The Metro Vancouver Real Estate Thread

[whatnext]

Originally Posted by misher

"The entire market is in retreat," Stewart said. "A lot of projects are on hold, or are going to be cancelled. We're going to see a spiral of distress that's first going to affect people in construction, with framers and drywallers finding it harder and harder to find work."

https://www.theglobeandmail.com/canada/b...-in-vancouver-pulled-amid-signs-of-weak/

Good, maybe the ridiculous costs to build will start to come down and every subtrade pothead with a pulse won't expect $45/hr.

[osirisboy]

Originally Posted by whatnext

Good, maybe the ridiculous costs to build will start to come down and every subtrade pothead with a pulse won't expect $45/hr.

That quote you are referring to is for central Okanagan. The link talks about Vancouver where as of now it's just that one project that being reworked

[whatnext]

Originally Posted by osirisboy

That quote you are referring to is for central Okanagan. The link talks about Vancouver where as of now it's just that one project that being reworked

Are you saying Vancouver doesn't have ridiculous construction costs?

[osirisboy]

Originally Posted by whatnext

Are you saying Vancouver doesn't have ridiculous construction costs?

I honestly have no idea what "pot smoking subtrade" people get paid. No, I was just pointing out that the alarmist quote you were referring to wasn't about Vancouver. And since this is a thread about vancouver's market I thought I'd point that out to avoid confusion.

[misher]

Originally Posted by osirisboy

well I don't really know or care about the Kelowna market lol

But as mentioned in your link units under 2 million are still selling fine. So I think we might see projects switching from high end to more "affordable"

Yes this is possible. However a lot of property’s highest and best use is still luxury condos so we may have to decrease amenity contributions to get things built as mid range condos have a lower profit margin. $300,000 a condo in city fees is ok for a 1-2mil condo but not for a $600,000 one.

[Changing City]

Originally Posted by misher

Yes this is possible. However a lot of property’s highest and best use is still luxury condos so we may have to decrease amenity contributions to get things built as mid range condos have a lower profit margin. $300,000 a condo in city fees is ok for a 1-2mil condo but not for a $600,000 one.

You've mentioned this '$300,000 a condo in city fees' meme several times, and several comments have suggested that it isn't true. You persist in repeating it. Can you show us where the number comes from, and whether you think it's true everywhere in Greater Vancouver, or just the City of Vancouver, or just Downtown, or only in a couple of examples of very high end buildings that don't represent the market as a whole?

[Alex Mackinnon]

Originally Posted by whatnext

Good, maybe the ridiculous costs to build will start to come down and every subtrade pothead with a pulse won't expect $45/hr.

Increased construction costs shouldn't be a surprise when owning a basic apartment isn't affordable without a 6 figure income. The real estate ouroboros eats itself in the end.

Inflation is much higher in BC than the federal numbers imply.

[misher]

Originally Posted by Changing City

You've mentioned this '$300,000 a condo in city fees' meme several times, and several comments have suggested that it isn't true. You persist in repeating it. Can you show us where the number comes from, and whether you think it's true everywhere in Greater Vancouver, or just the City of Vancouver, or just Downtown, or only in a couple of examples of very high end buildings that don't represent the market as a whole?

Hmm, I am using this as a general guesstimate based on the City of Vancouver's new construction West of Cambie thats market strata.

I'm not a developer so I may have the math wrong here (feel free to correct me) but lets see:
Approximately $425/sqft DCE (DCE varies based on where you are but I picked one of the higher ones), $28.26/sqft DCL, DCC $1072 per unit=$317,282+ for a 700 sqft unit.

Of course that doesn't cover the 5% GST on new construction (this doesn't go to the city so I didn't count it), permit fees, the expense spent on hiring someone to work with the city to get permits, the time wasted, taxes, environmental studies, and I'm sure there's a bunch of other bureaucratic hoops. All in all it feels like a large chunk of new constructions costs are government related.

[Changing City]

Originally Posted by misher

Hmm, I am using this as a general guesstimate based on the City of Vancouver's new construction West of Cambie thats market strata.

I'm not a developer so I may have the math wrong here (feel free to correct me) but lets see:
Approximately $425/sqft DCE (DCE varies based on where you are but I picked one of the higher ones), $28.26/sqft DCL, DCC $1072 per unit=$317,282+ for a 700 sqft unit.

