This time for real? Construction eases in Victoria
Last year I started hearing from construction companies that they anticipated we were likely at peak construction. 9 months ago I wrote that starts had apparently turned down from the peak which meant that this was likely the top for construction activity in the region. Starts rebounded again early in 2019 but now seem to be trending downwards again with the leading picture painted by building permit data looking quite negative. The construction association has much higher hopes for the ability of the federal first time homebuyers plan to revive the market than I do.
With starts having maintained the currently very high level of about 4000 units per year for 18+ months, we are now seeing the rate of completions starting to jump up. This will continue to ramp up and we will see a very high level of unit completions over the next 18 months. If I were to extrapolate the starts data to the future, it will look something like this with units under construction likely declining gradually over the same period.
Of course remember that by the time a development completes the vast majority of units will be sold (in most market conditions). So if those units are mostly pre-sold, what does the high rate of completions in the next couple years mean?
- Unlike recent building booms, about half of those completions are rental units. That means rental vacancy rates will increase (possibly quite quickly since this level of construction hasn’t happened in many decades here).
- People will move into the new condos. Where are they moving from?
- Out of town and will come when their units are available. Net market effect about zero.
- Rentals. Market effect is to increase rental vacancy.
- Owned properties which will then be listed on the market increasing inventory. Market effect: cooling.
- Increased rental vacancy rates will halt rent increases. About 4% vacancy rate seems to be the level where rents stop increasing.
- Increased rental vacancy rates may motivate more redevelopment of our existing aging 60s rental stock so also expect an increased rate of reno/demovictions.
- Potential decrease in construction employment. Right now this is not the case yet as commercial and infrastructure work has sucked up any trades that may have finished with their residential projects. The PMs at the big infrastructure projects are telling me they are still flying in trades from the prairies because they just can’t find what they need locally. Outside of a bigger economic slowdown that leads to project cancellations, I can’t see trades not being very busy for at least another 12-18 months.
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We also looked at a place that doesn’t have the proper permits. The roof has an issue as it actually isn’t designed properly and it actually funnels water against a wall… It would require quite some work in order to actually get it up to spec.
Cadborosaurus;
The septic can be a killer. Especially if it wasn’t properly permitted. Depends on placement on the property too.
Is it city water or well?
I know little about septic systems other than I spent some hours digging off the top layer in the tank at my parents place as a teenager.
Even though it’s fundamentally compost at that point, I would still highly recommend outsourcing that particular job. There’s such a thing as too thrifty…
Septic system capacity is determined by the linear footage of the runs. Newer tanks reduce the field size needed but if the suite was added after the septic field was installed, it likely wasn’t designed for the additional sources of waste water that more occupants would produce.
Grant the new septics are 5 chambers and then pump to a field, They are very efficient. The bugs do a very good job in the new system. Mine I check on every year and its working like a charm. The field has the most lushish vegetation.
There are some that are alot more efficient and expensive than mine and require little to no pumping out. Things have changed in the septic world. Its no longer just a tank.
I on the 7th year. Depends on use and people in the house.
Having experienced both I can say that this low interest rate environment is a very bad thing. You end up with people chasing yields in market spaces they would not otherwise normally enter. It is not a healthy environment for savings, pensions, and the like.
Correct we can’t get the mortgage insured (CMHC as we are high ratio) unless the wiring is fixed (and whatever else is wrong with the suite im sure). Rather than just write off the property because of issues I’m trying to come up with our ‘headache cost’ and what we’d reduce our offer by if we did make an offer or make it conditional on these things being fixed. Septic doesn’t seem ideal but maybe it’d be ok for the right price, this house has been for sale for a long time. I am assuming with the suite done without permits it’s probably straining the septic and that’d it’d need to be drained more frequently?
Jesus, that must be an olympic pool sized septic tank. Most septic tanks at cottages out near my father’s place need to be emptied 1-2 times per year. Obviously, size matters 🙂
Cadboro: I seriously recommend that you give this property a pass unless you have very deep pockets. I had septic at my cottage and generally everyone in the area found they were a nightmare. They seemed okay on some properties but when they did not work well they could turn into a nightmare; life is just too short.
Septic needs to be inspected and an electrician needs to be called. Not sure you can get insurance on a new policy with aluminum. New septic’s are not cheap. 20 to 50k depending on what category you need. Need to be emptied every 5 to 10 years.
Probably slight delay on Monday numbers as the boards internet is down.
