Latest / The Missing Middle Podcast / This Court Ruling Could Change Property Ownership in Canada: Steve Saretsky

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This Court Ruling Could Change Property Ownership in Canada: Steve Saretsky · The Missing Middle Podcast

• 0:00
  SPEAKER_01: You give me a mortgage, and by the way, my title coexists.
• 0:03
  SPEAKER_01: That doesn't that doesn't work.
• 0:05
  SPEAKER_01: It doesn't, that's not how the real world works, that's not how the lending world works.
• 0:08
  SPEAKER_01: The ability for a city like Calgary to add density and add supply happens at a very, very fast pace.
• 0:16
  SPEAKER_00: Classonomics, hosted by Sabrina Mado and Mike Moffat.
• 0:22
  SPEAKER_02: Hi everyone.
• 0:23
  SPEAKER_02: Today we've got a special guest.
• 0:25
  SPEAKER_02: We're happy to welcome Vancouver realtor, real estate investor, and host of the Looney Hour podcast, Steve Sureski.
• 0:32
  SPEAKER_02: Now I follow Steve Substack for years.
• 0:34
  SPEAKER_02: I'm a big, big fan.
• 0:36
  SPEAKER_02: We wanted to bring him on to provide our national audience with deeper insight to the BC housing situation.
• 0:41
  SPEAKER_02: We'll talk a little bit about Calgary and move beyond our typical Ontario centric focus.
• 0:46
  SPEAKER_02: We know this is something that you've been calling for in the uh YouTube comment section uh for us to do more non-Ontario content.
• 0:54
  SPEAKER_02: We hear you.
• 0:55
  SPEAKER_02: We've got Steve.
• 0:56
  SPEAKER_02: So, Steve, thanks so much for coming on today.
• 0:58
  SPEAKER_01: Yeah, thanks for having me on.
• 0:59
  SPEAKER_01: Looking forward to this conversation.
• 1:01
  SPEAKER_01: And we were uh delighted to have you on the Looney hour a little while back.
• 1:03
  SPEAKER_01: So it's good to be here.
• 1:05
  SPEAKER_02: Happy to be on uh at any time and and talk about what's going on here at the center of the universe.
• 1:10
  SPEAKER_02: And here in in Ontario, where I am, we don't really understand what's going on with the Cowishan decision.
• 1:16
  SPEAKER_02: Uh, you know, this uh land issue in Richmond, BC, just south of Vancouver, you know, the the court case and and the legal decision that's made.
• 1:25
  SPEAKER_02: And I don't think it's getting enough attention out here.
• 1:28
  SPEAKER_02: So my understanding, and noting that neither you or I are legal uh scholars, we're just people who know a lot about housing, but my understanding of this is you know, back in August last year, the the BC uh Supreme Court recognized the Couchin Nation's Aboriginal title, but that doesn't cancel out private property rights.
• 1:46
  SPEAKER_02: You know, instead, uh they've kind of come up with this complex system where the two are supposed to coexist together with Aboriginal title being recognized as a senior claim that requires further government negotiation.
• 1:57
  SPEAKER_02: That's just my understanding as an outsider.
• 2:00
  SPEAKER_02: You know, have I got that right and what does all this mean?
• 2:03
  SPEAKER_01: Yeah, no, it's uh yeah, you've kind of summarized it well.
• 2:06
  SPEAKER_01: I mean, that's that's like the legal technical decision that was that was ruled.
• 2:11
  SPEAKER_01: And so, yeah, I think just for some some context, like I grew up in Richmond, it's where I went to school.
• 2:16
  SPEAKER_01: I actually like lived in that that little parcel of of area that's basically call it contested.
• 2:22
  SPEAKER_01: I actually used to rent there.
• 2:24
  SPEAKER_01: So like I'm very familiar with the area.
• 2:25
  SPEAKER_01: I've got friends that own land uh in that area that's now under this sort of cloud.
• 2:31
  SPEAKER_01: And so just to sort of give you my perspective, again, not like a legal expert, but like when people come out and say, Well, hey, listen, you know, there's no no one's taking their homes away, right?
• 2:42
  SPEAKER_01: Like the First Nations aren't coming to take your house, which is true.
• 2:45
  SPEAKER_01: Um, they're not saying, hey, you get out of your house, you need to leave.
• 2:49
  SPEAKER_01: But what you're what you're doing in real estate is is the judge has ruled that two titles can coexist.
• 2:54
  SPEAKER_01: And like the reality is like if you walk into a bank and you say, Hey, you know, TD, I would like to get a mortgage.
• 2:59
  SPEAKER_01: Um, can you can you give me a mortgage?
• 3:01
  SPEAKER_01: And by the way, my title coexists.
• 3:04
  SPEAKER_01: It doesn't that doesn't work.
• 3:06
  SPEAKER_01: It doesn't, that's not how the real world works, that's not how the lending world works.
• 3:09
  SPEAKER_01: And so what we're hearing on the ground is basically um it's very difficult to get a new mortgage.
