The week’s top stories look at both the housing and office market in Vancouver, from overvaluation of home prices to scant vacancy in Burnaby towers. Meanwhile, New Zealand’s foreign buyer ban could serve as a template for B.C. in helping to tamper soaring real estate prices. In Richmond, the saga against mega mansions built on designated farmland continues.
Here is Western Investor’s pick of the top real estate stories published this week.
A global index from The Economist rates Canada as third most overvalued country for home prices.
Metro Vancouver real estate is valued at 65 per cent higher than it should be, based on local incomes, according to a new global house price index by The Economist.
The U.K.-based financial publication’s research team found that the region’s home prices have risen by more than 60 per cent over the past five years.
In terms of real estate value versus median household incomes, The Economist reported that Metro Vancouver was the fifth most overvalued of 22 major global cities studied, after Hong Kong, Auckland in New Zealand, Paris, and Brussels in Belgium.
Vancouver is followed by London, UK and Sydney, Australia, both of which were deemed overvalued by 50 per cent or above.
On a country-by-country basis, Canada was deemed the third most overvalued country in the world for real estate prices, at 56 per cent overvalued, after New Zealand and Australia.
New Zealand’s standing in the global index comes as the New Zealand government confirmed August 14 that it will introduce a previously proposed ban on foreign buyers purchasing New Zealand resale real estate. Overseas purchasers will still be able to buy new presale homes, and Australian and Singaporean buyers are exempt from the ban.
The record-low vacancy is good news for the city, says realtor.
“It definitely shows that the market is healthy and it shows that the city of Burnaby is a place where tenants want to bring their businesses and service both their clients and their employees.”
By mid-2018, seven per cent of Burnaby’s office space was vacant, down from 13 per cent a year ago. Gardner said this shows the city is an attractive home for businesses new and old.
Located between the Fraser Valley and Vancouver, “Burnaby can be seen as kind of the hub,” he said. With a major highway and two rapid transit lines, he said it’s not hard to see what makes Burnaby attractive to companies looking for cheaper rents and operating costs than downtown Vancouver.
As the demand for offices in Burnaby increases, Gardner said the supply isn’t keeping up.
While many new towers have been completed with new lease space in recent years, those offices have been quickly absorbed by tenants.
While more and more new highrises are erected in Burnaby’s city centres, developers are more concentrated on creating strata apartments, he said.
“The economics of building and selling condos works out better for developers than building and [leasing] office space,” Gardner said.
As the office vacancy rate continues to drop and rents increase in turn, that equation is expected to change, he said. Gardener said he anticipates seeing more emphasis put on creating new office space in Burnaby as developers react to these new figures.
But a new office tower can’t be built in a day.
“The market is likely to remain tight for the next 24 to 36 months as many spaces considered vacant at mid-year 2018 have offers outstanding and even options that are located a distance from SkyTrain stations are becoming few and far between,” the report states.
The lease market is considered balanced when the vacancy rate hovers somewhere between eight and 10 per cent, according to Gardner.
Minister of Agriculture Lana Popham says she is now ready to overrule Richmond city council on house sizes on farmland.
Legally limiting house sizes on protected farmland is among 13 recommendations for “immediate legislative and regulatory change” put forth this month in a provincial advisory committee report to Minister of Agriculture Lana Popham.
“We can expect to see changes coming forward in the fall with regards to that,” Popham told the Richmond News.
Such a change would overrule controversial bylaw decisions made by Richmond city council over the past two years.
Last year, Popham created the Advisory Committee for Revitalizing the Agricultural Land Reserve (ALR) and the Agricultural Land Commission (ALC), to guide what is expected to be sweeping changes to the ALC Act aimed at better protecting farmland and increasing food production.
Although many farming advocates say speculative estate houses are growing at a precipitous pace and thus harming farming viability in many parts of the province, including Richmond, Popham said she wanted to wait for the report to make all the changes to the Act at once.
“Personally I am very opposed to [large houses on the ALR]. The Agricultural (Land) Reserve’s mandate is to protect agricultural land and encourage farming. We want to see, under our government, the most production coming from this very small base of food security we have in the province.”
The report was welcomed by Richmond Farmwatch members, who failed to convince city council to bring house sizes in line with the existing Ministry of Agriculture guidelines of 5,382-square-feet — which is what the committee is recommending.
“The report identifies two critical concerns that the province needs to address immediately that cannot wait until the final report is submitted — to put ‘agriculture first’ in all decisions related to the ALR and the urgent need to curb speculation in the ALR,” said member Michelle Li, via email.
