Month: December 2020

The Empty Homes Tax played a pivotal role increasing condo units in Metro Vancouver’s long-term rental housing pool by 18.9% in 2019, according to a Canada Mortgage and Housing Corporation study.

Of the 11,118 additional units, 8,824 had been converted into long-term rentals after either being used for other purposes or changing ownership, CMHC says, marking the first time that the number of new rentals exceeded the number of new condo completions.

“This means, necessarily, that some existing units previously used for other purposes were converted to long-term rental, even if all newly completed units were to enter the rental market,” the crown corporation said in its analysis.

Moreover, 2,294 of the 11,118 units were new condominium completions controlled by investor-landlords. Given that the purpose-built rental vacancy rate in Vancouver hasn’t risen above 1% for six straight years, and that the condo rental vacancy rate is 0.3%, the CMHC analysis indicated that the new supply immediately benefited from voracious demand.

The likely reason for the unprecedented annual increase in supply is a confluence of housing policies, namely the Speculation and Vacancy Tax and the Empty Homes Tax, as well as short-term rentals being restricted to principal residences.

Of the 8,824 converted units in Metro Vancouver, 5,097, or 58%, were in the City of Vancouver, which only comprises 37% of the CMA’s condo stock.

“Within the City of Vancouver, the number of condominiums converted to long-term rental units was further concentrated in the downtown area,” said the analysis. “The central location of this area means that it has been a popular location for short-term vacation rentals, as well as condominiums that are second residences for owners who reside elsewhere.

“Following several years of losses of existing units from the long-term rental market, the change in market participation in 2019 in downtown Vancouver was likely impacted by the combination of housing policies introduced to encourage the rental of condominiums to long-term tenants.”

The Empty Homes Tax, which Vancouver’s city council just voted to increase from 1.25% to 3% in 2021, earned the city revenues of $38 million in 2017 and $39.4 million in 2018. According to a Vancouver-based mortgage broker, the tax has done much to help Vancouverites secure housing.

“I think [the 11,118 units are] a fantastic outcome based on the Empty Homes Tax,” said Robert Mogensen of The Mortgage Advantage. “Many Vancouverites, including myself, were extremely disappointed to see investors buying multiple units either to leave them empty as investment appreciation vehicles or to use them as short-term rentals. I think it’s a great thing that happened and it’s been a long time coming.”

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Investors must be chomping at the bit to scoop up downtown resale condos in what’s become a buyer’s market with historically low interest rates, but what kind of mortgage makes most sense in the age of COVID-19?

“I’d go variable and take a wait-and-see approach because there’s so much economic uncertainty,” said Daniel Johanis, a mortgage broker with Rock Capital Investments. “Try to get a product that’s convertible so you can lock it in down the road if you want to. Variable gives borrowers way more flexibility because we don’t know what could happen down the road—what if we go into a third lockdown or maybe the economy doesn’t recover as quickly as it’s been predicted to.”

Investors with multiple properties usually have longer horizons, and Johanis says they shouldn’t be overly concerned about incurring a penalty on their mortgages.

“What I typically do is, for example, if a client is at maturity on a rental property, we refinance it and put them into a product where they have access to every advanceable portion, like a home equity line of credit, reregister the mortgage but then lock it in and stay with a fixed rate if the plan is to hold onto the property for a long time.”

On the other hand, added Johanis, neophyte investors often opt for peace of mind.

“Ultimately, it’s up to them, but the majority of newer investors aren’t comfortable staying in variable rate mortgages, although they may in the property that they live in because they have more control over it, but typically with investments they go fixed.”

Davelle Morrison, a broker with Bosley Real Estate, generally agrees with Johanis and, noting that the Bank of Canada expects interest rates to remain low for the next couple of years, recommends investors choose variable rate mortgages.

“There isn’t much risk, in terms of a rate increase,” she said, “but if you’re the kind of person who needs reassurance and you’re not comfortable doing a variable, go ahead and get the fixed mortgage.”

Morrison nevertheless recommends making fixed rate payments on a variable rate mortgage because they go towards paying down the principal amount.

“Let’s say your mortgage payment is $2,000 a month on a variable and the mortgage payment is supposed to be $2,100 on a fixed, I would take the variable with the lower rate but still spend $2,100 a month,” she said. “That way you know that you’ve actually got that $100 a month going towards your principal. If you take the fixed at $2,100, it’s just the bank getting rich off your money, really.”

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