Condo Bailout Coming to Vancouver

[00:00:01]Hey, Creski here. Welcome back to the show. Uh, the condo bailout is confirmed. It has arrived in Vancouver.

[00:00:07]Mark Carney landing in Vancouver for FIFA announcing that the condo bailout is here. Going to walk you through all the important steps pertaining to that policy change, massive policy change, obviously following in the footsteps of the GTA. Going to walk you through some significant things that are happening in the population level data uh, as well and really give you an update on exactly what's happening in the Vancouver housing market. So, first and foremost, the developer bailout. None of this should be a surprise, guys. We know that this is just the way that the world works. Canadian real estate, right or wrong, has taken up a massive chunk of economic activity in this country. Uh, mostly for the bad, but that's just the reality. Obviously, when it gets so big, it almost becomes too big to fail. It is now failing. The developers or the government are finally stepping in to support the development community. Uh, keep in mind that, um, I'm going to walk you through this in just a sec, but I really want to highlight first and foremost the state, the current state of the development space. Um, it is so bad.

[00:01:03]Like, I can't can't really like emphasize like how bad it is. Like, there's basically like no new housing getting built for new condos basically, right? And condos were pretty much all we built for the last 15 to 20 years.

[00:01:15]So, there's basically no new condos.

[00:01:17]Like it's so bad that last week you had the CEO of the Urban Development Institute in Greater Vancouver saying that they've cancelled their awards night. They canled their annual awards night for excellence. Uh because there is no excellence because basically there's nothing to celebrate. There's nothing getting built and the economy or the development industry is effectively in shambles. So there's no party this year. Um that's just like from a sentiment perspective. I mean, you can't you can't like summarize it any better than that one post from the CEO of the Urban Development Institute. Now, if you look at what's happening from a data perspective, this is data that we compiled from Altus Group. Um, so if you look at, you know, obviously where are pre-sales this year, where how many new condos are we selling? So, if you go back to the bull market, crazy bull market, we'll probably never see that again. You know, basically free money.

[00:02:09]Uh 2021 developers sold 19,000 condos, a record high 19,000 condos. Of course, it just kind of keeps declining every year.

[00:02:18]Last year, 2900 new home sales, lowest in several decades. 2900 new condo sales for the year. Like, wow, can't get a whole lot worse than that. Well, it can't because this year we're actually on pace for fewer than last year. You know, we're on pace. We're probably hit somewhere around 1,500 to 2,000 at the current trajectory.

[00:02:38]Now, I should add that just because you have 2,000 sales there registered doesn't necessarily mean that 2,00 condos are going to get built because what happens is most of the times is when you know they sell these condos, they don't hit the pre-sale target requirements. Um those those deposits will effectively get reimbursed back to the original buyer and the project will effectively get cancelled.

[00:03:01]So, a lot of those sales will never actually materialize into completed product. So, that is the state of the current construction space, condo space in greater Vancouver. And we know the GTA is actually performing even worse.

[00:03:15]40-year lows in annual new condo sales in the GTA. And so, if you remember what happened in the GTA probably four weeks ago, five weeks ago, something like that, uh Doug Ford came out and there was a company that called up High Capital saying, "Hey, listen. We're going to create this distressed condo developer fund where basically we're going to go buy all these unsold units off developer books. We're going to buy them in bulk, get discounts. Uh and we've partnered, by the way, we partnered with the Ontario government uh to the tune of something like a $1.2 billion, somewhere around there. Uh significant capital, obviously. Uh, and then like 2 weeks later, the Ford government in partnership with the Carne government says, "Hey, by the way, actually we're going to drop the HST tax, which I think is 12 or 13% in Ontario." So basically, the government partners to buy unsold condos and immediately changes the policy to save themselves 13% overnight with a stroke of a pen. Done deal. So you can kind of see basically how perverse this really is. Um, but you're like, "Whoa, hold on a minute. Toronto's pretty bad, but Vancouver is also really bad." when is the bailout coming to Vancouver? So, again, Mark Carney Lions here for FIFA and uh he has a big housing announcement. So, let's clip to that announcement right here.

[00:04:30]>> Too many completed condos sitting empty.

[00:04:33]Metro Vancouver alone around 2500 finished units are standing vacant with no buyers. With higher interest rates, weaker investment demand, developers are stuck. They don't want to sell at a loss. They can't afford to hold those empty units indefinitely. We will convert vacant condos into affordable housing. Uh condos that have been built, that are unoccupied, that are going to sit there potentially for another couple of years. We're going to go use the right financing mechanisms, convert those into affordable housing so people can move in and use that.

[00:05:07]>> So there it is. uh what the federal government uh with through Build Canada Homes, the federal government agency is going to partner with BC Housing, the provincial agency, where they're going to buy and convert more than 2200 unsold vacant condo units in BC. So basically, again, they're going to use your tax dollars that you pay to the government to come in and buy these overpriced condos that are not selling, and they're going to give them to basically BC Housing. BC Housing will operate and manage them and rent them out below market rents. um to the market. And so this is effectively a quasi bailout.

[00:05:43]They are using taxpayer dollars. Uh they're basically privatizing the profits and socializing the losses uh and saying, well, it's for the public good. You know, we're going to have affordable housing. So again, it is a quasi bailout. Now, we going to get into the semantics of like, okay, how is this? We don't know that many details.

[00:06:01]All they said is like, listen, we're going to buy them. BC Housing is going to run them 2,200 units. How many is 2,200 units? Is it really that much?

[00:06:09]Okay. Well, it depends. It depends on.

[00:06:12]Now, this is saying BC provincewide.

[00:06:14]Obviously, most of the housing is located in Metro Vancouver. If you look at CHC data, they say, well, the number of completed completed the building's done and unsold inventory is currently around 4,500 units in greater Vancouver area. So, by that logic, you say, "Well, hold on. 2,200. If you were to buy basically all those in Vancouver, you're basically buying up half of the unsold inventory, which would be a massive, massive change of buyer demand in the marketplace. Again, all these overpriced condos that aren't selling, developers are sitting on them. Uh instead of letting the market clear, right, prices basically either either the prices drop and or the developers go bust, uh the government said, "No, don't worry. We'll buy them off your books. You know, you keep the lights on. keep doing what you're doing. Um, so they they could buy uh to as much as potentially half of the supply. Now, where it gets interesting is if I take the CHC data, which take it with a grain of salt, and I have the Altus Group data, which is a private sector where they basically go out and survey developers, the Altus Group data is showing me that available and unsold new condo inventory in greater Vancouver is sitting around 12,000 units. So 2200 of 12,000 is a much different story than 2200 of 45. So, um, the number depends.

[00:07:36]I think I could be wrong, but I believe the Altus Group data also includes units that developers have launched for sale.

[00:07:43]So, they said, "Hey, listen. You know, we've we've launched for pre-sale. We've sold 50 50 60% of the building. We still have 40% of the units left.

[00:07:54]The building is still being constructed or even hasn't even started construction. So, those are still available and unsold. So the altus group data is a little bit different than the CHC data. So again, I'm not sure. I believe obviously Mark Carney government would buy completed units that are currently sitting empty. They're not going to go and buy a pre-sale and wait for it to complete in 3 years. So it's probably more realistic to actually use the CHC data was saying, hey, they're going to basically buy 2,200 of the 45.

[00:08:24]Now again, that 45 is likely under reportported, but either way, I mean, they're going to come in with, I think, significant um demand. I mean, if they're buying that many units, it actually is relatively significant because most of the condo construction is ultimately in the Lower Mainland. Sure, you've got some in Colona. Sure, you've got some in Victoria. We start lumping that in.

[00:08:47]Okay. Um so, we'll see ultimately how this all plays out, but again, I don't think anyone should necessarily be surprised. I'm just surprised how long it took. Again, I'm not in support of this policy. I think it's really just an egregious policy. Um, you know, it goes against sort of free market uh capitalists, but the reality is we've never had a free market in Canada. Think about uh this is what I've really said to people is like housing is housing is so large. It's such a large it's b okay it's number one it's your largest household asset for 70% of Canadians.

[00:09:19]It's a retirement asset. Justin Trudeau already said, "We don't want to hurt people's retirement values, retirement equity." Um, you have a situation where they've proven time and time again that every time the market wobbles, the government will step in. Uh, so 2008, 2009, they came in with the insured mortgage purchase program. Basically bought up all these mortgages off the bank's balance sheet to allow them to continue to lending. That's why house prices in Canada never really corrected like they did in the United States. Uh, you had that for number one. Uh, we had uh I think about the COVID era. We said basically uh mortgage deferrals, don't worry about paying your mortgage for 3 months, 6 months, it's all good. Don't worry about it. Um you know, drop rates to zero, inflate the market, uh wrap up population growth, 1.2 million people a year. So like you never really had these free markets. Every time the housing market has wobbled, government has come in and stimulated demand. Um you can go back to the zero down 40-year amortizations that we had back in 0506.

[00:10:13]So, it's really no surprise surprise like honestly how long it took. Uh, again, the construction workforce if you're a policy maker and okay like I want to get reelected in three years.

[00:10:25]Well, listen guys, I mean the construction sector in Canada employs roughly 8 to 9% of the labor force. So, I mean it's not going to go that well for your reelection bid if you have all of these people on, you know, sitting in bread lines um not able to put food on the table. So instead, what they like basically will do is they'll do a quasi bailout, angle it as sort of affordable housing, make everybody feel good about it. And that's really what's happening here today. Now, um they also announced that they are going to uh help supply funds towards uh housing infrastructure.

[00:11:02]Basically uh they're going to subsidize.

[00:11:04]So the federal governments are saying, listen, we're going to give 1.6 billion over the next 10 years. That's going to be matched by the BC government. so call it $3 billion to lower development charges for new housing by up to 50%. Uh take that number with a grain of salt.

[00:11:20]But effectively what they're saying is listen these cities need to go and they need to upgrade all their infrastructure, water systems, sewer systems, you know, we're seeing things like in North Van like you know the the sewage plants billions of dollars over budget. uh this all needs to get paid for and the way that municipal governments have been basically financing all these sewer and infrastructure upgrades has been by charging developers um basically fees.

[00:11:44]They basically been charging developers fees to cover all this infrastructure.

[00:11:48]Those fees ultimately get embedded back in the price of what the buyer has to buy at the end of the day. So one way to basically immediately change the math overnight is to say, you know, is to drop those fees, right? I mean, we know that fees and taxes account for roughly 20% of the cost of a new home in places like Vancouver. So, I mean, you can basically drop the price in essence overnight by call it, you know, five or 10% just by chopping those development fees. So, the goal of course is to say, hey, you know, we're going to drop these development fees and hope developers keep building. But I'm not so sure, guys, that this is the signal that's going to start allowing developers to go out and build more housing. I mean, do you really want to build more housing in what is a one of the largest I mean, it is the largest cyclical downturn in home prices where we're talking about condo uh bailouts. We're having the government coming in and bailing out. So, I'm not so convinced that, you know, by lowering your development fees today, it's going to create a whole bunch of new housing or that we should necessarily be building a whole bunch of new housing today. Um because I think ultimately like the market needs to clear itself.

[00:12:56]the market is going to clear itself and at some point we're going to have the next shortage and that's where those lower development fees are going to come into play. I just don't think they're going to come into play today and all of a sudden you're going to see, you know, a huge boom in new housing starts because I would argue again that we're already building too much housing assuming that what's happening with population growth is going to continue for the next year or two. So, we just got the numbers for population growth.

[00:13:22]We now have three consecutive quarters of declines in this country. That's the first time since the confederation that this has ever happened. Uh and this is largely happening through temporary residence which fell by 118,000.

[00:13:36]Create chart here for my good friend Ben Rabido who wrote this recently on the Looney Hour Substack. Uh so go check that out. There's a link in the description below to the Looney Hour Substack. We're pumping out a whole bunch of free content on there. Really, really high level great research totally for free. Um, so obviously if you're enjoying this channel, I think you're gonna love the Lunar Hour Substack, but this is courtesy of Ben Rabido showing the outright decline in population growth. 118,000 temporary residents leaving the country, yet we're still building a run rate of around 261,000 homes. So again, you have the Canadian population which is outright contracting and you're still building 261,000 homes in a market that is showing that it is very well supplied at the moment. You know, u national house prices again going through the single largest home price correction that we have seen going back to the 1980s. So um that's kind of my thoughts this week. Um going to wait and see how how we get more details around the Carne EB condo bailout, how that's all going to play out. Um I think there's more levers coming in 2027.

[00:14:44]We've talked about it before, the foreign buyer ban that will technically expire at the end of 2026. Don't be surprised if they make an exemption for foreigners to come in and buy pre-sale only, not resale, but pre-sale only. Uh don't be surprised if that happens. And I think that they're already showing their hands that this is a government that is going to support the housing market. And again, it's not to say that home prices can't and won't keep falling, but clearly they're trying to uh they're trying to somewhat at least somewhat put a floor under it. Uh we actually have seen uh courtesy of my good friend Dan Foch who follows the Toronto numbers better. We're seeing some uptick uh obviously in the Toronto market since the removal of the HST.

[00:15:26]You're actually seeing a noticeable uptick in new home sales uh as the prices get more competitive with the tax removals. Again, nothing dramatic, but it is making a shift in uh it's making a real shift in the market. So, we'll see obviously how this all plays out here in Vancouver, but the Conno bailout is here. Uh, let me know what you think in the comments below and we'll see you next week.