• 3:16
  SPEAKER_01: None of the big banks are gonna come up publicly and say, hey, we're not gonna give you a mortgage, but what they're gonna do is they're gonna find creative ways for the appraisal value to come in very, very low.
• 3:24
  SPEAKER_01: I would say what it's done to these landowners is it's created properties though that are, and again, from a realtor's perspective, they're illiquid.
• 3:32
  SPEAKER_01: Like I couldn't convince a buyer to say, hey, this is gonna be a great investment, you should go in there and buy.
• 3:37
  SPEAKER_01: Like the reality is the ruling has created a whole bunch of uncertainty around what is the ownership structure.
• 3:45
  SPEAKER_01: Like, are you gonna have to enter into like a First Nations lease agreement, like a 99-year lease?
• 3:50
  SPEAKER_01: And is there gonna we don't know?
• 3:52
  SPEAKER_01: And so until that ruling really gets clarified, all these properties are now, in my opinion, illiquid.
• 3:58
  SPEAKER_01: And I'll give you like a real life example.
• 4:00
  SPEAKER_01: Uh, and again, this is from you know a close friend that I grew up with.
• 4:04
  SPEAKER_01: They have a bunch of industrial warehouse land in that area, and so you know, they built the roads and did all the stuff, and so they were in the process of of building a new warehouse.
• 4:14
  SPEAKER_01: And they had a lease agreement in place with a large corporation, and as soon as that judgment came to pass, that large corporation says, We're out, we we are no longer interested in this lease, there's too much uncertainty, and that immediately killed the ability of the financing, immediately died, right?
• 4:33
  SPEAKER_01: Because if you don't have a secure tenant, there's no there's no there's no loan.
• 4:36
  SPEAKER_01: So that's the real life implications.
• 4:38
  SPEAKER_01: The reality is something like 90% of British Columbia is on unceded territory or unceded land.
• 4:44
  SPEAKER_01: And so yeah, it's creating additional layers of uncertainty about what is home ownership, what is fee simple title.
• 4:52
  SPEAKER_01: Um and so yeah, I think that's kind of the easiest way I can summarize it.
• 4:57
  SPEAKER_02: Yeah, and I I can see all that because you know we're we're in a situation right now where uh you know there's a lot of projects fighting for capital and and uh not not just in real estate and in general, and you've got you know uh real estate downturns, at least in residential.
• 5:12
  SPEAKER_02: So you kind of look at this and go, okay, there's kind of increased risk.
• 5:16
  SPEAKER_02: So, you know, why why don't I just put my money somewhere else?
• 5:19
  SPEAKER_02: Yeah, when it comes to the the sort of public discourse and where the public is on this, you know, when when this decision came out and we had a I think a tweet uh from from one of your mayors down there, you know, this kind of blew up.
• 5:31
  SPEAKER_02: Is the public sentiment changing at all?
• 5:33
  SPEAKER_02: Uh, you know, is this dying down a little bit or is this still uh as red hot as it was a few months ago?
• 5:39
  SPEAKER_01: I would say, truthfully, I think it's as red hot.
• 5:42
  SPEAKER_01: I think like when we look at um DC provincial politics, for example, I think this will be the number one topic of conversation in the next election.
• 5:52
  SPEAKER_01: Like this will be the number one political point, and I don't think it's gonna go away.
• 5:56
  SPEAKER_01: As you know, right?
• 5:57
  SPEAKER_01: I mean, real estate in Canada, particularly in places like Vancouver and Toronto, it's number one.
• 6:03
  SPEAKER_01: Like people, it's like it's like everyone's favorite hobby pastime.
• 6:07
  SPEAKER_01: And so when you start to introduce things that can start to jeopardize home values, people get pretty, pretty interested.
• 6:14
  SPEAKER_01: And so you're seeing, you know, people that otherwise wouldn't be following, you know, First Nations type of stuff are now suddenly very interested about what's going on.
• 6:23
  unknown: Yeah.
• 6:23
  SPEAKER_02: So I mean, if I again a complete outsider perspective here, but you know, my understanding is you have an NDP government that that's kind of almost like the federal government here, where there's like it's not clear majority, minority, they're kind of you know down the center uh that way.
• 6:37
  SPEAKER_02: How do you see this playing out both in like a political sense, but also just in a market sense in say lower mainland BC over the next like six to 18 months?
• 6:47
  SPEAKER_02: Like, where do you see this going?
• 6:48
  SPEAKER_01: I think that the NDP under Horgan was was quite popular.
• 6:52
  SPEAKER_01: Um, obviously, when EB took power.
• 6:54
  SPEAKER_01: I I think truthfully, I mean you can see it in the data, like in the polling, like his his popularity is is way down.
• 7:00
  SPEAKER_01: I think that people are just looking for change.
• 7:03
  SPEAKER_01: And so I would be shocked if he doesn't get replaced.
• 7:05
  SPEAKER_01: I it feels to me like a little bit like the Trudeau era, which is like it's kind of run its course.
