The Tail Doesn’t Wag the Dog

This article was written and published in the 2016 Year-End Goodman Report.

Since 1983, the Goodman Report has clung to the position that socioeconomic and political events transpiring at least outside the borders of Metro Vancouver and B.C., if not of Canada, have played a major role in establishing and maintaining the status of our region. While the Vancouver brand is recognized, if not envied worldwide, our financial and political clout, by comparison, is considerably less so.

The recent American election only reinforces this view. Under a Trump-led administration, our next-door neighbour is about to undergo a political and economic metamorphosis that is likely to produce a spillover effect of considerable magnitude on Canada and Vancouver. Should the incoming administration live up to its “America first” protectionist rhetoric, it stands to reason that nations with longstanding treaties in place, including ours, will be required to make economic concessions to the U.S. In other words, we could very well experience potential disruptions to trade and commerce, quite possibly triggering higher deficits and interest-rate increases here at home. In addition, our competiveness could be sorely tested as the U.S. begins deregulation and major reform of both personal and corporate taxes. We’re in for a bumpy ride: bet on it.

Aside from the external macro decisions and world events that shape our lives locally, there are equally discernible home-grown sources, including Canadian policymakers and politicians, that heavily influence Vancouver’s high-profile real-estate reputation.

In our 2016 Mid-Year Review, we alluded to the potential for government intervention to cool our local markets, even asking whether the cure would be worse than the disease. Indeed, the year has been notable for governmental decisions designed to slow real-estate activity:

City of VancouverProvince of British ColumbiaGovernment of Canada
  • 1% tax on vacant units
  • Airbnb restrictions
  • For 2017, a 3.9% increase in home property taxes
  • Potential restrictions on tearing down pre-1940 single-family houses with character merit
  • 15% foreign buyer tax on Class 1 – Residential (including multifamily) real estate in Metro Vancouver
  • Increase in property transfer tax to 3% for transactions over $2 million
  • Tightening of mortgage insurance eligibility requirements
  • Maintaining the highly regressive GST on new rental construction

An upbeat prognosis

Nonetheless, the Goodman Report remains extremely upbeat, as do most investors, about the short and long-term prospects of Metro Vancouver’s rental apartment asset class. Anticipated economic growth is forecast to continue unimpeded. Vancouver’s lure as a key destination for tourism, immigration and business growth remains untarnished. For owners or developers of market rental housing, it adds up to a good news story. Vacancies in most communities have declined, significant rent increases are a sure bet on turnover, immigration remains strong, interest rates should maintain their low levels for the foreseeable future, and growing numbers of investors have a decided bias for “new.” The recently implemented 1% vacancy tax in Vancouver and emphasis on laneway housing are not expected to have any meaningful impact on vacancies.

In a recent Globe and Mail article, Kerry Gold sums up the situation succinctly: “Now that many young people are expecting to rent for life – if they want to live in Vancouver – developers have woken up to the formerly neglected rental market. Renting has for too long been seen as second to owning, but in Vancouver at least, that attitude will soon have to change in the face of unaffordability and a rental vacancy rate below 1 per cent” (“The future for Vancouver’s rental market,” November 19, 2016).