Developers are torn between purpose built rentals and condos
Neil Sharma
Canadian Real Estate Wealth
The British Columbia government is coming down hard on landlords, including condo investors, and there’s mounting fear that 12,000 much-needed rental units in Metro Vancouver are imperilled.
David Goodman, principal of HQ Commercial and one of the Goodman Report’s publishers, told CREW that the units, which total around $5bln, might not get built if so long as landlords remain in the government’s crosshairs—which he attributes to overzealous tenants organizations and sympathy from high-ranking government officials.
“You had the increase in construction costs and the significant increase in land costs pitted against the recent rollback of rent increases for 2019, where landlords can only allow inflation instead of the full 4.5%,” said Goodman. “The provincial government wants to see tighter control against landlords. We’re waiting to see what the further recommendations are. Right now, sky’s the limit.”
David Hutniak, CEO of LandlordBC, previously expressed consternation that a housing task force struck by the government, which eliminated 2% from annual rent increases, might tie rent control to units rather than to tenants like it currently does.
“Moving to a basis whereby rent control would be tied to the unit versus the tenant would be catastrophic,” he said. “That would put the nail in the coffin for the ability of landlords to continue investing in their properties and provide safe and secure rental housing. Why would anybody build purpose-built rentals anymore? Ultimately, we can only charge based on what local incomes can support, so there’s a bit of a misperception that it’s some big cash grab—it’s not.”
The 12,000 units Goodman fears are compromised have either been approved for construction or are in the permitting process, and he says there are waning incentives for developers to build purpose-built in lieu of vastly more profitable condos.
“They must be saying, ‘Maybe we’d be better off building condos or mothballing projects because we’re not even going to see a 10% return over three or four years.’ They need 10-15% just to get bank financing. We’re concerned banks will grow increasingly leery about funding new rental projects, which up until now were low risk.”
Supply remains at the heart of the issue, he added, because government ultimately determines what can and cannot be built.
“The government is saying ‘We want you to risk your money but we’re going to cap your rent increases to less than market,’” said Goodman. “Landlords are now being singled out as the culprits, but it’s really the federal, provincial and municipal governments, not just in B.C. but across the country, that have been guilty of not supporting new rentals.”
Developers, claims Goodman, have returned to their drawing boards to determine whether or purpose-built rental buildings remain viable ventures.
“We have all these forces at work right now and we know from talking to a number of developers over the past week that this is not just hearsay,” said Goodman. “They’re all going back to the drawing boards and looking at their projects to see if they really want to build rental buildings.”
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