BCREA releases housing affordability plan

 
Image: BCREA

Increasing the number of homes built along transit corridors, raising the property transfer tax threshold and incentivizing faster approval processes are all necessary to improve housing affordability across the province, according to the British Columbia Real Estate Association’s housing affordability plan released April 19.

The group has proposed what it’s calling a “five-pillar approach” to addressing affordability challenges being faced by renters and homeowners.

The pillars include:

-  ensuring the property transfer tax (PTT) reflects the market: according to the BCREA, B.C. has the highest PTT in Canada. The association proposes increasing the exemption threshold for first-time buyers and raising the 2% PTT threshold from $200,000 to $525,000;

-  assisting homeowners and renters: increasing the withdrawal limit of the Home Buyers’ Plan and extending its eligibility to those who relocated to secure employment;

-  encouraging more rental housing: create more housing stock by allowing investment real estate sellers to recapture previously claimed depreciation and allowing a deferral of capital gains tax;

-  promoting urban density: using PTT revenue to increase the number of larger (three-bedroom) homes along transit corridors in lower-density neighbourhoods and promoting public education to increase acceptance of new developments; and

-  promoting local government best practices: encouraging changes in the municipal development application process, which would include reducing turnaround times for getting construction permits.

BCREA CEO Robert Laing points to the idea of connecting government programs with inflation as one of the major recommendations in the plan.

“The real estate market changes over time, and programs like the provincial PTT and the federal Home Buyers’ Plan need to accurately reflect the market and the economy,” he told BIV via email.

“That’s why the BCREA recommends that all PTT thresholds be indexed with adjustments made annually, and that the withdrawal limits of the Home Buyers’ Plan by tied to the Consumer Price Index.”

The Canadian Home Builders’ Association of BC (CHBA BC) has endorsed the plan.

“Many of the BCREA proposals on market housing affordability are shared priorities and goals of CHBA BC,” said Neil Moody, CEO of the home builders’ association.

“These actions on supply and building costs help industry deliver a more affordable product for homebuyers, provide more choice for buying or renting and decrease extra costs for buyers like the PTT.”

More details about BCREA’s plan can be found here.

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@EmmaHampelBIV

 
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When home prices are on the rise, there are few foreclosures. Owners not able to make mortgage payments can easily sell or refinance to get themselves out of a bind.

When prices fall, however, it’s a different story.

“Any drop in prices can lead to an increase in people defaulting (on their mortgages) because people who are stretched tightly don’t have an exit strategy,” said Andrew Bury, a Vancouver-based partner at Gowling WLG, who specializes in handling foreclosures for banks, mortgage investment companies and other lenders.

At the moment, mortgage default rates in B.C. are very low, Bury said. But looking back, he said, “in 2008, it didn’t take a huge decline in prices. In short order, there was double and then triple the number of defaults because of price declines.”

The concern comes as the B.C. Real Estate Association forecast this week that average home sale prices will fall by as much as 8.7 per cent in the Greater Vancouver area next year, from an average of $1,030,000 for 2016 to $940,000 for 2017. That marks a 13.8-per-cent drop from the association’s previous forecast for 2017, which it made in late August, and the first time in five years the industry association has forecast a year-over-year price decrease.

 

It’s not that falling prices lead directly to foreclosures. Ideally, it’s better to hang on to an asset that is declining in value and sell it later when prices rebound. However, if “something goes wrong, and in life, stuff goes wrong — you lose your job or you get a divorce,” said Bury, there isn’t the option to tap into a home’s equity for a lifeline when prices are declining. And for speculators who have taken equity out of one house to buy another, there is less to tap when it comes time for refinancing.

Andrey Pavlov, a professor of finance at SFU’s Beedie School of Business, said a decline in property prices could lead to a “significant risk” of foreclosures, especially in Vancouver, where the market has been overheated.

“I am concerned that anyone who over-extended themselves to buy a property at the top of the market is at risk,” Pavlov said. 

And in B.C., where real estate and construction account for about a quarter of the province’s economy, Pavlov said, “a real estate decline, even if it’s just a decline in transactions, would put a lot of incomes at risk.”

BCREA chief economist Cameron Muir said the forecasts are based on economic and housing variables, including “data from sales, listings, new ones, active ones, pricing over different product types and areas” as well as populations growth, migration sets, job growth and, importantly, interest rates.

David Hutchinson, a Sutton realtor, monitors Vancouver market activity daily and has seen a number of “notable price corrections” recently. Listings show a house in east Vancouver’s Collingwood neighbourhood that was listed earlier this month for $1.6 million, was re-listed this week for $999,000 — a 38-per-cent reduction in the asking price in three weeks.

“It’s kind of a fickle market at the moment,” Hutchinson said. “The market is still up from 2015, it’s just not ridiculous anymore.”

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The B.C. Real Estate Association says both transactions and total sales were down in October 2016 compared to the same month last year.

The B.C. Real Estate Association says both transactions and total sales were down in October 2016 compared to the same month last year. (Jonathan Hayward/Canadian Press)

 

 

Figures from the B.C. Real Estate Association show October was another challenging month for housing sales in some parts of the province, while other regions prospered.

The association says 7,272 residential properties changed hands in October, a decline of 16.7 per cent compared with October 2015.

The total amount of all October sales was $4.4 billion, a tumble of 24.2 per cent compared with the same period last year.

The average price of a home was $606,787, down 9.1 per cent.

Association chief economist Cameron Muir says home sales across the Metro Vancouver area fell when compared with the elevated levels of last October, but he says the numbers show sales in the metro region stabilized on a month-to-month basis.

Muir also points to strong year-over-year gains in sales on Vancouver Island and in B.C.'s Interior, regions not covered by the 15 per cent tax imposed by the province in August on home sales by foreign purchasers.

"The decline in the average residential price reflects a smaller proportion of transactions in the province originating in Vancouver," says Muir, noting housing demand remained mixed across B.C. in October.

The association reports home sales through the Real Estate Board of Greater Vancouver fell to 31.4 per cent of B.C. transactions last month, compared with 42.6 per cent a year ago.

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  • Homes with a total value of $115 were purchased by foreigners last month.
 

According to the province, 140 of these properties valued at $115 million were acquired by buyers, who are neither Canadians nor permanent residents.

This puts the level of foreign participation in the real-estate market of the Lower Mainland last month to three percent.

 

It’s an increase from the 1.8 percent rate of foreign purchases in September.

However, the province notes in a media release that three percent level is much lower than the 13.2 percent rate of foreign investments in Metro Vancouver before the additional 15 percent property tax was imposed on foreigners starting on August 2.

“There is a period of distortion in the market any time a tax is introduced or changed,” according to the release. “Many transactions that would have occurred in the months following the introduction of the tax were moved to July to avoid the tax.”

“As time goes on and the market readjusts, trends such as the rate and volume of foreign demand will normalize to levels we can expect to continue.”

The province also notes that it will monitor closely what is happening in the Capital Regional District in Vancouver Island, where the additional property tax does not apply.

According to the province, foreign buyers accounted for 6.3 percent of real-estate transactions and 10.3 percent of the total value of sales last October in the capital district, which includes the City of Victoria.

 

 
Follow Carlito Pablo on Twitter @carlitopablo.

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