Incentives needed to spur rental developments: Heidt
Lori Coolican, The StarPhoenix
Published: Thursday, January 31, 2008
With the city-wide vacancy rate hovering just above half a per cent, Saskatoon city council is looking for ways to encourage investors to build new rental apartments.
It's so much easier to turn a profit by renovating and selling the existing rental stock as converted condos that no one will bother unless the provincial government provides incentives through changes in its assessment policies, Coun. Myles Heidt said this week.
"We've somehow got to put all of our energies, talk to the provincial government and hope that they will change some of the tax laws that are there, that will allow people to depreciate (their properties) in a couple of years so they get their return on investment," he told city council Monday, "because if we don't . . . all it's going to do is drive rents higher and faster."
The city's own property tax policy provides a cheaper rate for condos -- about 77 per cent of the rate charged for apartments -- though the gap between them has been gradually closing since 2001 and should be non-existent by 2011, according to civic administrators.
Meanwhile, the city is also losing money on processing condo conversion applications.
Development services manager Randy Grauer said the current flat fee of $500 for each application does not cover the entire cost of the transaction -- meaning fellow taxpayers are footing part of the bill for condo investors' conversion projects. A report on ways to improve cost recovery is headed to council's planning and operations committee.
"In short . . . we are losing money on the proposition right now," Grauer said.
The tax differences don't mean condos pay less property tax, according to city assessor Gord Lawson. Assessed values (which are set by the province) are typically higher for condos than apartments -- even if the units are identical -- because condos can be sold individually, he explained in an interview.
That means the ongoing condo craze will benefit the city's coffers in the long term.
Heidt has predicted apartment buildings are doomed to extinction in Saskatoon. The city can best help renters by creating an oversupply of new lots for construction of single-family homes in the suburbs, he told council, adding the city should concentrate its energy on "getting suites into homes for single parents, so they can afford it.
"I'm looking forward to when the administration comes back with some incentives for people to convert some of their homes into suites, duplexes into fourplexes -- those are the type of things that I think we can do that will increase the supply (of rentals)."
Condo conversions are popular because demand for ownership is so high, Heidt argued.
"I've always supported home ownership. Let's talk about the individuals that just bought an apartment that's been turned into a condo. Now they're in the marketplace building equity and can sell it a year or two from now and build their own home. Those are the people that we're helping."
Heidt acknowledged there are "some unfortunate ones" who can't buy a condo. "But that's not anybody else's problem, other than that we've got no supply," he said.
The city has taken steps to increase the stock of affordable housing, "but clearly what we have now is a situation where we're almost having investor anarchy," Coun. Pat Lorje said. "They're basically poking a big giant finger at us and saying, 'We're going to go ahead and do whatever we want, whenever we want.' And I would say to them, yes we want investment in this city, but please let's have active, engaged investment that takes into account normal human decency.
"And instead what we've got is investors plucking at the low-hanging fruit and saying, 'We can come in and fix up these few apartment buildings and then flip them over and turn quite a handsome profit,' instead of doing what we would all like to see happen, which is to have them invest their money in new market rental housing all across this city."
Coun. Charlie Clark estimates about 65 local buildings began the process of converting from apartments to condos last year.
"It's an incredible figure, and one of the arguments that has been made about this whole issue is that we don't want to curb investment. But I think part of the problem is that it's so easy to convert to condos, we're not seeing other types of investment such as new buildings, because this is where you can make the money."
Chanda Mitchell of the Saskatchewan Rental Housing Industry Association said the local vacancy rate isn't as bad as it seems.
"There's a rental shortage when it comes to areas of the city. It's the downtown area that's moreso having the shortage right now, because of highrises going to condos, and there's such limited stock on the highrises to begin with."
The size of the downtown doesn't leave much room to build new apartment towers, and it's a popular location for high-end condo buyers who want the lifestyle advantages, "but unfortunately that's where they also need rentals, because the people who can't afford to buy condos want to rent downtown," Mitchell said.
"I think they need to focus on tax breaks and incentives for new landlords to build . . . and give a stipulation that it has to be held as a rental unit. Otherwise anyone can come and get the break and then condo-ize."
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© The StarPhoenix (Saskatoon) 2008
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