1451 replies to this topic

[Mattjvd]

The last four years had a good run of development, and council did put through a lot of good projects. But the council that was elected on Saturday is different and I'm less optimistic that the approval rate will continue.

[Nparker]

...rental stock started to increase I would say about 3 years ago here in Victoria...

So please explain the CoV policies that have been enacted to make the construction of purpose-built rentals more desirable to construct that have nothing to do with low interest rates.

[Mike K.]

If that were true wouldn't we have started to see rental stock increase around eight years ago? Interest rates have been at an all-time low for the last ten years or so, but rental stock started to increase I would say about 3 years ago here in Victoria. 

 

I find it interesting that this forum spends a lot of time blaming council for everything that is bad in the city, but not giving credit for anything that's good. So slanted....

 

It would have been impossible for them to materialize right at the crack of dawn eight years ago, but the wheels were set in motion (proposals surfacing) starting about eight years ago well before the last council was elected.

 

Already in the approvals stage, under construction or very recently completed when the last council was elected in 2014 were:

 

Hudson Mews

The Chambers

Yello

Boardwalk

Wilson's Walk

Hudson Walk One

Dominion Rocket (Dominion Hotel conversion)

The Q Apartments (Queen Victoria Inn conversion)

1032 North Park

...and others.

 

Furthermore, if it had been City of Victoria council of 2014-2018 that was exclusively responsible for the surge in rentals we wouldn't be seeing thousands of units materializing outside of the Cov (and quite a lot more than within the CoV). Council likes to take credit for the surge in rentals, but it has about as much to do with them as bank rates have to do with you and I.

[Veblen]

Yeah but then we had an election on Saturday and council changed.

I encourage you to go to together victoria website and read their platform. Combined with Issit and Loveday they now represent 5 out of 9 votes on council

Their platform sounds like they don’t understand Victoria (the municipality) is part of a wider region. “A lack of family-friendly housing”? There’s lots in Langford, Gordon Head... pretty sure areas like Fairfield and James Bay are part of Victoria as well.

The rhetoric around “can’t afford homes big enough to raise a family” is irksome. Anecdotally, I know many young families and none complain about housing prices; most live in Saanich or Westshore. My partner and I recently bought in HP1. We based the decision on an intersection of our wants and budget. Even in HP1 there’s a healthy enough range of prices. If we had kids now, we’d have looked at areas with houses, which also come with a range of prices. If our jobs weren’t adequate to afford housing here in any area of GV, we might move to another city. I lived in Ottawa prior to moving here and it’s pretty cheap, for example. Do we have a crisis on our hands or simply a stubbornness to make hard calls on needs vs wants? I’ve now been in Victoria as a student ($broke), new grad ($peanuts), and professional ($finally); I found acceptable housing (price and quality) at all stages without much effort. This echoes the stories of the vast majority of my friends and colleagues here. Am I in a bubble or something?

We have other concerns in GV besides housing and affordability. Wouldn’t know that from Together Victoria’s broader platform.

[Mike K.]

Holy smokes, Veblen, way to knock it out of the park!

That’s just it, isn’t it? If you put up barriers you live within their confines. We have a Together Victoria councillor who lives in Esquimalt. I’m going to assume he does so because the rent is cheaper than in Fairfield. It’s a gross assumption on my part but Esquimalt hasn’t historically been a place where people have aspired to move to (that’s certainly changing, though).

I too don’t know many 30+ couples who can’t afford a home, any home, regardless of their job situation. 9 times out of 10 if they’re not confined by the barrier of having to live in Victoria or within neighbourbood X, or within a home that must be a minimum square footage with two yards, designed with a specific architectural character, have a large garage and be in walking distance to downtown, affording a home is no more a struggle in their 30’s even in the Capital than renting was in their 20’s.

Of course the nature of one’s job heavily dictates one’s housing situation, but if you’re in your 30’s and are not earning enough to afford a mortgage for a $250k condo something very different is plaguing your situation than the scapegoat of high housing costs. And if you can afford that $250k condo, or a $450k condo, but you desire a $950k home, well, is that society’s problem or the confine you’ve found yourself in?