Of course that doesn't cover the 5% GST on new construction (this doesn't go to the city so I didn't count it), permit fees, the expense spent on hiring someone to work with the city to get permits, the time wasted, taxes, environmental studies, and I'm sure there's a bunch of other bureaucratic hoops. All in all it feels like a large chunk of new constructions costs are government related.

The $425 / sq ft DCE only applies to strata project on West Broadway in the C-3A zone West of Main St. It's been explained by others here that it's a temporary policy, designed to limit proposals until there's a new plan in place. The Planning Program has already started. There's no expectation that it will remain in place once a new plan has been created - a new CAC policy will be introduced, probably similar to the one on the Cambie Corridor.

It doesn't apply in almost all of the city, and it only applies to Market Strata Residential projects. It only applies to six blocks of West Broadway, from Main to Yukon, and thirteen blocks from Oak to Vine.

[GenWhy?]

I think your DCL is off, for I thought in 2018 it's changing to $18.71/sf city-wide for residential over 1.5 FSR (previously $15.62), CAC's are currently for a 6-storey on Cambie at $68.18/sf going up to $103.00/sf, and 4-storey residential is $68.18/sf going up to $72/sf (applied on net additional density only). And these are only through rezonings, not a DP.


I'm paper napkin-ing it here, TBH.

[GenWhy?]

Oh Sorry I thought you typo'd CAC...

"DCEs are identified at the beginning of a community planning program based on City policy priorities for each area and the projected economic viability of alternative development scenarios. Following the completion of a community planning program, DCEs are revisited to reflect the densities, mix of uses and amenity needs in the planning area. The DCEs are then updated and incorporated into the CAC policy for the planning area. For more information about the City’s CAC policy visit: http://vancouver.ca/files/cov/community-amenity-contributions-through-rezonings.pdf "

[misher]

Originally Posted by Changing City

The $425 / sq ft DCE only applies to strata project on West Broadway in the C-3A zone West of Main St. It's been explained by others here that it's a temporary policy, designed to limit proposals until there's a new plan in place. The Planning Program has already started. There's no expectation that it will remain in place once a new plan has been created - a new CAC policy will be introduced, probably similar to the one on the Cambie Corridor.

It doesn't apply in almost all of the city, and it only applies to Market Strata Residential projects. It only applies to six blocks of West Broadway, from Main to Yukon, and thirteen blocks from Oak to Vine.

Because much of it is private negotiations I have to rely on the public DCEs as an example. I assume given the West Broadway DCE's that downtown will be higher.

Also they have said in their plan that the DCE's are a predictor of what to expect.

This article says its above 26%https://www.vancourier.com/real-estate/taxes-fees-make-up-26-of-new-vancouver-condo-cost-1.23317340 based on an $844,000 1 bedroom on Cambie making it $220,000 but it does not divide it between taxes and city fees. So my number $300,000 is high for a 1 bedroom, but low for a 2 bedroom.

As the article states, the city is addicted to making money off Real Estate fees which get passed on to buyers, and this is partially to blame for our high real estate prices

the fees continue to rise, increasing the cost for buyers. One of the biggest factors behind our housing affordability problem is government piling on more taxes and fees.”

Anne McMullin, president and CEO of developer lobby group the Urban Development Institute, said in a May 29 media release on Sullivan’s findings, “If governments really want to get serious about delivering more affordable housing options, they need to reduce their heavy reliance on taxing real estate and consider providing tax relief on land used to build housing, including purpose-built rentals.”

The UDI compared Sullivan’s findings to a recent C.D. Howe Institute nationwide study, which reported that factors such as zoning and land-use restrictions, planning delays, development cost charges and more are adding around $644,000 to the cost of a typical detached house in Metro Vancouver. This is by far the highest in Canada, according to the report.

[Changing City]

Originally Posted by misher

Because much of it is private negotiations I have to rely on the public DCEs as an example. I assume given the West Broadway DCE's that downtown will be higher.

Once there's a rezoning report to Council, the negotiations are not in private. they're numbers for every scheme are right there, in the report. For example, the last Public Hearing had a proposed building at 3070 Kingsway. It's a rental building, so there were no DCLs or CACs to pay. Here's one from a recent Public Hearing for condos - 130 of them at 988 West 64th Avenue and 8030-8130 Oak Street. On page 8 you can see that 'a DCL of approximately $1,578,783 is anticipated." On page 9 "The applicant has offered a cash CAC of $4,843,093 using the target CAC rate of $716.33 per sq. m ($66.55 per sq. ft.) based on the net additional increase in floor area of 6,761 sq. m (72,772 sq. ft.)" So the total DCLs and CACs are $6,421,876. That's $49,399 per unit.

