Homes are being built at a “relentless” pace in Canada — here’s why it’s still not enough

Canadian homebuilding continued to beat expectations through the early fall, but when you take a good, hard look at the economic fundamentals driving the pace of activity, it shouldn’t come as a surprise that builders are still having trouble satisfying buyer demand in some parts of the country.

Housing starts — defined as when a builder begins construction on a single unit of housing — took a small dip in September but remained at a “relentless level” according to a BMO Economics research note published today.

BMO economist Robert Kavcic says the data, which is released each month by the Canada Mortgage and Housing Corporation (CMHC), reflects “strong demographic demand, both from international inflows and new households created within Canada.”

That may sound a bit jargony, but what Kavcic is saying is Canadian homebuilders aren’t overdoing it. There’s genuine market demand for the homes being constructed and this historically elevated level of building is unlikely to lead to a glut in empty, unsold homes down the line.

TD economist Rishi Sondhi, who also published a note on the housing starts data today, agrees that market fundamentals are justifying the high pace of homebuilding. He goes on to rhyme off a few more noteworthy drivers of housing demand, including low mortgage rates, healthy job markets and programs to promote more rental unit construction. On the topic of population growth, he adds that Canada’s population growth rate rose at the fastest pace in almost 30 years in the third quarter of this year.

All that is to say, there are many powerful forces at play that continue to keep homebuilders moving at this relentless pace.

So homebuilding activity is strong from a historical perspective, but is it enough?

Not everyone thinks so. At least not when it comes to the often prohibitively expensive Toronto market.

Following the release of their own market data last week, Toronto Real Estate Board President Michael Collins and Chief Market Analyst Jason Mercer noted that the city’s homebuyers would undoubtedly benefit from more housing supply, with particular attention paid to the underserved low-rise segment of the market.

Further, RBC economist Robert Hogue flagged rental unit construction as a segment of the market that continues to come up short in cities like Toronto, Vancouver and Montreal. While there’s a demand gap in all of these markets, Toronto is the only city that is not going to come close to bridging the gap in the next five years unless the pace of rental building increases substantially.

There are few reasons to believe your fortunes as a financially strained Toronto renter will change over the next few years, but zooming out to the national level, it also isn’t totally set in stone that the current “relentless” rate of Canadian homebuilding will stay so high flying for long.

While it’s true that market fundamentals appear to be conspiring to keep housing humming along in Canada, the global economic backdrop is “deteriorating,” writes TD’s Sondhi.

Uncertainty over Brexit, political turbulence in the US, a Trump-led trade war with China and an ever-present threat of a global recession are all reasons to be wary of anyone who says the good times are sure to keep on rolling for the Canadian housing market.

Jumbo Glacier ski resort back on ice after B.C. court decision

B.C.’s Supreme Court says environment minister was correct in cancelling approval of the ski resort

A proposed East Kootenay ski resort is back on ice after the Supreme Court of B.C. ruled August 6 that the minister of environment was correct in pulling the environmental approval for the massive project because it was not substantially started within the agreed timeframe.

Glacier Resorts Ltd. proposed the Jumbo Glacier Resort, a year-round ski resort intended to be developed in southeastern B.C.‘s Purcell Mountains, more than two decades ago.

Now, said Pheidias Project Management Corporation vice-president Tom Oberti, Glacier has two options: appeal the B.C. court decision to the Supreme Court of Canada or proceed with a scaled-back version of the project.

The resort, 53 kilometres west of Invermere, is planned to give access with 20 to 23 lifts to four nearby glaciers at an elevation of up to 3,419 metres. Planned in three phases, the resort plans ultimately include 5,500 bed-units in a 110-hectare resort base area.

The company obtained a provincial environmental assessment certificate in 2004 requiring the project to be substantially started within five years, a deadline extended for a further five years in 2009.

While some construction and preparatory work was done by the expiry date, then-Liberal minister of environment Mary Polak in June 2015 determined that the project had not been substantially started by the October 12, 2014, deadline and that the environmental assessment certificate had expired.

The company appealed. A Supreme Court of B.C. judge ruled in August 2018 that the minister had failed to take into account a number of factors resulting in development delays, calling the minister’s failure to give weight to those factors unreasonable.

The decision was returned to the minister – George Heyman of the NDP – who remains in the portfolio.

However, the government appealed.

And, two of three appeals court judges agreed with the government’s arguments.

“It was permissible for the minister to look primarily at work accomplished on the ground in determining whether the project was ‘substantially started,’ and her conclusion that the project had not been substantially started was a reasonable one,” the majority decision written by Justice Harvey Groberman said.

The ruling said factors that resulted in project delays included a 2009 breakdown in negotiating with the Ktunaxa/Kinbasket Tribal Council on an impact management and benefits agreement.

“As accommodation of First Nations was an important consideration for the province, this led to delays in it reaching a master development agreement with Glacier,” the court said.

There were also difficulties with municipal zoning.

The proposed development was within the Regional District of East Kootenay, the directors of which were divided on how the project should be dealt with. It was anticipated that zoning for the development would be a long and controversial process.

Those directors requested the province declare the area a resort municipality and rezoning was put on hold until the province did that in 2012.

That drew some chuckles as the government appointed a mayor and council for a town with no people. Even its mailing address was somewhere else – Radium Hot Springs.

The project also faced numerous court challenges. And, Glacier Resorts alleged, “progress on the development was impeded in 2012 when the province, without notice, closed a primitive forest service road and removed a bridge that gave access to the project site. It also refers to other impediments it faced, including protesters blockading the resort site, environmental constraints on construction and timelines for design and tendering.”

But, said Groberman, eight years after the certificate had been issued, the company had not made a substantial start on a large resort project the certificate had been designed for. Rather, he said, what had been done was the creation of a small day-skiing area.

“As the Minister pointed out, such a development would not have required an environmental assessment certificate and was not what the massive project report was directed to,” Groberman said.

Oberti said the company lawyers have the ruling and are considering options.

“We’re still reviewing it,” Oberti said. “The board of directors will have to decide what to do with it.”

Jeremy Hainsworth Business in Vancouver | August 8, 2019 | westerninvestor.com

Investor-driven condos forecasted to fill housing gap through 2021

According to a report from Central 1 Credit Union, Ontario’s housing market is forecasted to grow through 2021, and that includes the need for investor-driven condos in downtown Toronto.

“In higher urban markets, condos should remain a viable investment vehicle because there are a lot of people coming in who will need a roof over their heads,” said Central 1’s regional economist, Edgard Navarrete, the report’s author.

“Population growth is still at about trend, or even slightly above trend, over the next three years and that’s because, even though the housing market is at times relatively unaffordable in the region as a whole, the economy is still attracting a lot of people for work and to education institutions, particularly in urban centres.”

The supply of purpose-built rentals, townhomes and condo apartments has been on the rise throughout Ontario due to strong population growth. Navarrette added that Ontario’s population is forecasted to grow 1.7% this year, 1.7% next year, and 1.8% in 2021.

“With an influx of people coming in, there will be increased demand for condo apartments, townhomes and single-detached homes in secondary markets to meet that demand,” he said.

The Canada Mortgage and Housing Corporation’s First-Time Home Buyer Incentive, according to the Central 1 report, will help buyers gain entry into the housing market, but it may be short-lived as demand will likely result in bidding wars, thereby driving prices skyward.

“Part of the reason they put this in place is to help people get into higher-density housing, but, unfortunately, with the program starting in September the increased demand for entry-level condos will start raising the prices in that segment, and you can expect bidding wars,” said Navarrette.

Although Central 1’s report is, overall, optimistic, it warns of headwinds blowing from the U.S.-China tariff war.

“We’re also expecting the economy to slow down a bit over the next couple of years,” said Navarrette. “It won’t be below negative growth, but it will grow below trend because of our trading partners, not our economy. The U.S. has put in protectionist measures, which could slow down their economy, the global economy, and we’d be affected through trade channels, which will affect consumer confidence, business confidence, and business investment, as well as spending on big ticket items like cars.”

www.canadianrealestatemagazine.ca | by Neil Sharma | 24 Jul 2019

Vancouver councillor proposes building temporary modular homes in single-family areas

A Vancouver city councillor wants to lift restrictions on temporary modular housing built in single-family and duplex neighbourhoods.

OneCity councillor Christine Boyle told CBC News that the motion she plans to put before the city council would expand the land available for building critical affordable housing.

Modular housing is currently not permitted in RS and RT zoning parcels in Vancouver, with those areas reserved for single-detached houses and duplexes. According to CBC News, Boyle’s motion would ask city officials to look into allowing temporary modular housing in these zones.

The motion also calls for a period of public consultation with residents before rezoning commences. However, CBC News reported that rezoning would allow the city to bypass lengthy public hearings that delay urgently needed housing.

Boyle said that she expects some pushback from residents but pointed out that many neighbourhoods initially resistant to temporary modular housing have since come around.

"Absolutely, on a site-by-site basis, there is nervousness and pushback from some neighbourhoods, and we've seen it die down each time and turn out to be okay," Boyle told CBC News.

www.canadianrealestatemagazine.ca | by Duffie Osental22 Jul 2019

Metro Vancouver’s industrial land shortage – time to build up?

Panel ponders whether region’s industrial real estate supply challenges mean developers should build multi-storey industrial buildings

A curious question quietly emerged from a panel discussion about industrial property recently hosted by commercial real estate association NAIOP.

While a shortage of well-located and readily developable industrial land has plagued municipalities from Vancouver to Chilliwack, panellists also noted that there wasn’t yet enough pressure to force developers to build multi-storey industrial buildings. In short, so long as it’s still cheaper to build out, industrial space won’t be growing up.

Despite having a dozen multi-storey industrial projects on the go, Taylor Kurtz Architecture + Design Inc. president Craig Taylor said he doesn’t think the market as a whole is ready to embrace the form. The land-constrained industrial markets of Vancouver and Burnaby are showing potential but the costs are rising. This is true for developers and occupants alike.

“Our clients are generally telling us that the pro formas just don’t quite stack up – pardon the pun – when you compare the costs to large tracts of land that you’ve got in Campbell Heights and the [Fraser] Valley,” he said.

Taylor dismissed the much-cited example of Goodman Interlink, a 22-storey industrial tower with 2.4 million square feet in Hong Kong, as a function of a lack of land rather than cost. (It’s not the only example of a 22-storey industrial tower, either. An older example is the Grandtech Centre, a 509,200-square-foot facility in Hong Kong’s Sha Tin neighbourhood.)

Ben Taddei, COO of the Conwest Group of Cos., shared Taylor’s view.

With land costing $2.5 million to $4.5 million an acre, and construction costs running $300 a square foot, Taddei said total project costs could end up being upwards of $500 per square foot.

“I think it will be a while before you see that built form,” he said. “Until the market runs out of industrial land for large-bay [facilities] and those prices become so horrendous that the alternative is to pay more for stacked product, I don’t think you’re going to see it.”

How high?

Colliers International is more bullish on the future of the form, however.

Colliers associate vice-president Roy Pat moderated the NAIOP panel, making mention of his firm’s recently published report happily titled Is It Time to Go Vertical in Metro Vancouver?.

“While the 22-storey industrial facilities of Asia are unlikely to be seen springing up across Vancouver any time soon, densification of industrial sites is a trend that shows no signs of abating,” the report states. “There are simply too many factors driving the push to go vertical.”

NAIOP panellist Eric Aderneck, an independent planning consultant formerly with Metro Vancouver, said references to industrial towers confuse the issue.

A report he wrote six years ago for Metro Vancouver pointed instead to the four-storey Asia Airfreight Terminal in Hong Kong, which has 1.8 million square feet, as a better example.

Closer to home, it’s matched by the three-storey Georgetown Crossroads facility in Seattle, which Colliers expects will set the pace for future multi-storey industrial projects in Vancouver. 

Peter Mitham | Business in Vancouver | June 27, 2019 | www.westerninvestor.com

Will 2018’s big B.C. commercial real estate deals be topped this year?

Transaction volume predicted to slow as investors and lenders reassess property yields, but Bentall office portfolio deal could push dollar volume up

The sale of the Bentall office portfolio in downtown Vancouver, announced March 27, could drive commercial real estate velocity in B.C. to near or above the record level of 2018. The sale price of the four-tower landmark office complex in downtown has Vancouver has not been released but is expected to be near the $1.06 billion paid for the site three years ago.

Business in Vancouver’s Biggest Real Estate Deals of 2018 chronicles a year that rang in $6.5 billion in 202 commercial and industrial sector transactions across the province, according to commercial agency Avison Young. This was down from the unprecedented volume of $7.5 billion in 2017, when 232 properties sold.

Avison Young noted that a widening bid-ask gap was already becoming apparent in the last half of 2018 as both investors and lenders began to “recalibrate investment objectives.” 

This could be related to rising interest rates and a near collapse of Metro residential sales, since many large land deals last year hinged on the potential for lucrative, high-density residential development. “A substantial decline in the number of deals completed is forecast for the first half of 2019,” according to Avison Young's Year-End 2018 BC Real Estate Investment Review. 

The report suggest prices will remain high for prime office, retail and industrial assets, but buyers and lenders will be costing out the yields “with less emphasis on the speculative aspects” of redevelopment.

At least seven of 2018’s biggest deals were based on residential development speculation. These include:

  • U.K.-based Harlow Holdings Ltd.’s $164.7 million purchase of a one-third-acre multi-family site in Vancouver’s West End;

  • two “strata windups” in Vancouver with a total value of $324 million; and

  • the sale of a parking lot on Seymour Street in downtown Vancouver to mixed-use residential developer Reliance Properties Ltd. for $131.3 million.

Industrial transactions, which accounted for 40 per cent of 2018’s big deals, were worth almost $1.2 billion, just down from the peak of 2017.

In 2018, Metro Vancouver residential land sales hit $627 million, which would be an all-time high were it not for the spike during 2016 and 2017 when sales crested the $1.1 billon mark for the first time.

The downward shift began in 2018’s last half, as an avalanche of government policies, interest rate hikes and a subsequent 40 per cent plunge in housing sales hammered developer and consumer confidence, said Casey Weeks, senior vice-president of investment at Colliers International.

Weeks added that the mortgage stress test and other regulations have also slashed the pre-sales that condo developers depend on for financing.

He forecasts that some planned condo projects from smaller developers won’t proceed, which in turn could affect speculative sales of potential development sites this year.

The average cost for every buildable square foot for a residential development in Vancouver is now between $450 and $550. Vancouver has by far the highest combined per-buildable-square-foot costs and construction costs in Canada, according to Altus Group’s 2019 Construction Cost Guide.

Sales of all types of land, including commercial holding property and residential land assemblies, started slowing late in 2018, reported the Real Estate Board of Greater Vancouver. Tracking transactions through B.C.’s land titles, the board found that land sales in the third quarter of 2018 had fallen 34.8 per cent from the same period a year earlier and the value of total land sales had dropped by nearly 15 per cent, to $2 billion.

BIV lists the $248.7 billion transaction of an industrial portfolio by the Vancouver Fraser Port Authority as the biggest industrial deal last year.

Much of the industrial action, however, is in speculative warehouse and distribution tied to the retail sector, including the 1.1-million-square-foot Xchange business park in Abbotsford by Hungerford Group and QuadReal Property Group, developed on speculation and proposed for completion late next year.

But a “major deceleration of retail sales growth” from nine per cent in 2017 to two per cent last year is among the reasons the B.C. Real Estate Association (BCREA) cites for an expected “flattening” of commercial and industrial real estate investments in 2019.

The BCREA also points to a fourth-quarter drop in manufacturing shipments and employment as red flags for industrial real estate. The association’s much-watched Commercial Leading Indicator index saw its first drop in nine years as 2018 ended, down one point from a year earlier.

The Bentall Centre office and retail portfolio has been purchased by Hudson Pacific Properties Inc. in a joint venture with an affiliate of Blackstone Property Partners. Hudson Pacific will own 20 per cent of the joint venture and serve as the operating partner responsible for day-to-day operations and development. Blackstone will own 80 per cent and serve as the managing partner.

The 1.45-million-square-foot transaction is expected to close in the second quarter of this year. CBRE in Vancouver was the broker agent on the transaction, which is rumoured to have topped $1 billion.

Frank O'Brien Western Investor | March 27, 2019