New data show that investors own nearly half of Vancouver city condos. Across British Columbia’s Lower Mainland, investors – people who do not live in their properties – own 37 per cent of condo apartments.
Those are some of the findings that have come out of the data released last week by the Canadian Housing Statistics Program (CHSP) on residential property owners in British Columbia, Ontario and Nova Scotia for 2018. The report includes the new indicator of “not owner occupied.” A property is classified as “not owner occupied” when none of the owners on title declare the property as their usual residence – it is rented out, used as a secondary property, or left empty.
The CHSP is part of the federal government’s new initiative to provide better data on housing. While a Statistics Canada release offered numbers from the report at a provincial level, Simon Fraser University’s City Program director Andy Yan drilled into the data set to deliver more revealing numbers at the local level.
“They gave the perspective from Ottawa – I’m giving the perspective from the ground,” he said.
Mr. Yan found that 46 per cent of condos in Vancouver are “not owner occupied.” In Richmond, the rate is 37 per cent; Pitt Meadows is 37 per cent; Coquitlam is 36 per cent; Surrey is 35 per cent; Burnaby is 33 per cent, and Port Moody, Maple Ridge, North Vancouver and Langley condos are also at about one-third non-owner occupied. Region wide, the rate is an average of 37 per cent for condo ownership. Investors own 15 per cent of detached homes throughout the region. The rate of investor ownership for all housing types is 23 per cent. But condos are a particular draw for those seeking an investment.
In raw numbers, the percentages translate to 42,185 “not owner occupied” condos in the city of Vancouver; 10,595 in Richmond; 604 in Pitt Meadows; 4,925 in Coquitlam; 8,395 in Surrey; and 9,895 in Burnaby. In total, 94,415 condos out of 252,425 condos in Metro Vancouver are not a principal residence.
“It shows that you can have a housing system that produces units, but those units aren’t there to house those that are there to build the economy,” Mr. Yan says. “And here is the conflict: if they do rent their condo out, they are providing precarious rental – because you can be a foreign or a local owner, but you’re still an investor.”
The findings reflect Mr. Yan’s groundbreaking empty condo study a decade ago, in which he looked at a sample of 13 downtown condo buildings and discovered that half the units were investor owned. That study began to change attitudes about speculative buying and non-resident ownership of properties in Vancouver. A decade later, he finally has data that show such ownership is not confined to the downtown core.
The highest rate of investor ownership is the residential area at the University of B.C. also known for StatsCan purposes as Metro Vancouver A. It has the highest rate of investor ownership in the region, with 47 per cent of all property types there held by investors. When isolated for detached houses, the rate at UBC is a significant 47 per cent investor owned and it jumps to 49 per cent when isolated for condo ownership by investors.
The new data also bring into question the fairness of property taxation, Mr. Yan says. If properties aren’t being used as residences, either to house the homeowner or provide stable rental housing, should the owner get the benefit of a relatively low residential property tax? Mr. Yan suggests that if properties are kept empty or used for short-term rental, they should incur the much higher commercial property taxes that are commensurate with operating a commercial business. In the city of Vancouver, residential property use is taxed at a rate of $2.56 per $1,000 of taxable value, while commercial property is taxed at $9.33 per $1,000 of value, he says.
Mr. Yan also looked at the City of Vancouver Condominium Rental Study from 2001 and 2009, which showed the city was already aware of the rise in investor-owned condos. In 2001 the rate of investor ownership was 34.7 per cent and by 2009 was at 35.2 per cent, already a major share of the market. If that trend had been publicly recognized and government had made housing policy decisions to curb it, he believes the region might not be dealing with the affordability crisis of today.
“We had the opportunity to deal with this and we let the tumour metastasize,” he says.
Aled ab Iorwerth, deputy chief economist for the Canadian Housing and Mortgage Corporation, was in Vancouver this week to attend a forum on affordable housing that focused on the need for more housing supply of all types. In an interview last week , he said he was not surprised at Vancouver’s high rates of investor ownership.
“It’s not a great surprise. There is a lot of discussion about people wanting to invest in real estate and we are trying to use data from the tax code, from tax returns to look at this in more detail,” Dr. ab Iorwerth said. "It also depends on the age of the building. If it’s a very recent building it probably has higher investor content. And I would associate that with a whole set of factors, including low interest rates.”
In terms of how it affects the overall market, he said there are positive and negative aspects.
“We haven’t done an in-depth study on this, but what seems to have happened is that we haven’t seen a significant amount of construction of purpose-built rental over the last few decades. For reasons I don’t completely understand, the rental condo market has taken up the slack for purpose-built rental. Why that has happened I’m not 100 per cent sure.
“And the demand for rental continues, but the supply of purpose-built rental has declined, so the condo market has become an important place for people getting a rental property if they can’t afford to buy a home.”
As well, he said, newer condos are generally higher quality than old rental stock, which is a positive.
“On the negative side, we are hearing that condos are a less secure form of rental, so if your intent is to be in a rental for years, it’s possible that in a condo there will be more volatility. You are at the whim of the owner.
“We are seeing an uptick in purpose-built rental, but it seems that it’s more aimed at slightly more expensive and the hypothesis is that it may be elderly Canadians downsizing. So the uptick we have seen in purpose-built rental is aimed at that market. This is why CMHC has a whole suite of programs aimed at encouraging more purpose-built rental.”
He said he does not believe global wealth created the investor market; instead, he believes they were drawn to a market that became heated due to lack of supply. He cited a Nevada study that showed once prices rose investors from other states were attracted.
“What I suspect happened is that as in Vancouver you don’t get an adequate supply response and then people around the world see prices going up a lot, then that attracts wealth from Ontario, the U.S., China, from everywhere. And so it’s possible that around 2016 and 2017 when prices were going up very rapidly in Vancouver that global wealth was accelerating prices at that time. My view is that it’s not obvious that global wealth was the initial cause of the price increase. But it can act as an accelerant when prices go out of control.”
Dr. ab Iorwerth says that CMHC’s concern is the investor who’s taken on too much debt, expecting a quick return.
“I don’t think there’s anything inherently wrong with investor ownership. It’s whether it’s highly leveraged and aimed at quick capital gains.”
However, Mr. Yan sees a problem with investor-owned rental stock because of the understandable motivation to seek the bottom line.
“These units are competing for the same land base [as purpose-built rental], but under a different financial situation. Condos pay back within five years, but a purpose-built rental generally pays you back in 10 or 20 years.
“If you want to be a profit maximizer, why would you want to provide long-term, stable rental if you can make a heck of a lot of money off short term rental? So it’s precarious rental,” he said.
“We haven’t built purpose-built rental on scale. We’ve supplemented it with this precarious rental in this condo environment. It’s not a replacement.”
He also points to previous research in which he discovered that non-resident investors gobble up the high-end luxury units and investors in general buy the small, economical units at the other end of the market. Those who intend to live in their homes are squeezed at both ends.
“You could argue that [high prices] are due to a lack of supply, but there is always going to be a lack of supply because demand is infinite. The question is, ‘what demand do you want to support?’
“It’s about priorities. Should a person who has an investment property have priority over somebody who wants set down roots in the city? That’s the difference between owner occupied and not owner occupied.”
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