The BC government introduced measures to increase affordability in Kelowna and West Kelowna’s out-of-province-influenced housing market, and it is not sitting well with some folks.
BC Home Prices and Outside Influence: Some Background
When the province voted out the Liberals in the recent election, you could say one large reason for it was the housing crises that they did little to stem. It is hard to miss the pained concern ringing out from the CMHC (Canadian Mortgage & Housing Corporation), and international urban affordability reports claiming that not only the Lower Mainland's, but also Kelowna’s "housing prices [are] rising well above economic fundamentals” with housing costs here almost seven times the average household income. Certainly low interest rates, cheap credit and non-residents looking to park their money in BC real estate are the main drivers, and some measures have been taken to combat the latter, but most argue, it's not enough.
Other voices in the BC economy however have been excited about outside investment in our real estate industry. Here in Kelowna, HM Commercial Group released a report to the investment community promoting the higher capitalization rates of the Okanagan over the low return in Vancouver for Asian investors. This despite acknowledging that cap rates are also becoming compressed here as well with prices being bid up. They tout two massive Asian transactions in Kelowna (one of which has since failed - the Monaco), along with the purchase by Asian interests of 25% of the units in the new Cambridge House condo project. This abundance of demand from wealthy outsiders has driven prices up beyond levels that many Kelowna locals recognize.
Foreign Buyers Tax and the Spec Tax
It is likely no surprise then, that the NDP/Green Budget contained measures to cool the skyrocketing housing prices that Finance Minister Carole James claimed are being driven by non-residents driving up property prices and depleting the rental market. In an attempt to prevent speculators from shifting from one community to another, they have now applied the foreign buyers tax to Kelowna, West Kelowna (as well as the Fraser Valley, Nanaimo and greater Victoria). They have also increased that tax from 15% to 20%. This itself is not terribly controversial, given the destruction we’ve seen to the social fabric of Vancouver and a new openness to exploring tougher tools (like an outright ban), it's clear plenty of British Columbians are on board with it.
Where things get interesting is when you apply this idea to domestic out-of-province speculators. When you consider our local housing market being determined more by external forces than internal – by those who's own economies have provided them advantages we cannot access (like oh maybe an oil patch and company jet access), who do not do business in our local economy, or enrich it in ways beyond basic upkeep – it doesn’t seem that dissimilar to the Vancouver-China relationship.
To those using the Kelowna property market as an investment, leaving large portions of the city’s housing units empty 9-10 months of the year, the BC government has added the new 2% anti-speculation tax (easing in at only 0.5% the first year).
According to Statistics Canada census data, 25% of downtown Kelowna homes are vacant or not being used as a primary residence. In parts of the Lower Mission, the comparable figure is 17%. And according to the Okanagan Real Estate Board, Albertans made up 10.2% of buyers last year in the affected regions.
While the intended outcome of this tax is increased affordability for our community (and the other affected BC urban centres mentioned), there are many detractors, certainly out-of-province owners, but mostly vocally those promoting real estate sales. However, many are in favour of these tools for increased affordability, including Kelowna residents, local businesses reliant upon year-round activity and even local mayors as well.
The Real Estate Industry Reacts
The real estate industry has unsurprisingly come out against the spec tax claiming it will send foreign buyers elsewhere. You may have already read the Castanet piece outlining how Vantage West Realty’s, AJ Hazzi feels that, on the one hand, the tax is unfair to wealthy Albertans who own lakefront properties and don’t pay taxes here, and on the other hand he argues “not that many people leave their properties empty in the valley”. He thinks that the 20% vacant homes figure is super-inflated, saying that even if Albertan-owned houses came back on the market it wouldn’t send the market down.
He further remarks that the government is pretending to create affordability, but that "the free market is always the better way to go." According to Hazzi, "it'll work itself out better." It is not surprising that this article is tweeted out by most Kelowna real estate professionals on Twitter. This is the defacto position of the industry.
There is also the argument that the penalty will force them to sell now, and with all their fellow Albertans dumping homes on the market, they won't be able to fetch a nice price. This leaves one to wonder what the argument is – are there “hardly any” vacant homes, or enough to lower the market value were they to suddenly sell? One way to avoid any of this, of course (which Hazzi rightly suggests) is to hire a property manager to rent them out. No harm, no foul, no one is out any valuable assets, and rental accommodations rise.
