Dark windows illuminate problems in Vancouver’s real estate market

Share

NO VACANCY

The rapidly rising cost of rental units in Canada's largest cities, along with vacancy rates near zero, mean it's increasingly difficult for people who rely on rental units to find – and keep – their housing. Like the real estate market, rental prices have become detached from incomes and are forcing people to live in cramped apartments, find roommates well into adulthood or simply move away.

The Globe and Mail spent the summer examining how those factors have shaped the lives of renters and landlords, and their cities. This is the last in a series.

When the lights go on in the City of Vancouver, it is the dark windows that tend to catch the eye.

On any given night, there are a lot of condo towers in the downtown area, particularly along the waterfront in Coal Harbour, where the unlit rooms indicate nobody is at home.

The problem of vacant properties has long been a hot topic in Vancouver. But it is only in recent years that hard numbers have become available. According to recent studies, there are an estimated 10,800 empty houses in the city – about 9,700 of which are condos. Short-term rentals, mostly through Airbnb, have taken about another 3,400 units off the housing market.

In a city gripped by a housing affordability crisis, with a vacancy rate near zero and rental rates soaring, the large number of dark windows has long been perplexing and troubling.

Vancouver is hoping to bring some of those empty condos on to the rental market through an empty-homes tax that is being watched closely in Toronto.

But the problem is a complex one – and government attempts to create more condo rentals have backfired in the past.

The phenomenon is not unique to Vancouver.

In Melbourne, Australia, water-use records have shown that some 64,000 housing units were empty, accounting for the so-called "ghost towers" in the Docklands district where 17 per cent of properties weren't being lived in.

In New York, the city budget office determined last year that nearly 25 per cent of apartments were not used as primary residences. The city has introduced a pied-à-terre tax in response.

Vancouver Mayor Gregor Robertson has been talking about the issue for years and this summer called for and got provincial legislation enabling the city to bring in an empty-homes tax in an attempt to discourage speculators.

"Ultimately, the issue is not who buys, but how housing is being used: People who use housing solely as a means to make money – rather than living and working in Vancouver – should be taxed as such," he said earlier this summer in explaining why the tax is needed.

Mr. Robertson said in a statement Sunday that the city will be releasing details of its vacancy tax "in the coming weeks" and will also outline a strategy to regulate short-term rentals.

But Mr Robertson also called for more help.

"Vancouver can't solve the rental housing crisis alone," he said.

"We need more B.C. cities to join us in boosting rental housing supply. We need incentives from the federal and B.C government to encourage more rental construction."

He also said the province needs stronger penalties for landlords who break the rules.

It is still unclear, however, how the city is going to identify which houses can fairly be classified as empty long term and whether the tax will do much to change the picture.

The city has had a team of staffers working out the details all summer on how to implement the vacancy tax.

Andy Yan, acting director of Simon Fraser University's City Program, said it is unrealistic to think any single initiative can solve a problem as complex as Vancouver's, and more steps will be needed.

"It is muddling through," he said of the new tax.

In 2013, Mr. Yan enlightened the debate over empty condos with a study that showed Vancouver has a much higher rate of vacant housing – about 7,500 more empty units – than would be expected in most other Canadian cities. Using 2011 census data to isolate units that were "unoccupied" or occupied "by a foreign resident and/or by temporarily present persons," he found that over all, 7.7 per cent of Vancouver's dwellings were empty, compared with a rate of 5.4 per cent in Toronto and 5 per cent in Calgary.

In the downtown area, the study found that 14.9 per cent of dwelling units were empty, and in the Coal Harbour neighbourhood, that number jumped to 22.8 per cent.

The study did not determine who owned those units or why they were empty, but Mr. Yan has written in his blog that "through other methods and data sources, we strongly believe that many downtown condos are investor owned/non-resident occupied."

A city study released in March used BC Hydro smart-meter data to put the number of condos empty for 12 months at 9,750.

Getting those empty units into the rental pool would clearly help ease the housing problem in Vancouver, but that's not going to be easy.