“The issue is a major concern in Richmond with the daily loss of farmland to mega mansions,” added Li.
In Richmond, the reduction of ALR houses from the existing 10,760-square-feet in size, to half of that, has widespread and bi-partisan support, including from the B.C. Green Party and all four B.C. Liberal Party MLAs. But six city councillors (Chak Au, Derek Dang, Ken Johnston, Alexa Loo Bill McNulty and Linda McPhail) voted to keep larger homes this year, following a review of the city’s residential bylaws. The six also went against the recommendations (5,382-square-feet) of their own city planners, who cited land economist Richard Wozny claiming anything over 4,200-square-feet would skew Richmond farmland prices to the detriment of the industry.
Farmwatch’s John Roston said it is “amazing” to have the provincial government step in and overrule city council.
But while the committee claims to have “heard unanimous support across the province for prohibiting ‘estate-style homes’ in the ALR and for restricting residences over an established size,” some farmland owners continue to oppose the change.
New Zealand government has imposed a ban on non-resident buyers for resale homes – but will it help curb runaway prices?
New Zealand’s Prime Minister, Jacinda Ardern, is fulfilling her early promise to tackle the country’s soaring property prices.
Ardern – who seems to be taking over from Justin Trudeau as the global media’s latest, youngest, hippest nation leader du jour – promised last fall after her election that non-resident buyers would not be permitted to purchase existing homes anywhere in New Zealand (while also announcing a crackdown on immigration). It has just been confirmed, on August 14, that this policy will go ahead.
Just like in Canada, New Zealand’s larger cities have seen a severe housing supply shortage and home prices have soared in the past decade, rising around 18 per cent year over year in its capital, Wellington. The largest city, Auckland, was recently named by The Economist as the world’s second most overvalued city for real estate, with New Zealand the world’s most overvalued country. Only a quarter of adults in New Zealand own their own home, compared with half in 1991, according to an August 15 Guardian report (and compared with 63.7 per cent in Metro Vancouver and 66.5 per cent in Toronto, according to Canada’s 2016 Census).
And, just like in B.C.’s provincial election, affordability, lack of supply and foreign ownership and speculation (particularly from China) were key issues in the country’s general election last September. So Ardern was duty-bound to make a big move once in office.
The policy is bound to be popular among New Zealanders, many of whom feel they have been pushed out of the housing market. But the question is, will the ban make a difference?
The Guardian report says, “According to the latest figures from statistics New Zealand, 3.3 per cent of homes sold in the last quarter were to foreigners, with the bulk of the buyers Chinese, followed by Australians.”
This suggests that an outright ban would remove only three per cent of New Zealand’s property buyers, which is hardly likely to make a huge difference to the overall market.
Potential policy shock
What might make more of a difference to New Zealand’s housing market – at least in the short term – is a “policy shock” just like the one seen in Metro Vancouver following 2016’s introduction of the 15 per cent overseas buyer tax. Which is to say that, rather than only overseas buyers pulling out of the market, the entire system freezes temporarily as locals and non-locals alike wait to see what effect the new policy will have on prices. This has the self-fulfilling effect of halting sales, and price growth, until people get used to the “new normal” and the system unfreezes, as it is bound to do. After all, people still have to buy and sell homes.
It's also worth noting that overseas buyers will still be able to buy New Zealand presale homes off-plan, as the government doesn’t want to halt construction of new homes, with supply already so limited. What’s more, the ban doesn’t apply to residents of either Australia (which make up the second-largest group of New Zealand's overseas buyers) or Singapore.
Exemptions aside, it’s disconcertingly easy to get around these kinds of bans. Overseas buyers who still want in on New Zealand resale real estate can find loopholes such as using resident proxy buyers, New Zealand-based shell companies, and so on.
So it’s reasonable to expect that a large proportion of those three per cent of overseas buyers will still find a way to invest, whether it’s by reallocating their funds to presale real estate, or to commercial real estate, or simply by being exempt.
Could B.C. follow suit?
Naturally, leaders and industry insiders in B.C. are watching New Zealand with interest, to see if it will “work” in terms of making homes more affordable. According to a Global BC report published when the New Zealand ban was proposed in fall 2017, Green Party leader Andrew Weaver said he admired the policy and hoped B.C. would impose a similar ban. “It’s not about stopping people from owning homes who live here and pay taxes,” he said. “It’s about ensuring British Columbians can live in homes in British Columbia.”