding for building affordable homes for low- and middle-income British Columbians.

But representatives of B.C.’s non-profit housing sector expressed disappointment that the 2020 budget delays delivery of thousands of affordable homes.

Thom Armstrong, CEO of the Co-operative Housing Federation of B.C., said Tuesday he was glad the budget does not appear to bring cuts to the government’s 10-year housing strategy, which launched in 2018, a plan he says went beyond what any other provincial government has done on housing before or since. But he was “disappointed,” he said, that B.C. Housing’s 2020 service plan shows the government delaying completion of 2,400 units of affordable rental housing.

“Kicking the can down the road” on the construction of those homes will only make B.C.’s housing crisis worse, Armstrong said, adding: “a crisis deserves a crisis response.”

“It was a difficult day for us, to be honest, because we do think of the government as a partner in expanding capacity in the community housing sector,” said Armstrong. “But they say budgets are about tough choices, and I guess it’s my job to say I’d prefer they made a different choice.”

Minister of Finance Carole James waves to people in the sitting area before she delivers her budget speech from the legislative assembly at B.C. Legislature in Victoria, B.C., on Tuesday, February 18, 2020. CHAD HIPOLITO / THE CANADIAN PRESS

The budget lands at a time when B.C.’s real estate market has cooled following several hot years, with 2020 marking the first time in two decades the B.C. Assessment Authority reported an overall decrease in the assessed value of real estate across the province.

B.C.’s housing market “has performed better than some estimates, with certainly some moderation occurring over this past year,” James told reporters Tuesday, citing home sales decreasing by about 1.5 per cent last year and average home sale prices dropping by about 1.6 per cent. James pitched this as a positive thing, saying: “We are, again, seeing the kind of moderation that we’re looking for.”

James believes home prices still need to come down further, and although home prices are no longer seeing the massive year-over-year “spikes” they recently saw in some B.C. markets, she said, “I don’t think there’s anyone who would say we’ve reached affordable housing in British Columbia.”

But that cooling real estate market has also come with decreased government revenue in the form of the property transfer tax, which is, for most real estate transactions, based on purchase price. The 2019 budget had projected property transfer tax revenues to remain stable at around $1.9 billion over the following three years. But this year’s budget shows it dropped to an estimated $1.54 billion for the 2019-20 fiscal year, forecast to raise to only $1.58 billion for 2020-21.

Some of those losses will be off-set, though, by the province’s new speculation and vacancy tax, which was first collected last year, targeting empty or underutilized residential properties in some of B.C.’s hottest housing markets and generating an estimated revenue of $185 million for 2019-20.

James also talked about B.C.’s continuing “momentum in home construction,” citing almost 45,000 housing starts in 2019, the highest annual level on record. However, the 2020 budget forecasts housing starts to decrease in each of the next three years, starting with a dramatic 22 per cent drop this year.

James said the government’s conservative estimates for housing construction are consistently outperformed by actual results, and she expects that over the next year, both housing starts and sales will climb.

But despite trumpeting its record housing investments, this year’s budget once again contains no mention of a renter’s rebate, even though the NDP campaigned in 2017 on introducing a yearly grant for renters, similar to the one provided to homeowners.

Asked if the province might introduce a renter’s rebate before the next provincial election, planned for October 2021, James said her government is looking at “all options to be able to support tenants,” and has decreased maximum allowable rent increases and boosted rent supplements for low-income seniors. However, James added, the idea of the renter’s rebate is not backed by the B.C. Green Party, whose support the NDP needs to form the current minority government.

The budget also includes $56 million in capital funding for the development of 200 units of temporary modular housing, bringing the total to 2,400 units across the province of this type of housing for people who are homeless or on the verge of homelessness. While these modular homes, which include on-site support services, will be welcomed by housing advocates, they won’t come close to meeting demand. Vancouver’s council unanimously passed a motion in late 2018 calling on the province for another 600 modular homes in that city alone.

In her speech to the legislature Tuesday, James included jabs related to the previous B.C. Liberal government’s record on housing, accusing them of “cashing in on a speculative real estate market” and “turning a blind eye” to the role of dirty money in the housing market.

“Over the last decade our province’s economy has remained strong, but many people and communities fell further behind. There was a bright future in British Columbia, but only for the few who could afford it. I am proud to say that, as a province, we are now on a different path. We are making different choices,” James said. “Mr. Speaker, the days of cashing in on a speculative real estate market at the expense of hardworking British Columbians are done. Instead of turning a blind eye to money laundering and the housing crisis, we’re acting so that everyone can afford a future in British Columbia. Money laundering in our economy must end. Our goal is to ensure balance — and it is not balanced to have an economy that is distorted by dirty money.”