[MarkoJ]

The rhetoric around “can’t afford homes big enough to raise a family” is irksome. 

 

I think you are pretty much bang on that this needs to be left to a wider region. I know people always mention lack of three bedrooms condos in the City of Victoria but whenever I have to list one they aren't flying off the shelf.

 

Currently I have this place listed -> https://www.realtor....2-victoria-west

 

It is approximately 40% less per square foot than what a one bedroom would go for in the SAME building. You can't expect a developer to build three bed units when they can do two one beds and gross 40% more.

 

It is pretty clear that for the most part in North America people associate family with a SFH, yard, etc. We can leave that to Happy Valley where you can have a single family home with 15' of yard for the price of a three bedroom condo in town. Victoria can't possibly create a huge amount of family friendly inventory if the general population is not down with raising a family in a bit of density.

Edited by MarkoJ, 23 October 2018 - 10:03 PM.

[tjv]

So please explain the CoV policies that have been enacted to make the construction of purpose-built rentals more desirable to construct that have nothing to do with low interest rates.

I would put it that most rental construction has happened in the last say 3 years ish as rental rates have skyrocketed making the numbers work to build rental.  Prior to that rents for a typical one bedroom in the 60's and 70's rental stock was always too cheap to consider trying to get $2000 for a new 1 bedroom downtown.

 

Low interest rates have helped with lower carrying costs, but I don't think they were the catalyst.  This real estate boom was primarily focused on foreign buyers, mainly Chinese, moving into Vancouver driving the prices skyhigh, people cashed out and moved here and didn't care about overpaying because they still have millions left over.  The Chinese foreign buyer market is dead, the Vancouver market has flattened awhile ago and now our market is now flat.  I expect to see a slow down of new construction over the coming while

[Mike K.]

I would put it that most rental construction has happened in the last say 3 years ish as rental rates have skyrocketed making the numbers work to build rental.  Prior to that rents for a typical one bedroom in the 60's and 70's rental stock was always too cheap to consider trying to get $2000 for a new 1 bedroom downtown.

 

Low interest rates have helped with lower carrying costs, but I don't think they were the catalyst.  This real estate boom was primarily focused on foreign buyers, mainly Chinese, moving into Vancouver driving the prices skyhigh, people cashed out and moved here and didn't care about overpaying because they still have millions left over.  The Chinese foreign buyer market is dead, the Vancouver market has flattened awhile ago and now our market is now flat.  I expect to see a slow down of new construction over the coming while

 

See my post above about the supply of rental housing in Victoria and when it actually came to be.

 

And interest rates were absolutely a massive catalyst, both directly and indirectly. Large institutions funded rentals in markets like Victoria due to their long-term, stable and rising return.

 

They were propelled not out of the goodness of their hearts, but due to a lack of a return in other long-term, stable investments like bonds and secured investments. On the flipside the capital that was made available to developers courtesy of the large lenders like banks was also cheap so you had a double whammy of support for building rentals in lieu of condos.

 

Fast-forwarding to today capital for rental construction is drying up and large lenders are also moving away from the 20-year stable, long-term return window via rentals to an instant return via condos, albeit there is more risk with the condo side of the equation. Further to that, the Bank of Canada just raised the key rate to 1.75% and plans to continue raising the rate into 2019. Large institutions are starting to yield equal to or better results to large real-estate investments in rentals just through rising interest rates.

[tjv]

We have had low interest rates for about 15 years so if they were a catalyst then why weren't we building rentals in the 00's?  What do you think the difference is between 15 years and and 5 years ago?  Not much has changed in the bond market market, but that's an area I don't know much about to be completely honest

 

With the new rental rate increase law in place I will be curious how many purpose built rentals go forward in the coming while.  I know I won't be building rental with restrictions like that

 

I looked at buying existing rental stock years ago, returns were pathetic at around 3-4% more or less.  Sure its long term, stable and low risk, but that return is pathetic

 

Absolutely money is drying up for developers, I will be doing a mortgage for a local developer this month at an interest rate of 20%.  Even my Vancouver lawyers told me 20% is common

[Mike K.]