You can hear similar complaints by part-time Kelowna’s beleaguered one-percent over on Kelowna Now, where they have invited in former Chamber of Commerce President, real-estate lawyer Curtis Darmohray. He too has been responding to the outcry from his wealthy Alberta clients over the tax claiming that his 10 million dollar client is outraged. The argument being that their out-of-province real-estate investment here helps our local economy, presumably more so than if locals owned the properties – locals who incidentally shop in Kelowna, hire workers from Kelowna, teach and care for Kelownans, and pay taxes here. The same locals who, due to the overheated market we’ve described cannot find affordable homes here anymore. It should also be added that this tax is estimated to bring 300 million into the province, money that will go to affordable housing.
Local Liberal MLAs and the “War on Upper End Homes”
MLAs for the region (Liberals all) see this as a war on the local construction industry. Norm Letnick (Lake Country) claims that "this tax will discourage them [out-of-province buyers] from buying in the first place, which will impact the construction industry, the retail sector, and ripple through the whole economy." Dan Ashton of Penticton argued on CBC radio and elsewhere this week that this is a war on the high-end construction business and the trades they employ.
This "NDP war on upper end homes" is political sloganeering for an opposition party in the bag for the real estate industry sure, but is there something to it? When the wealthy build massive modern homes in previously unused areas, or buy real-estate that are out of reach from the average Kelownan, is that really messing with housing availability overall? And aren’t they giving local tradespeople business? I mean that faux craftsman is not gonna stone-stack itself right? I don’t think anyone will find fault with this basic argument, but it does nothing to explain that most Albertan investment properties are downtown, and in condos like the one I live in that has been mostly empty since September. And this is where the new real estate development (10 high-rise proposals are slated to go before council) is happening.
Back to the "war on upper-end homes" distraction for a minute: are the skilled tradespeople that MLAs like Dan seem to be fighting for really going to lose income when the building business is booming in non high-end construction? Moreover, is he fighting for these workers to even be able to afford to live in Kelowna? Find out how the MLA for Penticton responds to these issues from many in the construction business, in this animated thread.
Okanagan City Mayors
Mayor Colin Basran does see a role for the BC government in helping us through this wild west real estate market – it’s just not exactly this tax. He’d like to see more action on pre-sale condo sales (flipping and shadow flipping), saying that this is a bigger threat to our housing stability than Albertan real estate investments. He worries this new tax may send them buying elsewhere. Maybe he should follow Vancouver council's Adriane Carr’s lead who, this week, called on the province to enact laws against flipping.
There were also some rumblings from Basran, and especially West Kelowna's Mayor Doug Findlater and Coun. Rick de Jong about the the lack of consultation and the surprise of the news. The BC government holds that "it is standard practice for the province to develop tax policies independently and confidentially."
It's also interesting to see which areas the government considers solely recreation resort and which are multi-faceted urban centres worthy of affordable living. For example, Whistler won’t get taxed because it is a resort-based economy, and West Kelowna and Kelowna are not (or shouldn’t solely be), so non-resident speculation will be penalized. Penticton on the other hand doesn’t get protected from speculation because housing is more sustainable, owned by full-timers (many of them Lower Mainland transplants). Interestingly the mayor of Penticton, Andrew Jakubeit, actually wants the tax, saying "whether it is foreign money from out of province or out of country, units that are vacant 10 months a year is not good for developing a vibrant community."
A First Look at the New Bargain Shop Land Proposal
We spotted the first of Mission Group's zoning applications for the downtown Bargain Shop property on the city website. The 1.5 acre property was sold last October for 9.4 million and includes the 560-592 block of Bernard Avenue, as well as 1471 St. Paul Street.
Presently, the property has a recommended height of 12 storeys, however the application calls for a 26 storey condo tower for the first phase of the property redevelopment. Mission Group is seeking a rezoning change specifically for the 1471 St. Paul Street address, from C4 – Urban Centre Commercial zone, to C7 – Central Business Commercial Zone.
This first phase will include street-level retail, above grade structured parking with an 178 apartment residential tower above. The podium portion of the building will be five storeys in height. For now, Mission Group has just submitted the design schematics and building statistics, and we should get a better look at the actual design of the building before spring is over.
The property was placed on the market in late summer of 2016 with an asking price fo 9.4 million. Prior to its sale, it was a Woolworths location before converting to a Bargain Shop. The store closed its doors in November, 2010 and it has sat empty since. Mission Group is also building the 20-storey, 116-unit concrete tower called Ella on the corner of Ellis and Lawrence, and the inaugural shovel ceremony will take place early next week, as well as the Aqua development that was approved by the city earlier in the year.