"The vacancy tax, will that work? No. That's the short answer," said Mr. Yan. "I'm still not sure how they are going to enforce it. There's a litmus test on public policy in terms of enforceability, transparency and of effect. And it's very ambiguous as to how they are going to prove there are empty units."

Mr. Yan said a smarter approach would be to adopt a plan proposed by a group of some 30 University of B.C. and SFU economists, who have called for a property-tax surcharge aimed at nonresidents.

"Only those who don't already pay income taxes in Canada – those who leave properties vacant or don't declare their income – would end up paying the surcharge," Joshua Gottlieb, an assistant professor at UBC's Vancouver School of Economics, has written in explaining the approach.

"That is by far easier to prove and to monitor than it is to [identify] empty [units]," said Mr. Yan. He feels government needs to find a range of responses to the problem.

"It isn't just about a single solution. It's about a collection of considered solutions," he said.

Governments have hoped for quick fixes before and, in seeking answers to the empty homes problem, it is worth looking back at how it came about in the first place.

Tony Gioventu, executive director of the Condominium Home Owners' Association of B.C., said although market conditions suddenly made Vancouver real estate highly attractive to investors, the provincial government unwittingly exacerbated the problem by bringing in new regulations in 2010 that made it easier for condo owners to rent out their properties.

The so-called right-to-rent law allowed a developer to file an owner/developer rental disclosure statement, or RDS, to exempt an owner from restrictive rental bylaws. Restrictive bylaws are commonly used by strata councils to limit the number of units that can be rented out in a building.

The right-to-rent change should have led to more rentals. But in a recent survey of 12 condo buildings in Vancouver, Mr. Gioventu found the building created after 2010 had much higher numbers of empty condos than did older buildings, where renting was partially or wholly restricted by strata bylaws.

"It's counterintuitive, but that's what has happened," said Mr. Gioventu. "What we thought was going to provide more rental units, in fact … created a pool of inventory that was totally unrestricted, which suddenly opened the door for speculators."

Unintentionally, the government had made new condos targets for investors, because with rental restrictions removed, buyers had a commodity that could be sold without the messy encumbrance of tenants.

"Look at the new housing stock, Coal Harbour, False Creek … the vacancy rate in these buildings ranges between 15 per cent and 34 per cent. So you know that's where the speculators have been buying and selling property," said Mr. Gioventu.

"Basically any strata lots that were filed after Jan. 1, 2010, will be exempt from rental bylaws for as long as the developer stated (in an RDS) – and most are for 100 years. So it doesn't matter who owns it – subsequent purchaser, first purchaser, it makes no difference [and the exemption passes to the new buyer]," he said.

In the buildings created before 2010, strata councils still have some control over the number of units that can be rented out.

Mr. Gioventu found the vacancy rate in the older buildings averaged 1.4 per cent.

"So the strange thing is the rental bylaws actually protected all of our older, smaller-stock buildings from speculators," he said.

Mr. Gioventu said speculators want to buy new condos; they often don't want tenants and are wealthy enough that they don't need rental income.

Like Mr. Yan, he doesn't think the empty-homes tax will change things significantly.

That's not the common view, however. A City of Vancouver survey found that 75 per cent of respondents feel strata councils should be prohibited from having rental restriction bylaws. In other words, most people think that if you make it easier to rent – as the 2010 right-to-rent amendment did – the number of vacancies will drop and all those dark windows will light up along Coal Harbour.

"I think that's an uninformed opinion," said Mr. Gioventu.

"You only have to look at the survey we did to realize that the minute you take rental bylaws away, that your buildings will suddenly be subject to speculators. And the moment that happens, you are in big trouble. Then you really will contaminate the market you have left for genuine rental housing."

Mr. Gioventu said market forces are driving prices in Vancouver and what the city needs to do is to dramatically increase housing stock.

"We need [more] dedicated, purpose-built rental housing that's affordable. That's the solution," he said. "Until we actually have enough rental purpose-built housing, there is going to be pressure on the condo side of the industry. And until there is enough condo housing to meet the demands of the market, there will be pressure on the rental side."