Between 2000 and 2009 the key lending rate was between 4% and 6%. Compared to 0.25% and 1.0% that dominated until just the last year rates were comparatively huge prior to 2009.

 

So it wasn't until after the financial meltdown that rates plummeted and it wasn't until well after the financial meltdown that capital became available to invest in the housing markets. Even with historically low rates nobody wanted to invest immediately after the meltdown, and that's why we didn't see much in the way of local development (rental or non-rental) between 2009 and 2012.

[Nparker]

... I will be doing a mortgage for a local developer this month at an interest rate of 20%.  Even my Vancouver lawyers told me 20% is common

https://www.merriam-...ictionary/usury

[Mike K.]

It sounds far worse than it actually is. These are short term mortgages and not the 25 year amortizations we're used to.

 

If you want capital outside of the traditional lending markets it'll come with a higher rate, that's just how it works. Money Mart charges even more than 20% for fast access to non-institutional capital.

[Nparker]

...Money Mart charges even more than 20% for fast access to non-institutional capital.

Money Mart...the gold standard of money lending.

[Jackerbie]

Money Mart...the gold standard of money lending.

 

I prefer going to BMD, the Bank of Mom and Dad

[Nparker]

I prefer going to BMD, the Bank of Mom and Dad

They often charge the highest rate of all: GUILT! 

[tjv]

Between 2000 and 2009 the key lending rate was between 4% and 6%. Compared to 0.25% and 1.0% that dominated until just the last year rates were comparatively huge prior to 2009.

 

So it wasn't until after the financial meltdown that rates plummeted and it wasn't until well after the financial meltdown that capital became available to invest in the housing markets. Even with historically low rates nobody wanted to invest immediately after the meltdown, and that's why we didn't see much in the way of local development (rental or non-rental) between 2009 and 2012.

True, but between 2002 and 2006 BoC rates were 2-3% and housing prices were what half of what they are today

 

It sounds far worse than it actually is. These are short term mortgages and not the 25 year amortizations we're used to.

 

If you want capital outside of the traditional lending markets it'll come with a higher rate, that's just how it works. Money Mart charges even more than 20% for fast access to non-institutional capital.

Because I am lending small $400 loans to a developer and we can compare that to Money Mart.  Its a wee bit different.  These aren't even $500,000 for 14 days

 

The traditional lending market has been slowly clamping down hard on lending as the market cools

[Mike K.]

True, but between 2002 and 2006 BoC rates were 2-3% and housing prices were what half of what they are today

 

 

They averaged 3.5-3.75% over that period, not low enough to spur what we saw with the rental housing boom. With a key rate that high interest on loans was an easy 6-7%. Then suddenly it fell to 2-3% so that's where we got the penchant for funding rentals.

[tjv]

3.5 to 3.75% is a little generous, here is the graph (may have to choose max range)

 

https://tradingecono...a/interest-rate

 

Meanwhile new rents in the last 2-3 years increased by what 50%.  You also can't lock in interest rates for 30 years like in the US so while interest rates might be low for a 5-7 year stretch you eventually have to renew.  No sane investor thinks that their rates/payments will be the same for 30 years and plugs into their calcs a rate of 7-8% to see if the numbers work

[Mike K.]

We’re splitting hairs here. I guess what I’m trying to show is the rental boom began during an ultra-low rate environment following the 2008 collapse where large lenders needed something, anything, to make the needle move, and rental projects in stable markets like Victoria suddenly became a hot commodity.

Now that money is flooding out of the region what we’re seeing coming down the pipes is what we’re likely to see for a very long time (save for taxpayer funded projects where money is a less significant concern).

[tjv]

fair enough, so what you are saying then will kill the rental construction market is not new rent increase regulation, but rather the return to normal interest rates that we are seeing now?