Bill 44 and Mandatory Depreciation Report
Home sales in May were softer than typically expected for this time of year and, excluding the depths of the pandemic, marked the lowest level in 20 years across Greater Vancouver. In the Fraser Valley, sales crept up 3% from April albeit still 21% below the 10-year average. As listings increased substantially over the last two months, the months of supply didn’t increase much if at all in some areas. It’s a similar story across Canada in most major urban centres, with Toronto experiencing the highest number of units for sale in recent history. The surge in listings is driven in part by investors who are under siege, facing mounting financial strain. High interest rates are inflating mortgage payments, while rents are insufficient to cover carrying costs. Negative cash-flow situations are exacerbated by rising strata fees, insurance rates, and property taxes. One BC homeowner near Lougheed Mall saw his property tax increase by 70% due to the Transit-Oriented Areas (TOAs) designation near a Skytrain station, which allows for increased density up to a Floor Space Ratio of 5.0 within 200-800 meters as part of the Province’s Minimum Allowable Density Framework.
Currently, there are around 13,600 homes actively listed in Greater Vancouver, with new listings up 12.6% compared to last year. May sales were down 19.6% from the 10-year seasonal average. The sales-to-active listings ratio across all property types is 20.8%; 16.8% for detached homes, 25.1% for attached homes, and 22.5% for apartment properties. With market conditions balanced and new listings outpacing sales, price growth is expected to decelerate in the near term. In May, apartments were the only segment to see a month-over-month decline in prices of 0.3%, while prices for detached homes increased by 1.3% and attached homes by 0.9%.
BoC cuts rate
The Bank of Canada delivered a slice of hope for borrowers, making Canada the first G7 country to cut interest rates. Leading into the announcement with a 78% probability of a rate cut, the Bank reduced its key lending rate by 25 basis points to 4.75%. Governor Tiff Macklem noted that it’s “reasonable to expect further cuts if inflation eases.” Variable-rate mortgages (VRMs) and home equity lines of credit (HELOCs) will see immediate rate declines. Effective today, banks including RBC, BMO, TD, CIBC and Scotiabank have lowered their prime rate from 7.2% to 6.95%. However, for investors planning to purchase rental properties, the modest quarter-percent drop will not significantly impact financial feasibility. The next scheduled announcement for the overnight rate target is set for July 24, 2024.
Despite politicians throwing billions of dollars at addressing the housing crisis, the situation remains a zero-sum game, largely by design. Trudeau highlighted how housing is politically backstopped in a Globe and Mail interview by saying “real estate needs to be more affordable, but lowering home prices would put retirement plans at risk”. Rising home prices are commensurate with boosted government revenues through capital gains taxes, property transfer taxes, and property taxes which underpin the entire system. Everyone wants affordable housing, yet no one wants their home to be affordable.
Over the past two months, the real estate market has seen more active sellers and increased buyer hesitation, as expectations of rate relief have prompted buyers to delay purchases. However, as rates decrease moving forward, the tide can shift quickly as the competition they were trying to avoid may surge. Buyers who act despite current rates might secure the best opportunities we’ve seen in some time.
Bill 44
At the end of this month, a new construction law, Bill 44, will take effect across all municipalities in British Columbia. This legislation aims to address the housing crisis by increasing density and promoting the development of affordable housing, despite the data suggesting otherwise. Here are the key mandates of Bill 44:
- Transit-Oriented Development: Condominiums will be allowed within 800 meters of major transit hubs, including 104 bus exchanges, West Coast Express, and SkyTrain stations. This aims to encourage higher density housing in areas with good public transit access, reducing reliance on cars and supporting sustainable urban growth.
- Increased Density in Urban Areas: Municipalities within urban containment boundaries must permit the construction of 3 to 6 units on lots over 3,000 square feet. This “missing middle” housing initiative targets the development of duplexes, triplexes, and townhouses.
- Amenity Cost Charges: A new tool will enable cities to impose amenity cost charges. These charges will be collected to fund future growth-related infrastructure and community amenities, ensuring that new developments contribute to the local community’s needs.
Additionally, Bill 16 addresses off-site servicing—granting cities more flexibility to require additional servicing upgrades, ensuring that infrastructure keeps pace with development. As the June 30th deadline approaches, opposition to Bill 44 is mounting. Critics argue that the legislation might lead to the demolition of more affordable rental units than it creates. The concern is that existing low-cost housing could be replaced by higher-cost new developments, potentially exacerbating the affordability crisis rather than alleviating it.
The District of West Vancouver and District of North Vancouver councils have already rejected the Province’s small-scale multi-unit legislation, while Coquitlam and Richmond applied for extensions. It will be interesting to see which other municipalities follow suit.
Depreciation reports now mandatory
Indefinite deferrals of strata depreciation reports are going to be discontinued effective July 1, 2024, due to recent amendments to the Strata Property Regulation. Previously, strata corporations were able to defer getting a depreciation report by holding an annual 3/4 vote, but this will no longer be allowed.
- Depreciation reports provide comprehensive assessments of the condition of strata buildings and infrastructure, aiding in long-term financial planning and maintenance strategies for strata corporations. The amendments will also lengthen the timeline for acquiring new depreciation reports, and increase the quality of new depreciation reports. The regulatory amendments will do the following:
- Remove the ability of strata corporations to indefinitely defer getting a depreciation report by obtaining an annual three-quarters vote;
- Require strata corporations to obtain a depreciation report every five years instead of every three years;
- Require strata corporations to obtain depreciation reports from a list of qualified professionals; and
- Require developers to provide new strata corporations, which are established on or after July 1, 2027 and have five or more strata lots, with funding for depreciation reports.
- The required funding is a minimum of $5,000, plus $200 per strata lot, up to a maximum of $30,000 and must be paid into the strata contingency reserve fund no later than the date of the strata corporation’s first annual general meeting.