Septic tank and aluminum wiring
I looked at a house on the weekend that’s on a septic tank and I know nothing about that. Do you have one or can anyone tell me what that entails? House has a separate suite so there’d be my family and a 1 bed suite using this tank. How often does one need to be pumped out, what does that cost, what’s the lifetime of a septic tank, what are the issues? Realtor said that laundry loads can’t be back to back and you watch what you flush. If suite has its own washer & dryer would I need to check with them before starting every laundry load? Also the location of the tank in the yard- can anything go over top of that (ie a deck, garden box, swing set) or does it have to be kept empty?
Suite also has aluminum wiring and was not done with permits. Any ideas on what that costs to replace? 1 bed detached suite.
Thanks!
I don’t know if you are being facetious or not.
Economists and news media go on about how bad it’s been, but I understand life has actually been good overall for many Japanese people.
It’s certainly done wonders for Japan for the last 2 decades.
Actually both extremely low and extremely high mortgage rates are a bad thing.
People who claim low mortgage rate is bad thing is because they never experienced high mortgage rate of the 70s/80s nor the maturity to understand the havoc of high inflation does to the economy (ie. the depression, collapsed of the USSR to its people and surrounding economies, Venezuela, etc…)
“Government policies ensure rentals will remain scarce Stunting home buying, discouraging investors and stalling new residential construction make renting the only option for many in Western Canada”
Frank O’Brien, Western Investor
August 22, 2019
https://www.westerninvestor.com/news/opinion/government-policies-ensure-rentals-will-remain-scarce-1.23897775
Some things the previous generations maybe didn’t have to deal with:
As for blue-collar workers, my formerly well-paying trade qualification is now essentially worthless, thanks to automation and CNC technology. Granted, new trades have taken its place, but if you invested 10-20 years in a vanishing trade, you probably don’t give a sh*t. I presume my trade was not unique, and others have/will suffer(ed), too. At least I learned how to do most of my own home renos and maintenance, before changing careers.
You are correct that some blue collar workers was able to afford a home in the past and they still do presently even in every corner of Canada. And, post secondary were’t affordable/accessible in the past as today hence the percentage of the 25-34 year old today have post secondary education is much higher than Canada ever had.
It seems as if the millenials on this board are missing the boat of home ownership, because many of their hardworking peers are buying/bought, and some are looking at buying vacation properties as indicated by Re/Max.
I would hope by “pay it forward” you are referring to , as most people do, donating time and money to the huge number of people truly in need (poor, sick, drug addicted, disabled etc.), and not some action for “society to provide” millennials to buy a desired home in the Victoria core for a lower buy-in price. With 50% of them owning a home by age 30 in Canada, there’s no “crisis” and govt money can be better spent elsewhere on those truly in need.
I consider lowest mortgage rate to be a bad thing. The only people that benefit from low mortgage rates are those at the beginning when they dropped since it allowed them to buy at a lower monthly payment than before. For anyone now the low rates have just supported very high house prices which improves affordability but increases risks and means they’ll be paying for their mortgages a lot longer. https://househuntvictoria.ca/2017/02/16/equal-affordability-but-some-affordability-is-more-equal-than-others/
Low mortgage rates also means low rates on savings which means people are forced to invest in riskier assets to make a return.
Sadly many people of every demographic take for granted the privilege that they had/have
Sadly, many millennials take for granted the privileges they have.
Things like the strongest job market and lowest mortgage rates in many decades.
.. can’t measure affordability by using an age alias group names .. 10year from now that number would increase. You need to use the age grouping to measure affordability.. such as people owning from 30-40, 40-50,..etc.. it’s like saying “many of boomers are going to be dead Soon- we must be having a health crisis as time pass by” the number will always increase
Absolutely. And I have no issue with anyone that recognizes the privilege they had and are happy to pay it forward. Sadly not everyone does.
Yes, but not in a desirable area. It’s the same today, you don’t need doctor’s income to live in a less desirable area.
At age 30, 50% of millennials own their home (2016, stats Canada). For the boomers who had it so easy, 55% of them owned a home by age 30. That’s a little higher, but hardly worth your statements about “resenting” a generation.
https://www150.statcan.gc.ca/n1/daily-quotidien/171025/dq171025c-eng.htm
“StatsCan: To demonstrate this, one can compare homeownership rates of baby boomers at age 30 in 1981, with millennials aged 30 in 2016. At the age of 30, among millennials who lived in their own home, just over half (50.2%) were owners in 2016, compared with 55.5% of boomers in 1981.“
People with two homes wouldn’t affect the home ownership rate. I don’t think stats Canada counts second homes at all in that home ownership calculation, and even if they did, the official results of the spec tax has taught us that only about 1% of homes in the spec tax regions are subject to spec tax (vacant, or not rented).