Originally Posted by misher

Also they have said in their plan that the DCE's are a predictor of what to expect.

In future circumstances where a plan is being prepared, to stop speculation. Not as the final anticipated level of benefit, as GenWhy? explained (again).

You just added some more references to a UDI report (they don't like fees, as if that's news). They argue that fees put house prices up. That isn't supported by land economists, who say it helps keep land prices down (a bit).

I don't believe you could find a for-profit developer who will charge less for housing because they don't have to pay the fees. They charge what the market will bear. If they pick up a bargain piece of land, they just make more profits. DCLs help pay for the extra public infrastructure, and CACs allow the City to improve those and add more, where even more people are expected to live. They only take a proportion of the land lift on the extra space a rezoning allows.

[misher]

Originally Posted by Changing City

Once there's a rezoning report to Council, the negotiations are not in private. they're numbers for every scheme are right there, in the report. For example, the last Public Hearing had a proposed building at 3070 Kingsway. It's a rental building, so there were no DCLs or CACs to pay. Here's one from a recent Public Hearing for condos - 130 of them at 988 West 64th Avenue and 8030-8130 Oak Street. On page 8 you can see that 'a DCL of approximately $1,578,783 is anticipated." On page 9 "The applicant has offered a cash CAC of $4,843,093 using the target CAC rate of $716.33 per sq. m ($66.55 per sq. ft.) based on the net additional increase in floor area of 6,761 sq. m (72,772 sq. ft.)" So the total DCLs and CACs are $6,421,876. That's $49,399 per unit.

In future circumstances where a plan is being prepared, to stop speculation. Not as the final anticipated level of benefit, as GenWhy? explained (again).

You just added some more references to a UDI report (they don't like fees, as if that's news). They argue that fees put house prices up. That isn't supported by land economists, who say it helps keep land prices down (a bit).

I don't believe you could find a for-profit developer who will charge less for housing because they don't have to pay the fees. They charge what the market will bear. If they pick up a bargain piece of land, they just make more profits. DCLs help pay for the extra public infrastructure, and CACs allow the City to improve those and add more, where even more people are expected to live. They only take a proportion of the land lift on the extra space a rezoning allows.

There are multiple articles worldwide that state that development charges increase the cost of housing. I do realize that there are articles that argue against this too. However, for houses its around $644,000 https://globalnews.ca/news/4208533/vancouver-detached-home-building-costs/ which means a new house has to sell for at least land value+development charges. It does not make logical sense for that development charge to not boost the price of new housing because it makes new housing unprofitable unless it sells for a sky high price. Whereas without that charge, new housing becomes profitable at a much lower price. Development charges artificially maintain sky high real estate prices. While I understand the instinctual demand to stick it to "rich developers" it does not work this way. The below articles from the BC government, Australia, and New Zealand all agree that research shows that developers rarely bear the cost of development fees.


https://www.adls.org.nz/for-the-professi...nt-contribution-charges-being-reined-in/

The Government is planning to make changes to the Local Government Act 2002 in order to rein in council development contribution charges as one measure to improve housing affordability.

https://www2.gov.bc.ca/assets/gov/britis...ommunity_amenity_contributions_guide.pdf

Housing affordability is a particular challenge for many B.C. communities. This guide describes how
CACs, if not handled carefully, can potentially decrease the supply of new housing and lead to
increases in housing prices. It is important that local governments recognize the relationship
between CACs and housing affordability and make efforts to balance the opportunity to obtain
public benefits, such as community amenities, with the goal of helping families to secure affordable
housing.

In the guideline for BC governments it even says that residents pay higher market prices due to CACs. So our municipal government has been advised by the province that CAC's will increase market prices.

If CACs also go towards operating costs, then these new residents
may end up paying twice; indirectly, where market prices have increased due to CACs, and then
again with other residents and users.

