In the B.C. housing market, there’s good news for renters and bad news for investors in the year ahead. There will be a continued lacklustre presale condo market which means investor-owners of condos will have to adjust their rents. As well, rents will continue to drop as new purpose-built rentals come online, say industry insiders.
Case in point: downtown Vancouver, particularly the luxury condo market, where investors try to get more than $6 per square foot rent for a unit.
“The rental return for our passive investors isn’t there any more downtown,” said real estate marketer and founder of the Rennie Group, Bob Rennie. So that’s hurting presales because [the] investors taking their family money and buying are 50 per cent plus of a building sale. So investors don’t see prices going up and investors see rents actually going down in the city.”
David Hutniak, chief executive officer of the advocacy group Landlord BC, said they’ve seen a “softening of rents, particularly at the higher end.” Landlords who catered to international students have been affected, due to the federal government reducing the numbers of foreign students. Some purpose-built rental building owners have offered incentives such as amenity bonuses, one-month free rent and gift cards to help fill suites, said Mr. Hutniak. Investor owners of condo units were impacted by short-term rental legislation that made it difficult to rent their properties on platforms like Airbnb, for much higher rents than a long-term renter could pay. Those owners had attempted to charge high rents but have had to “lower their expectations to fill the units,” said Mr. Hutniak.
“I suspect it’s a tough pill for many of them to swallow, because many, if not most, were over-leveraged and of those many, if not most, had variable rate mortgages. So it’s kind of a double whammy for them.”
And as thousands of new purpose-built rental units get built, the downward pressure on rents will continue.
“Overall, we’re seeing that renters are electing to stay put in the units that they’ve occupied for some period of time which is influenced by concern about personal finances, job stability, the state of the economy,” said Mr. Hutniak. “There is quite a lot of new purpose-built rental product coming on-stream in the next 12 to 24 months which will have further impact on both vacancy rates going up and downward pressure [on rents]. These are the dynamics of supply and demand which we’ve long pointed to as the ultimate solution to the rental housing crisis versus endless interventionist policies from all levels of government that continue to skew the market and make it difficult to justify operating and/or building rental housing in B.C.”
Property manager Debbie Rose, who works with Re/Max Penticton Realty, said their region has seen applications fall off and rents dip. Landlords are adjusting to a new reality, because the rental market is directly impacted by the downturn in the real estate market.
“Rentals we would have got 70 or 80 applications on, now we’re lucky if we’re getting 10,” said Ms. Rose. “A one-bedroom that would have easily rented out for $1,700 a year ago, we are probably getting offers of $1,550 or $1,600.”
She agrees that a big impact has been the province’s short-term rental regulations, which were designed to move short-term rental units to the long-term rental market. However, property owners are more likely to sell rather than rent to a long-term renter, she said. The reduced rents cannot cover their carrying costs.
“It’s a fraction of what they were going to get on vacation rental world, when they made those [property] purchases,” said Ms. Rose. “I’ve noticed with some of these rule changes, where the government thought they would open more doors for people to rent long term, I’ve had more owners decide to sell their property and not rent it.”
Businessman Ross McCredie, owner of McCredie Investments, which recently purchased Sutton Group, said it’s likely the market will self-regulate and rents will drop further simply because of more supply. But he also sees residents moving away from the Lower Mainland and to more affordable, livable communities. He argues that the cost of living in Metro Vancouver is simply too high, from land values to the cost of insurance, and taking the ferry.
“Government is doing nothing to lower the cost of living and increase the quality of life. Look at it in comparison to five years ago. … Am I getting more? Am I frustrated with traffic issues?
“I keep saying, start yelling at top of your lungs at the people who can make these decisions.”
And now that foreign and domestic investor money has fallen off, the small investor condos that have been built aren’t desirable to non-investors. He notes that downtown luxury towers and the massive Oakridge project are a concern for the market because there is a lot of unsold inventory. Vancouver policy-makers need to consider who’s going to live in the communities they are planning for, where they are coming from, and whether we want the future generation to stay and lay down roots, he said. Density requires infrastructure.
“To my mind – and I have worked a lot around the world – I think of Vancouver as a resort market, and it’s getting so more and more. You are going to have people who are very wealthy, who have places here, [who] don’t care about property taxes [because] it is what it is. But for people who want to live and work here, young families, it will become more and more expensive; more difficult to justify.
“We have had policies in place in B.C. for the last 25 years where we simply didn’t care,” he said. “It was more about, just, ‘More and more – bring people in, especially wealthy people.’ And that drove our economy, that was the mandate. And I question the thought process on that.
“We were addicted to immigration and foreign dollars, and now we have shut that valve off. One thing I would be concerned about, if I was in construction I would be worried. You won’t see as much being built.”
He said the construction industry will see a slowdown as projects don’t get built. Some big Canadian developers are busy building in Texas, Washington State, Colorado, where the economy is stronger.
Property flipping is a trend that’s over, and the rate of property appreciation isn’t what it used to be, said Mr. McCredie. On the upside, there are deals to be found in this slow market, he adds. First-time buyers who can afford to get into the market are the recipients of the generational wealth transfer from their parents and grandparents, and he sees that lasting another decade.
And B.C.’s market often operates in a world of its own, which can give investors some comfort, he said.
“B.C. is a weird resort market … and there is always demand for real estate, regardless of the economy.”