Great. Now how about also recognizing, as I do, that the privilege we all have was made possible by the many generations that came before us. Instead of resenting and condemning them with your statement “They’ve pulled the ladder up behind them, and history will remember.”
What is the age breakdown of that ownership compared to the previous generation? How many are 2nd, 3rd etc homes? Useless to compare without those details.
Agreed that house sizes are ridiculous, people do not need that much space.
Personally I’m doing well compared to the majority of my cohort (elder millennials). We own a detached house in a decent hood and mortgage is only around 25% of our net income (suite income included). I’m fortunate that I’m in tech though, and recognize the privilege that I have.
But that’s still true today….
A year of full-time tuition at U Vic is currently $5,700 CAD. That’s a summer’s wages @$13.85/hour (minimum wage for 10 weeks). One more week gets you books.
https://www.uvic.ca/vpfo/accounting/services/tuition/tuitionestimator/result.php?residency=D&level=UG&program=36
The rate of home ownership in Canada now is much higher now than any other decade in Canada history. In the 70s-90s it was 60-62%. It has risen each decade and now is 68%.
https://www.cmhc-schl.gc.ca/en/media-newsroom/speeches/2017/defending-the-blue-line-financial-stability-and-cmhc
Canadian society has given you that, and now you need to accomplish what 68% of your cohorts have managed, without asking for more than any generation has ever had in terms of home ownership. This is among the highest rates among G7 countries.
http://www.torontocondobubble.com/2013/08/homeownership-rates-in-canada-and.html
In addition, average new house size in Canada has doubled since 1970 https://www.darrinqualman.com/house-size/
Just some of the things that the previous generation had: affordable post secondary, ability for blue collar single earner to afford a house/home.
You’d have to explain that one to me. It sounds like you’re saying that NIMBYS complaining “vehemently” are somehow preventing society from providing millennials what they are entitled to. Have I got that right? If so, what are the NIMBY complaints, and what exactly is “society” supposed to provide to millennials?
@ barrister – i understand that part .. but i just want to poke fun at Patrick for cherry picking the last 5 years data
Chinvas: Prices are up 45% but mortgage rates are down about 30% while saleries are up about 8.5% which accounts for at least some of the price growth.
Patrick, you missed half of my statement:
I haven’t seen much resentment for those who are successful but willing to contribute back to the society from which they have gained so much so that others might have a similar opportunity.
amazon stocks have risen 400% in the last 5 years
back in those days, a janitor can afford a place – now dual income doctors needed for mortgaging a place .. life must be hard
Victoria Prices have risen 45% in the last 5 years. That’s the 2010’s not the 1980’s. If you want to resent people, start with your cohorts that bought low in 2010-2014, and have enjoyed a one-way 45% ride up in prices, with historic low mortgage rates along the way. Compare that to people buying in the 1970-80s who needed to pay multiples of their house price in 10-20% annual mortgage interest during the 80s.
Garden: Nobody was provided with detached houses, granite countertops, or avocado on toast.
Back in the day, people had to work hard and make sacrifices to afford those things.
If you’re considering to buy RE, it pays to spot trends early, and not be the last guy to acknowledge them. The ReMAX survey is spotting a new trend, a new wave of interest in buying from millennials. This is backed up by data from the survey, where millennials “in the market to purchase” a recreational home rose significantly from 42% to 56% in one year.
If you too are in that market, you can ignore that trend and buy after it’s well established (after you know what “people have done”) , likely at higher prices. If you’d like to get ahead of it, and profit from it, the ReMAX data is helpful to get in at the early stages, amongst many other factors of course.
Personally, I’m less interested in the percent of millennials that own properties now than the data about what percent of them are “in the market to purchase”. Anecdotally, seems like a lot of Hawk-graph-loving bears here are now capitulating and are also actively “in the market to purchase”, so it would be interesting if ReMAX does a study on that too.
Garden: I grew up in Toronto and what you are talking about is my fathers generation and not mine. Maybe in Victoria it was different. Welcome to the world of increased density, larger government and increased population growth.
There’s resentment toward people who came up in a prosperous time where houses could be gotten on a single a blue collar job, and working minimum wage for a summer would pay for tuition+books for a year, but are now NIMBYs who complain vehemently about society providing current generations with what they had.
They’ve pulled the ladder up behind them, and history will remember.
Looked at three open houses yesterday and all of them were way above assessment and to my mind way over priced. The interesting thing is that all three were owned for three or less years, If they sell anywhere near asking it will go to prove how mistaken I am.
