Suckers

More real estate developers will toss in the towel this year than ever before. At least in living memory – about 250 of them. Paws up. Too much debt. Not enough business. Sales started swirling the bowl just as Tiff began tightening.

Since late 2022, for example, more than 6o entire development projects in just one market – the GTA – have been cancelled. They would have added the better part of 20,000 new units. Not only are homes being lost, but also employment. It’s estimated that 1,600 jobs are created for every 1,000 places under construction. Those same thousand units also generate $400 million in economic activity among sub-contractors and suppliers, including all those people making between $45 and $60 an hour on site.

So higher mortgages keep buyers from buying. Without 70% of units being pre-sold in a development, shovels don’t bite the ground. It typically takes a year or more for excavation to begin after a successful sales effort, then about three years (minimum) to build. It’s a long process, and the pipeline has to stay full for developers to retain staff and suppliers and finance massive, revolving construction loans.

But now, it’s all grinding to a halt. There’s a massive inventory of unsold units to get through before new ones can even be contemplated. The tsunami of failed developers this year is the latest manifestation of what’s coming. And it’s ugly. If you think we have supply problems and stupid prices now, the industry says, just wait.

Governments aren’t helping. Billions are being spent on ‘accelerating’ construction by giving money to municipalities for infrastructure. But cities don’t build houses. Real estate builders do. And without customers putting down deposits, they can’t.

Both of Canada’s major federal parties, the Libs and Cons, have the same approach. Incentivize buyers with tax shelters and benefits. Urge cities to fast-track approvals. Provide low-cost loans to developers. Spank the ‘gatekeepers’. Trash local zoning restrictions. Encourage the construction of ‘affordable’ units. Target surplus government land for building.

Nothing is working. Not even when it comes to creating cheaper rental space. And especially when politicians stick their beaks into the private sector space (like the Millennials and hapless Gen Zs want).

Here’s an example.

The Dippers in BC have spent $2 billion trying to make housing affordable by subsidizing developers. And while that may have made the corporations more sustainable, it’s done nothing to reduce the cost of land, trade wages, excavators, rebar, windows, HVAC systems or drywall.

The province gave Jameson Development (a private company owned by Tony Pappajohn, who has a checkered history) just under $32 million in the form of a cheap loan to build a 68-unit building on Larch Street in Kits. Of those rental units, 54 were to be ‘affordable’. That was the whole point of public money being used to subsidize the development.

Crowed Premier Eby when the project was announced: “Another affordable rental housing building will soon be available for people who work and live in Vancouver. Our government is investing in more affordable housing for people who work and live in Vancouver, and throughout B.C.”

Well, it didn’t actually work out that way. Here are the rents:

• Tiny 393-square-foot studios are being leased between $2,650 and $2,750.
• Units just over 500 square feet are $3,275.
• A ‘two-bedroom’ top-floor apartment of just 589 feet is $4,200.
• Units of 840 feet (two bedrooms, two baths) are $4,300 a month.

Says the government: the studios and one-bedroom units are targeted to “middle-income households” without children and an income up to $131,950. The two and three-bedrooms are for those with children who earn up to $191,910.

By the way, CMHC reports the median household income for Vancouver is $90,000 (before tax). That would suggest an ‘affordable’ rent would be just over $2,000.

So what happened?

Not much. It was always a political lie, as things turned out. Here is the response from BC’s housing ministry when this story broke a couple of days ago:

“The Housing Hub program is a supply-based program. It’s not an affordability program. The whole intent of the Housing Hub was just to build more housing. And it was intended to be market (rate) rental housing. It’s not supposed to be below market at all. It’s supposed to be ‘at market’ for the most part. We can leverage — through the low-cost financing that we’re able to provide during construction — we can leverage that to force the builder to reduce the rents to slightly below market in some cases, for a percentage of the units. But that’s on a case-by-case basis … for the most part it was just intended to put market supply out there.”

In other words, this building – now owned by one of the region’s wealthiest developer families and aimed at high-income renters – was subsidized by taxpayer money “just to put market supply out there.” The NDP calls that a win. Just like the federal Liberals and Conservatives who are selling the same snake oil to a financially illiterate electorate. Nothing about this profligate use of public money is making housing easier to obtain, nor will it.

It’s time we asked more and trusted less.

About the picture: “In my MSU beginning as a faithful blog dog,  I would like to say thank you for the impact you have had on guiding our financial decisions,” writes Ruth in ONtario. “Following this course we have a solid B&D portfolio and are debt free. We recognize our privilege but have worked darn hard to get here. We are a retired couple in our mid fifties who have two semi independent offspring and are ready to sell the farm ‘literally’ and leave those green pastures behind.  We want to capitalize as much as possible on our hard work, sweat and tears from our principal residence to be able to fund our west coast dreams. We plan to invest the farm sale and rent as per your wise words for our next stage if the rental market allows. This is a picture of the wolf who has been hanging out this summer perhaps just watching the cows or maybe scoping for dinner.”

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.