Here's what the Ministry of Community, Sport and Cultural Development of BC (the BC Government)
is saying that the research shows:

Are CACs Likely to Reduce Developer Profit?
A common assumption is that, if a local government obtains CACs from a developer, it simply
reduces the return on investment made by the developer. Real estate market economists and
historical evidence indicate that this is unlikely. The cost of development has increased
significantly over time, with increases in the cost of land, materials, labour, DCCs, etc. There is no
evidence to show that such cost increases have reduced developer profits. In fact, developer profit
margins have remained remarkably stable over time.
To the extent that developer profits vary, they are primarily affected by the business cycle.
Developers make more money when markets are vibrant, mainly because they sell more units in a
good market. They make less money when markets are slow, but again, this is mainly because they
sell fewer units in those conditions. The reality is that developers and their financial backers only
pursue projects if they feel that they can achieve their expected return on investment, which for a
typical project is around 15 percent.

Another article from Australia backs this up

Increasingly, state and local government fees, charges and infrastructure levies have been identified as a central driver for the increasing cost of housing across Australia.

[Changing City]

You can dig up articles from New Zealand and ignore what the quotes you publish say (for example "If CACs also go towards operating costs, then these new residents may end up paying twice; indirectly, where market prices have increased due to CACs, and then again with other residents and users." They don't go towards operating costs in Vancouver, they provide facilities.)

The last quote you added doesn't say housing prices have gone up - all it says is developers still make their profits. That's because DCCs don't take all the land lift - they let the developer keep some.

I repeat - I don't believe you could find a for-profit developer who will charge less for housing because they don't have to pay the fees. They will try to get as much as they can, and as we've seen the market value of new condos has been going up at a ridiculous rate - but none of that is driven by high fees or taxes or charges. CACs can limit the windfall element of extra profit they might get for being allowed to build a more than they could otherwise.

[misher]

Originally Posted by Changing City

You can dig up articles from New Zealand and ignore what the quotes you publish say (for example "If CACs also go towards operating costs, then these new residents may end up paying twice; indirectly, where market prices have increased due to CACs, and then again with other residents and users." They don't go towards operating costs in Vancouver, they provide facilities.)

The last quote you added doesn't say housing prices have gone up - all it says is developers still make their profits. That's because DCCs don't take all the land lift - they let the developer keep some.

I repeat - I don't believe you could find a for-profit developer who will charge less for housing because they don't have to pay the fees. They will try to get as much as they can, and as we've seen the market value of new condos has been going up at a ridiculous rate - but none of that is driven by high fees or taxes or charges. CACs can limit the windfall element of extra profit they might get for being allowed to build a more than they could otherwise.

If it says

developer profit
margins have remained remarkably stable over time.

that means that developers make the same margin before and after CAC's meaning the additional cost is going to the buyers.

If it says

where market prices have increased due to CACs

it means the price buyers pay increases due to CAC's.

I think you missed something reading this.

[rofina]

Originally Posted by Changing City

You can dig up articles from New Zealand and ignore what the quotes you publish say (for example "If CACs also go towards operating costs, then these new residents may end up paying twice; indirectly, where market prices have increased due to CACs, and then again with other residents and users." They don't go towards operating costs in Vancouver, they provide facilities.)

The last quote you added doesn't say housing prices have gone up - all it says is developers still make their profits. That's because DCCs don't take all the land lift - they let the developer keep some.

I repeat - I don't believe you could find a for-profit developer who will charge less for housing because they don't have to pay the fees. They will try to get as much as they can, and as we've seen the market value of new condos has been going up at a ridiculous rate - but none of that is driven by high fees or taxes or charges. CACs can limit the windfall element of extra profit they might get for being allowed to build a more than they could otherwise.

Respectfully, this is a bit of a straw man.

What you are saying is, to over simplify, take away CAC's and units will not decrease by the corresponding amount, be it 1, 2 or $300,000 a unit.

That's obviously true only because the developer will give a 10% "No more taxes!" discount and keep 90% of difference for profit.

But to say that somehow $300,000 a unit to build a new rec centre doesn't increase the cost of housing is equally wrong.

Sizeable portion of City expenditures are financed via levy's on new construction. How can this logically not increase the cost of new construction?

[Changing City]

Originally Posted by rofina

Respectfully, this is a bit of a straw man.

What you are saying is, to over simplify, take away CAC's and units will not decrease by the corresponding amount, be it 1, 2 or $300,000 a unit.

