If passed, new rules will apply to both new and existing tenancy agreements
B.C.'s provincial government has announced legislation to close what has been dubbed a major loophole affecting renters in the province.
Critics say the loophole allows landlords to bypass rent controls by having residents sign a fixed-term lease with move-out clauses. At the end of each term, tenants must either move out or sign a new lease at a reassessed market rental rate.
In places like Vancouver where the rental market is especially tight, that new market rental rate can be hundreds of dollars higher, exceeding what would be allowable under the Residential Tenancy Act for the same tenant.
B.C. Housing Minister Selina Robinson said the new legislation would protect the rights of renters who have been left open to "unfair and unjustified rent increases."
"By closing this loophole, renters will know they'll be able to stay in their homes without the threat of skyrocketing rents," Robinson said.
If passed, the legislation would restrict a landlord's ability to use a vacate clause in fixed-term tenancy agreements and limit rent increases between fixed-term tenancy agreements for the same tenant to the maximum annual allowable amount (currently two per cent plus inflation).
Liberal MLA Todd Stone said while the measures may improve housing affordablity, putting more restrictions on landlords could affect rental supply.
"We want to just make sure that the measures being proposed here, and how they are implemented, ensures a continued balance between renters and tenants," Stone said.
LandlordBC CEO David Hutniak applauded the loophole's closure, saying his organization had raised concerns about a "growing cohort" of unscrupulous landlords abusing it for over two years.
"We were very concerned about it. It was damaging the industry, we felt," Hutniak told On The Coast guest host Gloria Macarenko. "Really, we felt it was unfair to responsible, professional landlords, which are the majority."
But Emily Rogers, a tenant advocate with the Victoria chapter of advocacy group Together Against Poverty Society said the measures might not go far enough.
She expressed concerns landlords would use other provisions to increase the rent further than the allowable increase.
"I would like to see rent tied to the unit rather than the tenant," she said. "It would ensure that rent increases do not exceed the annual allowable rent increase every year."
The province says the new rules will apply to both new and existing tenancy agreements.
Giving Vancouverites priority on new homes is a fine idea, but only part of a much larger puzzle
There has long been rampant media speculation – and, in some cases, seeming proof – that at least some local real estate developers are marketing their Metro Vancouver projects overseas as a priority, leading them to be virtually sold out by the time locals can get their hands on the units.
Certainly it very often seems to be the case that only a handful of condos are still available for sale when it comes to the local sales centre opening day. And that leads to many, many frustrated buyers left out in the cold, and all competing with each other for other units, of which there are not nearly enough being built, or coming on the resale market.
So on the face of it, Vancouver Mayor Gregor Robertson’s proposal to implement a “locals first” policy and limit bulk-buying, modelled on this successful project in West Vancouver, would seem to be a good idea. Give Metro Vancouver residents first crack at all the new condos coming on stream, before non-residents are allowed to scoop up the remainder (if there are any left). Surely this will help with our housing supply and affordability issue?
Well… maybe a bit. It’s certainly a perfectly fine idea that can’t do any harm and might just help a few buyers get their hands on units they might not otherwise have access to. If I were voting in council next week when the proposal is tabled, I’d vote yes, and I would be surprised if this public-pleasing motion didn’t pass.
But I suspect the impact this new policy will have on our housing supply and affordability problems will be, sadly, minimal. The issue is multi-faceted.
First, we don’t really know how many new Metro Vancouver units are truly being marketed overseas first. Shouty media headlines about individual projects may have a lot of impact on the public perception on the topic, but that doesn’t prove that it is necessarily a widespread practice. Perhaps it is, but we have no real evidence of that. The Urban Development Institute claims that marketing overseas is relatively minimal, stating in response to the new proposal, “UDI members already sell the vast majority of multi-family housing units, over 90%, to local buyers, which is often a bank construction financing requirement.” That is to say, developers won’t get the money they need to build the project if they are taking on lots of presale contracts with overseas buyers, which are perceived by the banks as riskier than local buyers. Certainly, media reports about overseas marketing events don’t make it feel to the average local resident like this 90% figure can be accurate, but the UDI does collect huge amounts of data about buyers of new homes in the Lower Mainland from its members. If it is right, the new policy will help locals get their hands on only an additional 10% or so of units. Which is probably still worth it, but not dial-moving for affordability.
