A Little Less
Happy Monday Morning!
Last week we wrote a piece titled ‘Vulture Funds’ in which we highlighted the quasi bailout of the construction industry via sweeping policy changes from the Ontario government and the federal government. The immediate removal of the HST tax, the taxpayer backed vulture fund used to acquire unsold condos, and now the halving of development charges. All of which are designed to lube the tracks of an industry that has come to a screeching halt.
BC is on deck.
Ten major industry groups are calling on Premier Eby to match Ontario's housing deal, a GST rebate on new homes under $1.5M and development charge cuts of 30-50%.
Whether you agree the development community (which has enjoyed a prosperous few decades) should receive a tax dollar infusion is a worthwhile debate.
However, i’m sure we can all agree, taxes on new housing are ridiculously high, accounting for roughly 20% of the cost of a new home, and should absolutely be lowered or shifted elsewhere.
I’d argue development charges should be counter cyclical. ie, you increase them marginally when the market is hot and willing to absorb them, and you reduce them when demand tapers and the costs can’t be pushed through.
Think about a city budget today. There have only been 121 condo units sold in Metro Vancouver this quarter. Down from a peak of nearly 6000 quarterly sales back in the bull market. In other words, development tax revenues have completely dried up. So you have two options today, local municiaplities can collect 50% of something, or 100% of nothing.
Not surprisingly, not everyone agrees.
“Literally, in one municipality this evening, there is consideration going toward council to increase their development cost charges by 167 per cent. That’s Port Moody. At a time when our industry is sounding alarms to be reducing these, municipalities are not listening. So there is optimism that our province will follow suit with Ontario,” said Matthew McClenaghan, president of Vancouver-based Edgar Development.
It’s slashing time. Because, well, everyone is taking less these days, and its not just developers.
Greater Vancouver sales figures for the month of March show no improvement in sales activity. Home sales were down 3% from last year, coming in at their second lowest total in 20 years. Home sales are running 36% below their 20 year average!
Inventory remains elevated at 7 months of supply which is continuing to squeeze prices lower. Home prices, as measured by the HPI, were down 7% across all property types, and 8% for condos.
This is the resale market adjusting in real time, every month they tick lower. That’s a death sentence for a developer sitting on a project that’s only 70% sold out.
It’s also a serious problem for existing buyers in the project who now face appraisal risks. Pre-sale buyers unable to securing financing and walking away from their contracts is all the rage these days.
“I’ve been a real estate lawyer for almost 50 years, and I’ve never seen anything quite like this,” said Vancouver-based real estate lawyer, Perry Ehrlich to CTV News via Zoom on Friday.
“Usually real estate is great, and if you hold it, it only gets better and better. But what’s monumental is the fact that people have put down huge deposits and think they can get bank financing… and they can’t.”
“It’s very unfortunate,” said another real estate lawyer, Alexandra Raszewska in a Zoom interview with CTV News Friday. “We’re getting a lot of calls, I’d say one or two a day where people are struggling. Closings are coming up this year, and they can’t cover the gap.”
Pre-sale buyers are stuck. Many of which relied on blanket appraisals that the banking regulator is now pushing to end.
What’s interesting is that assignment listings are collapsing in Metro Vancouver.
Normally you’d expect this number to grow with people seemingly wanting out of their pre-sale. However, what this data tells us is two things.
Realtors are likely telling these pre-sale buyers there is no market/ no demand for their overpriced assignment.
Developers are increasingly blocking assignments from hitting the MLS as any assignment offloaded at a discount will impair the values for the rest of the building. Remember, developers are also sitting on a record number of unsold units themselves.
Like we said, everyone gets to take less.
Good Article nut the last people we need to bail out with my money are developers and speculators.
We have flat population growth and likely to continue having either flat or declining growth for the foreseeable future. Dropping prices are a good thing considering how ridiculously high they have shot up over the last decade.
Cities like Vancouver and Toronto are both overbuilt and overpriced. The market sales are simply reverting to a normal stable basis instead of being fueled by massive over immigration.
We have an oversupply of units being finished off in BC for a declining population.
Lets be clear tax reductions do NOT mean PRICE reductions. They do mean BIGGER margins. This is a straight out and out GIFT to developers.