The 2020 budget provides $11 million to fund a public inquiry which will make recommendations related to money laundering in B.C. in sectors including real estate.


Sunday, February 16, 2020

Millennials don’t trust lenders or the housing market – So how do we reach them?

One of the most defining characteristics of the Millennial generation’s experience with the financial and housing ecosystems is that of fear.

As a result, they have developed a pervasive mistrust of banks, lenders, and the housing market overall. In one study by Even Financial, 92% of millennials stated that banks could not be trusted, and over half said they didn’t have anyone to turn to for financial advice.

In a recent home buying event in Los Angeles, attendees consistently shared their fears and insecurities about the topic.

“It’s scary,” said Reina, a 31-year-old homebuyer. “I think in the past there hasn’t been a lot of transparency about the process, and there’s just so many steps that are really intimidating.”

There’s a generational gap in how we think about homeownership and the American Dream.

Access to homeownership for this generation isn’t just about credit. It’s about access to trustworthy advice, transparent information, and personalization. 

The Generational Gap

When I speak on the topic of Millennial homebuyers to groups of loan officers and agents, the audience repeatedly echoes the same disparaging jokes about snowflakes and participation trophies.

I ask them what comes to mind when they think of Millennials, and predictably, in nearly every session, they cite “lazy” or “entitled” as an almost instinctual reaction to the question.

(To be fair, I encourage these comments so as to address the topic, and because I enjoy self-deprecating humor).

However, it seems like there’s always a new viral article about how avocado toast is “ruining Millennials,” which fuels this sentiment. In Zillow’s humorously patronizing study on real estate trends among Millennials, they cite the reason for our slow entrance to the home buying market as a result of spending money on lavish bachelor parties instead of saving.

As entertaining as that click-bait may be, this kind of commentary reflects a harmful narrative between generations, rooted in two very conflicting experiences of the housing market.

In context, this perception that Millennials are just slacking off when it comes to wealth-building is understandable. For the majority of Baby Boomers, homeownership and a traditional career path translated to safety and security. They bought houses, they climbed the corporate ladder, and now many of them sit in a relatively secure place in our society. Naturally, they are confused when their children are not following their white-picket dreams.

However, for Millennials, who entered adulthood during or immediately following the financial crisis, homeownership does not necessarily translate to security. In fact, to this generation, the entire system their parents raised them in appears to have crumbled around them, and to a certain extent, they feel betrayed.

Millennials turned the key to their adulthood and walked into a house full of student loan debt, a collapsed housing market, rising healthcare costs, income inequality that’s at a five-decade high, and to top it off, polar bears are on the decline. (As a former 9-year-old snowglobe collector, that last one really gets me).

This house of horrors only gets more terrifying for Millennials of color, who make up 46% of the generation. Their families were systematically prevented access to mortgage credit until the ’70s and faced direct and open discrimination from lenders until well into the ’90s.

While white families had at least a three-decade head-start in building wealth through homeownership that they would pass on to future generations, many of the multicultural Millennials today did not benefit from a generational transfer of wealth. When these communities began to build wealth in the early 2000s, they were hit the hardest in the financial crisis, in which their wealth plummeted to levels not seen since before the Fair Housing Act of 1968.

Millennials of all backgrounds were disillusioned by what they were told was the American Dream, and now they’re faced with a new reality — one which seems to be hardly understood by those with a foundation of wealth built on real estate.

But don’t order your bottomless mimosas in despair just yet. Millennials are behaving as any community would in the face of traumatic events, and there is a proven method to connecting with this exact type of audience.
An Alternative Approach

As a former social worker, I worked primarily with traumatized, homeless and migrant populations.

Over the years of studying consumer financial behavior, I noticed some similarities. Traumatized populations are highly suspicious, avoidant and often swing between reckless and overly cautious behavior (known as the “fight or flight” response). Sound familiar?

Social workers use a therapeutic model called Trauma-Informed Care (TIC) that I think is incredibly relevant to rebuilding our approach to a generation of financially stressed and overwhelmed consumers. Similar to a practitioner working with a traumatized child, lenders and industry “practitioners” should understand how to approach today’s consumers in a way that connects and builds trust to support the growth of a healthy society and economy.

To be clear, I am not saying the financial crisis, systemic discrimination or other factors described here are necessarily classified as trauma (though they are for many). My purpose, for now, is to demonstrate how we can apply a healing modality traditionally used in therapeutic treatments to better connect with modern consumers.

There are five overarching principles in a Trauma-Informed Care approach, which I have adapted below to apply to financial services and housing. 

Safety: The customer experience ensures the clients’ financial safety, and interpersonal interactions promote a sense of safety as defined by those served.
Design the customer experience with the customers’ definition and perception of safety in mind from start to finish. Millennials, for instance, will likely feel the safest starting an application through their mobile phones, but will later appreciate human interaction and guidance. 