Second, even with all new units available to Metro Vancouverites, that doesn’t necessarily mean those homes will become more affordable, just because locals are no longer competing with non-local buyers. Even if you believe the UDI’s above figure is inaccurate, and the new “locals first” policy will release a much higher proportion of new units to local buyers, those homes will still be expensive. Land is still expensive, permitting and consultation processes are still time-consuming and expensive, construction costs are still expensive. To make projects profitable, developers will still charge the same high prices we’ve been seeing, knowing that if local buyers want the units, they will cough up – or if the project doesn’t sell to locals, non-local buyers will absorb the rest later. But in fact there’s also still a huge appetite for pricey condos even among local buyers, who very often have more money at their disposal than affordability reports imagine. That said, it’s possible that the easing of competition in the presale market will have a knock-on effect of taking some buyers out of the resale market, and improving supply there. So again, it might help a bit.
Thirdly, you’d have to also ban the practice of “insiders” getting first crack at local projects – people such as family and friends of the developers. It is often perceived that it must be overseas buyers who have snapped up units when there are not many left for locals. But on some projects, it has been suggested that particular groups of locals are getting in on the action first. So in addition to preventing bulk-buying, which the Mayor’s proposal also intends, perhaps it should also require that 100% of units are available for sale on the local public sales centre opening day.
But to really move the dial on affordability, there needs to be a much more massive influx of new housing for local buyers to get their hands on, and of much more widely varying and flexible home types. Dramatically increase supply with pervasive rezoning, dramatically cut permitting costs and times, flood the market with new homes and – even with the expensive land and construction costs – developers will have no choice but to be competitive with pricing. Perhaps add to that a requirement for income-linked non-market housing on every new project, or subsidize particular projects to offer all homes at below-market pricing like this one in Victoria. Build smaller units, less expensively finished units, units with lock-off suites to act as mortgage helpers. Get creative. Be radical. Stop drip-feeding supply and open the floodgates.
But sure, also give locals first pass on presale condos. It can’t hurt.
Inventory at 10-year lows in most regions, pushing prices ever higher
The number of homes sold on the Multiple Listing Service® in BC in September rose nearly 10% year over year, and 5% from August, according to a report by the British Columbia Real Estate Association (BCREA) published October 12.
Because there was also an increase in sale prices, that lead September’s total sales dollar volume to rise by a
whopping 30.2% compared with the same month last year.
The average resale price of a home in the province last month was 18.5% higher than one year previously, at $693,774, which is up 2.3% in a single month since August’s average of $678,168.
The annual jump in homes exchanging hands across the province is largely driven by increased activity in the Lower Mainland, which has seen a recovery from the effects of the Metro Vancouver foreign buyer tax introduction last August. Of the larger markets, Greater Vancouver and the Fraser Valley posted the largest annual sales gains, both up around 25%, whereas Victoria saw the province’s biggest year-over-year slide in unit transactions, down 16.6%.
Some of the Interior and smaller markets also saw annual sales declines, although Kamloops and Chilliwack both had a strong showing, up 8.2% and 7.7% respectively.
The annual price rises seen by the different boards also varied, but did not necessarily mirror sales patterns. Nine out of the 11 BC boards reported year-over-year average price increases. Of the larger markets, where price changes are less volatile, the Fraser Valley and Greater Vancouver saw the biggest price gains, up 18.2% and 17.7% respectively. But Victoria, where sales dropped, posted an average price increase of 12.5%. Only the very small markets of BC Northern and Norther Lights saw minor annual average sale price declines.
Eight of the 11 boards posted year-over-year declines in the number of active listings in September, although Greater Vancouver was not one of them.
“Total active listings on the market continue to trend at 10-year lows in most BC regions, limiting unit sales and pushing home prices higher,” said Cameron Muir, BCREA chief economist.
“While the economic fundamentals support elevated housing demand, rising home prices are eroding affordability, particularly for first-time buyers.”
The BCREA report was issued on the same day as Royal LePage’s 2017 Q3 House Price Survey, which looks at quarterly price activity in Canada’s major urban markets. The report said that during the third quarter, the aggregate home price in Greater Vancouver rose year over year by a “modest, but healthy” 2.5% to $1,229,133.
However, when broken out by housing type, the brokerage found that the median price of a Greater Vancouver condo increased 17.6% year-over-year to $622,392. The median price of a bungalow had a much more reasonable increase, up 3.5% year-over-year to $1,422,458, but the median price of a standard two-storey home fell 1.1% to $1,532,849 in the same period.
The drop in interest rates has been so significant that the interest burden of servicing debt has declined as a share of income, despite growing household debt.
With headlines about Canadian household debt hitting record levels and dire warnings from top policy-makers such as Bank of Canada governor Stephen Poloz, Canadians may think household debt is out of control.
The concerns, however, often fail to properly account for the other side of the balance sheet.
Yes, Canadian households have taken on more debt. But they’ve used this debt to finance assets – real estate and retirement savings, for example – that grow over time, causing their net worth to swell, also to unprecedented levels.
By the end of last year, household debt eclipsed $2 trillion, up from $357 billion in 1990. Two-thirds of this debt is for mortgages; the remaining third is split between consumer credit (29 per cent) and other loans (five per cent).
Despite the preoccupation with overheated real estate markets, the mortgage share of total household debt has remained stable. The $2-trillion-plus in household debt now equals approximately 170 per cent of household disposable income compared to just 90 per cent in 1990.
So does this mean Canadians are being irresponsible with debt?
The growth in household debt has partly been a rational response to plummeting interest rates. The Bank of Canada rate has fallen dramatically from nearly 13 per cent in 1990 to 0.75 per cent at the end of last year. Not surprisingly, as the cost of borrowing has dropped, Canadian households have borrowed more.
The drop in interest rates has been so significant that the interest burden of servicing debt has declined as a share of income, despite growing household debt. Today, interest payments on household debt consume six per cent of disposable income compared to almost 11 per cent in 1990.
That brings us back to the other side of the balance sheet – household assets. While household debt has grown substantially over the past 26 years, households are borrowing to invest in appreciating assets such as real estate, pensions, financial investments and businesses. Canadian household assets rose from $2.2 trillion in 1990 to $12.3 trillion in 2016.
The significant investment in assets has meant that household net worth (total assets minus liabilities) surged from $1.8 trillion to $10.3 trillion, a record level, during the same 26-year period. As a share of gross domestic product, household net worth rose from 265 per cent to 498 per cent.
While government policy-makers fret over household debt, the irony is that unlike government, household net worth is positive and increasing over time.
Debt is a tool and the concern should only be about debt that’s not manageable given the economic circumstances of a given household. The greatest risks to management of household debt are:
• economic shocks that lead to job losses, which make it harder for people to service their debt;
• increases in interest rates that raise debt-servicing costs.
Even with any small forecast increases, interest rates remain low and the Canadian economy has performed adequately in terms of employment, with relatively low jobless rates.
While these macroeconomic factors are of concern, they should also be kept in context. Despite record high levels of household debt, there are also record high levels of net worth.
Livio Di Matteo is senior fellow at the Fraser Institute and author of the study Household Debt and Government Debt in Canada, available at www.fraserinstitute.org.
By Livio Di Matteo
Senior Fellow, The Fraser Institute