That's obviously true only because the developer will give a 10% "No more taxes!" discount and keep 90% of difference for profit.

But to say that somehow $300,000 a unit to build a new rec centre doesn't increase the cost of housing is equally wrong.

Sizeable portion of City expenditures are financed via levy's on new construction. How can this logically not increase the cost of new construction?

Because it's not $300,000 a unit on typical projects. The first one I found (the most recent) was under $50,000 a unit.

It's true that the City are anticipating receiving future CACs and DCLs and budgeting to build new and replacement facilities. None of the City's operating budget is based on that money, and if the units aren't built, and the CACs don't get paid, then the new and improved facilities won't get built as soon. Arguably, some of them won't be needed so soon, because the population won't be growing as much to require them.

CACs are calculated, in most cases, based on the pro-forma of the project. It takes into account the price that was paid for the land, the value of what the units should sell for, and the costs of building, so therefore the profit the developer should make. In a rising market the calculation actually underestimates the theoretical profit, and the City loses out - the developer makes even more profit. In a falling market the developer could see their profits squeezed. That explains the one project where the rezoning isn't going ahead - on west Georgia. The CAC was presumably based on high returns, from relatively few luxury units. It makes sense, if as the developer you think you'll only sell at a lower per sq. ft. price, to renegotiate. Presumably the City will get less as a result, assuming a majority of Councillors vote to support the rezoning. If they don't support it the developer is in big trouble, because they gambled on getting the rezoning, and presumably paid for the land on that basis. That should mean in future developers might not expect to get a rezoning, and would pay less for the land.

Just like we have seen buyers paying what (to me) seems ridiculous prices for apartments, we've seen developers paying very high prices for land. They all know - or they ought to know - that they have to pay a negotiated CAC, so they should include that in their calculation of what to pay for the land. It's the market prices that drive up the potential profits, and therefore the CAC that the developer can offer (the City can't require any particular CAC - the developer makes an offer). If market condo prices fall then land values should drop, CACs will be far less, and some developers will end up having over-paid for the land that they most recently acquired.

[rofina]

Originally Posted by Changing City

Because it's not $300,000 a unit on typical projects. The first one I found (the most recent) was under $50,000 a unit.

It's true that the City are anticipating receiving future CACs and DCLs and budgeting to build new and replacement facilities. None of the City's operating budget is based on that money, and if the units aren't built, and the CACs don't get paid, then the new and improved facilities won't get built as soon. Arguably, some of them won't be needed so soon, because the population won't be growing as much to require them.

CACs are calculated, in most cases, based on the pro-forma of the project. It takes into account the price that was paid for the land, the value of what the units should sell for, and the costs of building, so therefore the profit the developer should make. In a rising market the calculation actually underestimates the theoretical profit, and the City loses out - the developer makes even more profit. In a falling market the developer could see their profits squeezed. That explains the one project where the rezoning isn't going ahead - on west Georgia. The CAC was presumably based on high returns, from relatively few luxury units. It makes sense, if as the developer you think you'll only sell at a lower per sq. ft. price, to renegotiate. Presumably the City will get less as a result, assuming a majority of Councillors vote to support the rezoning. If they don't support it the developer is in big trouble, because they gambled on getting the rezoning, and presumably paid for the land on that basis. That should mean in future developers might not expect to get a rezoning, and would pay less for the land.

Just like we have seen buyers paying what (to me) seems ridiculous prices for apartments, we've seen developers paying very high prices for land. They all know - or they ought to know - that they have to pay a negotiated CAC, so they should include that in their calculation of what to pay for the land. It's the market prices that drive up the potential profits, and therefore the CAC that the developer can offer (the City can't require any particular CAC - the developer makes an offer). If market condo prices fall then land values should drop, CACs will be far less, and some developers will end up having over-paid for the land that they most recently acquired.

I think we actually agree.

I suppose this is a discussion tough to have without specific projects in mind - as I definitely recall some eye popping CAC amounts for a few of the recent luxury projects Downtown; Butterfly and Grosvenor come to mind.

$50,000 a unit on an average 2 bedroom doesn't seem that astronomical or explain away the $900,000+ sticker price.

[CanSpice]

Originally Posted by rofina

$50,000 a unit on an average 2 bedroom doesn't seem that astronomical or explain away the $900,000+ sticker price.

For context, that's roughly the cost to build one parking space in underground parking.