Offer flexibility in how the consumer communicates and engages throughout the customer experience (i.e. text, phone call, etc.). 

If hosting events, offer them in locations outside of the office such as a local coffee shop or pub (the only time to talk about avocado toast), so the participants feel safe to gather information and connect without fear they will be sold to or require divulging their financial situation on-site. 

Transparency: Creating clear expectations with clients about what the home buying process will entail, how they will be communicated with, and offering additional resources for education.

Consider offering “homeownership plans” for anyone, no matter their stage in life.
Create and share educational content on social media. 

Respond openly to consumer questions with omnichannel accessibility. 

Choice: Offering a clear understanding of their personalized purchasing options
Disclosures, contracts, negotiation offers, etc. should all be explained thoroughly and in plain language for the customer to understand their options. 

Lenders should ensure clients can independently review their available mortgage products, understand the rate and associated fees, and be able to view various scenarios based on their personal preferences (i.e. down payment, product choice, etc.).
Collaboration: Access to a trusted advisor to support smart decision-making
Offer quick responses to questions and inquiries.

Provide live video or in-person support when reviewing major decisions in the home buying process (i.e. contract, mortgage product). 

Empowerment: The recognition of the consumer’s ability to self-advocate and achieve long-term financial wellness.

Empower the customer with education and resources to continue to build wealth and a sustainable future as a homeowner.
Provide opportunities for the customer to share and advocate on your behalf (i.e. digitally shareable financial education resources, photos and social media posts at closing, etc.).

The trauma-informed care model is used by countless providers to build trust with the most distrusting populations, and it only makes sense to apply it in the context of a distrusting consumer segment.

Reaching this generation of homebuyers requires the housing industry to take a new approach that empathizes with their worldview and empowers them to build their version of the American Dream.

Home Prices Up 11% in January as Supply Dwindles: CREA

The stage is set for sizzling sales and price growth this year, according to the first round of 2020 data released by the Canadian Real Estate Association.

From an annual perspective, real estate transactions rose 11.5%, with the average price not far behind; a typical abode will now set buyers back $504,350, an increase of 11.2% from 2019. As well, the overall value of homes sold continues to rise, with the MLS Home Price Index rising 4.7% year-over-year—the eighth straight month it has seen gains. National home prices are roughly 5.5% higher than where they were in May of 2018 when the market experienced the lowest part of its slump.

Prices in January were up in 14 of the 18 markets CREA tracks, though it should be noted that stripping out the influence of pricey Toronto and Vancouver cuts $110,000 from the national average, to $395,000.

New Supply of Homes Remains Flat

However, the prevailing theme shaping Canadian housing into 2020 is a lack of supply: the number of newly-listed homes remained roughly flat in January, up just 0.2% following months of declines. That’s led to a 10-year low for new listings, which caused sales to fall 2.9% month-over-month as there were too few homes to satiate buyer demand. As a result, sellers remain firmly in the seat of power, and may even be contributing to the short-term crunch by waiting for the spring market to roll around.

“Looking at local market trends across the country, one thing that stands out in markets with historically tight supply is a larger-than-normal drop in new listings at this time of year. The logic being that if you are a seller, you’re not just choosing when to list, but effectively when to sell, so why not hold off until the spring when the weather is better and more buyers are looking?” stated CREA Chief Economist Shaun Cathcart. “Deferred listings mean deferred sales, which could explain some of January’s decline in activity. The question going forward is how many sellers are out there waiting to list their property, how much demand will respond, and how that will impact prices later this year?”

The East-West Gap Continues to Grow

However, disparity between the eastern and western housing markets continued to deepen this month, with the Prairie markets and parts of Eastern Canada standing in sharp contrast to Ontario and B.C. in regards to price growth and buyer conditions.

“Home price growth continues to pick up in housing markets where listings are in short supply, particularly in southern, central, and eastern Ontario,” said CREA President Jason Stephen. “Meanwhile, ample supply across the Prairies and in Newfoundland and Labrador is resulting in ongoing competition among sellers.”
Sellers’ Markets Prevail Across Country

From a national perspective, Canadian real estate does indeed remain in a seller’s market, with a sales-to-new-listings ratio of 65.1% in January. That’s down very slightly from the 67.2% recorded in December, but still indicative that conditions are tight for buyers in the majority of local markets. It’s also the fourth month in a row that the SNLR has outperformed its long-term average of 52.8%, indicating that these sellers’ markets aren’t just a flash in the pan. Should current market conditions persist, it will set the stage for price growth throughout the new year.

Wondering how home prices performed in major markets across Canada in January? Check out the infographic below: