With a mission to inform, empower, celebrate and advocate for British Columbia's current and aspiring business leaders, BCBusiness go behind the headlines and bring readers face to face with the key issues and people driving business in B.C.
Issue link: http://digital.canadawide.com/i/1484213
32 BCBUSINESS NOVEMBER/DECEMBER 2022 TOP: ISTOCK; SOURCE: STATISTICS CANADA, CENSUS OF POPULATION 2016 & CENSUS OF POPULATION 2021 triplex in east Vancouver. "It does get frus- trating sometimes, but I wouldn't get out. In Vancouver, prices just keep going up so the property will appreciate or at least hold its value," he says. As a result of the shortage of attractive properties, the pension funds and REITs are taking a different path in B.C. They're part- nering with developers to build new rental housing. The Safeway site at Broadway and Commercial is a joint venture between Ian Gillespie's Westbank and Crombie REIT. An apartment complex in North Vancouver is a joint venture between Darwin and Minto REIT, which has just started to dip its toes into B.C. waters. Minto also has a joint ven- ture for an apartment building on Kingsway with Rize Alliance. "Vancouver has been one of our tar- gets since 2018," said Minto CEO Michael Waters, whose Ontario-based company was founded in 1955 as an apartment- development venture. "But it's an incred- ibly difficult market—the most expensive rental housing market in the country from an investment perspective. It was always a tight market. Now it's crazy." So why do it? "We look at the popula- tion in the Lower Mainland today and the projections are for 3.5 million," Waters says, referencing an April 2021 report that pre- dicted Metro Vancouver will hit 3.8 million people by 2050. "The demand is going to soar. And [the asset] continues to appreciate as a scarce resource." Other apartment developers say it's mainly the equity gains they count on to rationalize their decisions. Or a need to keep the family company humming along. Or, even, a desire from some of the home- town builders to help people find a place in the city. Whatever their reason, those devel- opers are getting pitched by REITs and pen- sion funds to do joint ventures with them. "The scarcity is creating a strong rental market that is attractive to investment," says Mike Mackay, president of Vancouver- based real estate developer Strand. But many are wondering whether the window has closed on that. B U I L D I N G T H E F U T U R E In recent months, apartment sales have slowed and many developers have quietly put projects on the shelf as interest-rate increases take huge bites out of pro formas. "It's dramatically worse," says Hani Lam- mam, executive vice-president at Vancou- ver-based Cressey Development Group. "Usually, 15 to 18 percent of a building bud- get is financing costs. Now it's 25 percent." Construction costs, in less than a year, have gone up 15 percent. The estimated cost per square foot for a four-storey, mixed-use retail/condo building on Vancouver's east side is now $415 per square foot—what used to be the cost for a luxury concrete tower. Commercial broker Lance Coulson, who specializes in apartments, says that sales have almost flatlined. Unless someone has been holding a piece of land for a very long time and has few or no costs related to that, the spreadsheets now show that build- ing rental is actually a guarantee of losing money. Financing costs are at 4.3 percent. The cap rate is at 3.6 percent. That equals going backwards. For renters, that's a disaster—it just turns up the heat under the already tense game of musical chairs that has been the norm in B.C. Existing landlords are feeling more R E G I O N Y E A R M E D I A N P R E -TA X H O U S E H O L D I N C O M E O F R E N T E R S , B E F O R E TA X B.C. 2020 $63,200 Vancouver CMA 2020 $67,000 Victoria CMA 2020 $60,800 Kelowna CMA 2020 $61,200 B.C. 2015 $46,000 Vancouver CMA 2015 $48,800 Victoria CMA 2015 $44,800 Kelowna CMA 2015 $46,400 The proportion of Canadian households who own their home—or the homeownership rate (66.5% in 2021)—is on the decline in Canada after peaking in 2011 (69.0%). The growth in renter households (+21.5%) is more than double the growth in owner households (+8.4%). Adults under the age of 75 were less likely to own their home in 2021 than adults in that age range a decade earlier— especially young millennials aged 25 to 29 years (36.5% in 2021 vs. 44.1% in 2011). stressed because the province has disal- lowed or severely capped rent increases for three years, meaning many tenants who pay low rents are simply choosing not to move. That has left those landlords with few options for getting the extra revenue they would have earned if new, higher-paying tenants moved in. It's not a pretty picture. As for Eby, it's clear from the housing platform he announced in October that he sees this as a battle that must be fought on many fronts. Eby, at times, sounds almost frantic about B.C.'s need for much more. "When you look at, for example, Ama- zon and federal immigration targets, we just have so much demand," he says. "Rental housing is so important or we'll have a worse crisis. If we don't get to build new, people will buy the older stuff. That drives me crazy." ■ R E A L E STAT E