There are no facts to support this headline. The “survey” by ReMax which it cites appears to define “in the market” to be “considering buying a recreational property”. As we know, what matters is what people do, not what they consider. ReMax’s headline is actually more accurate than that in the G&M.
And did anyone else notice “PAID POST” right at the top of the G&M “article”?
I’ll buy that, but maybe not in the sense you mean.
ReMaX: 2019 survey reveals Millennials’ interest in recreational property higher than ever
Good find.
VREB reports Gulf Islands Benchmark SFH price up 11% YOY, and up 63% over last 5 years. That’s better than greater Victoria SFH benchmark which is down 1% YOY and up 50% over last 5 years. I’d assume that’s mostly boomer-retirees but there may be some younger folks in there as well.
https://www.vreb.org/media/attachments/view/doc/statsrelease2019_07/pdf/statsrelease2019_07.pdf
More millennials are buying vacation homes: here’s what they’re after
https://www.theglobeandmail.com/real-estate/adv/article-more-millennials-are-buying-vacation-homes-heres-what-theyre-after/
The hypocrisy is rather strong here.
There is widespread resentment toward successful people these days.
Are we supposed to discourage “non-productive “people from continuing to live in Victoria, and encourage “productive” people to move here? If not, what’s your point about it being great that a “non-productive” near-retirement couple have been smoked-out of their house by absurdly high (and probably illegal under NAFTA) spec taxes?
If productivity is your thing, why not advocate a direct tax on non-productive people, so they’ll all move away? And why stop at home owners, that US non-productive couple could be instead renting a home in Victoria and taking up space from a productive person who wants to move here.
IMO, spec tax needs a major rewrite. Instead of the current mess, charge everyone (BCers same as foreigners) in the province a 25% surcharge on their property tax if it’s their second home and vacant (via a one liner on the property tax form)
I am suggesting that this guy and others like him, and the investors who finance the companies which hire them, are being productive somewhere else, perhaps including the US where housing, even at current prices, is not so out of line with salaries.
Patriotz: Are you suggesting that the person that buys that house in Oak Bay suddenly becomes productive and where not productive before that. I know that you are a smart guy so I am wondering why you are twisting the obvious.
Equally, the issue with the capital leaving the country is a matter of the balance of trade numbers and not the internal cost of borrowing money.
Like I stated originally there may be good policy reasons for the the spec tax but pretending that it is virtually cost free is foolish.
Metro Vancouver flippers flopped over summer
The way around that is to rent it out for 6 months a year, one month at a time if they like. They can’t stay 6 months a year themselves without becoming Canadian residents for income tax anyway.
Yes that’s true, but capital for the housing market is historically cheap. That means you get a good return from someone moving in who produces something.
Repairs or replaced with the exact same = maintenance
Upgrade = improvement
Septic system are designed for a certain amount of bedrooms in the house (a certain number of users). Originally septic system weren’t designed to accommodate dishwasher, cloth washer, or more users during a house party, therefore it can be over used/failed during the critical times.
A drainage system that connected to city sewer can handle much larger load than a septic system.
Hence going from a septic to sewer is an upgrade.
what is the point of capital parking in piggy bank canada? We can find better benefits by building industry that produce goods, by supporting better tech jobs, and provide housing for growth.
LeoS >small violins
Leo It is late at night for you but you seem to have missed the point that they would be charged 2% per year as foreign owners and there is no way around that. I am also pretty sure that their gardeners are not thrilled about losing them as clients.
The spec tax may or may not be good policy but lets not pretend that it does not come at a price. Assuming that they leave Canada altogether that represents over a million in capital that is leaving the country in addition to whatever amounts they were spending in Canada every year.To make it up we as a nation have to either export a bit more or import a bit less. The benefits may outweigh the cost but we as nation are going to have to export a number of small violins to make up the difference.
Personally I found that their tulip display always put a smile on my face every time I drove by and the city will be a bit less bright without them.
The definition of maintenance does not cause an underestimation, confusion as to maintenance vs. improvement does. You choose to improve but need to maintain. The math heavily weights appreciation so even if you don’t improve you’re going to get a great ROI in our market imo so don’t improve if the value is not worth it for you for personal use reasons.
If stuff doesn’t work you need to fix it. If you have an avocado bathroom that works it doesn’t need to be fixed. You choose to fix it and likely will get 100% back if you DIY.Often a win:win in an appreciation market like ours unless you “invest” in low return improvements like hot tubs and pools.
Also correct taste in updates to appeal to likely buyers.
That’s depreciation. Like computers and cell phones which depreciate even though they still work fine. Depreciation results in a decline in the value of the capital stock (which in the case of RE just means the improvements). Putting in a new bathroom is an improvement to the capital stock, not a current expense.
We are entitled to our own opinions of course but the above is the view of CRA which you have to follow if your property is taxable.
Sweat equity + occasionally good market timing
Shouldn’t renovations add net overall value to the home? Otherwise how do house flippers make money when they buy a dump, proceed to reno then sell?
Obligations would be under maintenance in my book.
There have been a variety of surveys that then get reported online with extremely specific statements like “a minor kitchen remodel is expected to return 92% of the cost”
Reality is no one can know with such specificity but all data points to negative ROI for vast majority of improvements beyond basic maintenance (obviously don’t let your house fall apart).
I don’t think it matters. Sinking $30k into a kitchen might get you $20-$25k in increased resale regardless of land value ratio. Of course there are always exceptions. If your house is a teardown otherwise then your new kitchen gets you no increase in value.
“Basically you don’t have to do improvements to continue use.”
What if you are renting out a home in Langford and you are obliged to hook up to the sewer system? Would that be called maintenance or improvements?
Have there ever been any studies on the ROI of specific types of improvements, or are we just guessing here?
Also, I’m wondering whether improvements are even a good idea (from a purely financial standpoint) if one’s property value is 80% land and 20% building (and that ratio is only going to get more lopsided as time goes on).
Yeah the x% of house price guideline is basically nonsense when applied to regions like ours with high land costs. Could work if you applied it only to house value and subtracted out land value.
For most things I think it’s not worth updating at all. Unlikely to get your money back for most updates. Low cost things like painting often have the best ROI.
Of course in a very slow market a run down house may not sell at all whereas reasonably priced move-in ready places will always sell. So it may be worth doing a reno just to move a place. However in general I would not do a reno for someone else. You almost certainly won’t get your money back, and definitely not once you account for the time and hassle you have to go through.
Oh for sure there’s a cost to that, but as far as I know that aspect isn’t included in the recommendations for x% of house price for maintenance that people quote for costs of home ownership. Or maybe it is and i’m off base here?
Also speaking purely financially, isn’t it best to wait until you’re close to selling to bring things up to date? I’m guessing that updating a 20 year old kitchen+bath in 2019 isn’t going to have much of an impact in 2039.
Yeah no kidding. On the one hand I feel a little bad for them. No one wants to pay more taxes, so it is entirely understandable to be upset. But saying they are forced out is also an exaggeration. If your plan is to come here full time and you really love Victoria you would not be dissuaded by what is at best an inconvenience. Seems like they were not sold on moving here anyway and the tax was the straw that made the decision. If they were really a couple years from retirement the spec tax is easily paid or avoided by renting it out for a short time before moving in.
Sure. But the real cost is both. Whether you do the updates and retain value, or don’t do the updates and lose value due to out of date finishing, you will pay that cost in some way.
It’s all part of the cost of ownership.
Leo, my intent was doing a comparison on strata fees on a condo/townhouse vs maintenance expenses on a similarly priced SFH. So anything not covered by the strata fees is excluded from the comparison on the SFH.
Hawaii?
I have never encountered someone that means maintaining value when talking about just maintenance on a house, it’s always been physical/practical maintenance.
https://www.vicnews.com/news/speculation-tax-forces-sale-of-oak-bays-tulip-house/
There are no violins tiny enough
That’s my point exactly and this definition of maintenance leads to people underestimating how much it actually costs to maintain a house at a given value level. A house deteriorates even if it is well “maintained” by a strict definition.
An avocado bathroom with shag carpet was the height of style 45 years ago and thus influenced the selling value as you would expect any modern finishings would now.
Let’s say you maintain that bathroom absolutely meticulously over the decades and today it is in as-new condition with identical functionality. By the strict definition, you have maintained the bathroom and likely spent very little on it over the years, perhaps a few hundred dollars to replace fuzzy toilet lids and such.
In reality, the bathroom is painfully out of vogue and the value of your house has deteriorated because of it. So what is the true cost of maintenance? Well to maintain the value of the bathroom (which is substantially influenced by how in-fashion it is) and restore your bathroom to “full value” (that is, as-new and in-style) you would need to rip it out and redo it completely. Say $10k.
So this is a little bit of semantics about the definition of maintenance where you are talking about physical maintenance and I am talking about maintaining all aspects of the original value of the place.
Either way, people love to think of their spending as “investments” to make them believe all sorts of consumer spending is actually a savvy move. As you have pointed out, most renos do not represent a positive return on investment as far as resale value goes.