• 7:10
  SPEAKER_01: And so I don't know, we'll see.
• 7:12
  SPEAKER_01: I mean, yeah, I think we're seeing even like municipal leaders, of course, coming out with all the First Nations stuff and saying, you know, again, we had the of course the the mayor of Richmond, Pocos come out.
• 7:22
  SPEAKER_01: So there's all these mayors coming out and saying, hey, listen, like I think what it's actually doing, I ironically, is it's actually setting back the reconciliation sort of um culture or or whatever you want to call it.
• 7:33
  SPEAKER_01: Like, I think it's it's creating a lot of um social frictions and political rift.
• 7:39
  SPEAKER_01: So, you know, you're seeing the NDP that brought in like Dripa, for example, which is like a First Nations sort of policy that, anyways, it's a little more complicated and want to explain today, but they're seeing them trying to walk that back and saying, okay, we're gonna try to repeal it, but we don't want to upset the Apple card.
• 7:57
  SPEAKER_01: And so, yeah, I think that everybody knows it's probably gone a bit too far, and now they're just trying to find a politically palpitable way to walk it back.
• 8:07
  SPEAKER_02: So you you mentioned uh Trudeau, and one of the things I'm watching these days is as we're recording it right now, uh Keir Starmer is still uh Prime Minister of the UK, but I think by the time this comes out, he won't be because he's getting essentially pushed by his own party.
• 8:22
  SPEAKER_02: You know, do you think EB might be in in trouble in his own party?
• 8:26
  SPEAKER_01: I mean, there's talks.
• 8:27
  SPEAKER_01: I'm not I'm certainly not like the political insider, but I mean there's talks about hey, you know, like will he get shoved out?
• 8:34
  SPEAKER_01: And will you know, will the BC Conservative Party end up actually running against a different similar to like the the Trudeau Carney thing, right?
• 8:40
  SPEAKER_01: It's like, hey, you know, Pierre Polia thinks he's gonna be running against Trudeau, and then the last minute he gets replaced.
• 8:45
  SPEAKER_01: I think there's a there's a decent possibility that could happen in in uh BC as well.
• 8:50
  SPEAKER_01: But yeah, I think as it is right now, I just think that uh EB, even with his own base, is becoming increasingly unpopular.
• 8:57
  SPEAKER_01: So yeah, it'll be interesting to see how that all shapes up.
• 9:00
  SPEAKER_02: It is gonna be an interesting few months.
• 9:02
  SPEAKER_02: Uh that's that's for your your your your politics in in BC are a little bit more interesting than our uh provincial politics in in Ontario.
• 9:10
  SPEAKER_02: Let's do another kind of Ontario BC comparison here.
• 9:13
  SPEAKER_02: So, you know, like the GTA, you know, Vancouver's experiencing this kind of weird combination of events where you know we we still have a housing crisis, you know, um prices are still unaffordable to the middle class, but you know, we've we've got falling rents, we have vacancy rates that are surging.
• 9:31
  SPEAKER_02: So, you know, can you provide a picture of like what's going on over the last few years in the Greater Vancouver area?
• 9:38
  SPEAKER_02: What's changed?
• 9:39
  SPEAKER_02: Is it like what we're seeing in Toronto?
• 9:40
  SPEAKER_02: Are there any kind of subtle differences?
• 9:43
  SPEAKER_01: The the two markets move very much in unison, like they're so similar.
• 9:48
  SPEAKER_01: Uh, and so I'd say what we're seeing today in BC, yeah, is just BC, Greater Vancouver, like we're seeing uh home prices, particularly in the suburbs, that went up like crazy during the pandemic.
• 9:59
  SPEAKER_01: They're coming down.
• 10:00
  SPEAKER_01: I mean, it's not unreasonable to see home prices down somewhere between 20 to 30 percent in the suburbs from the peak.
• 10:07
  SPEAKER_01: And, you know, then you get sort of into the inner cities and those those valuations have held up better.
• 10:12
  SPEAKER_01: You know, maybe you're down, call it 10%, maybe 10 to 15%.
• 10:16
  SPEAKER_01: Where you're seeing that weakness is the condo market, particularly like downtown, where you used to get a lot of investors.
• 10:21
  SPEAKER_01: I would argue that you know, 40-50% of that market would be investor bid, and that investor bid has completely disappeared.
• 10:28
  SPEAKER_01: Like there's just no, there's just the psychology around real estate and investing in Canada has changed dramatically over the last couple of years.
• 10:36
  SPEAKER_01: The idea used to be like, oh, you know, I gotta get, you know, one investment condo or two or three.
• 10:42
  SPEAKER_01: And it was like people like it seemed like everybody wanted to build like this investment portfolio of real estate properties.
• 10:47
  SPEAKER_01: And what I see today increasingly is hey, I've got three condos.
• 10:51
  SPEAKER_01: I'd like you to, Steve, I'd like you to come sell two of them.
• 10:54
  SPEAKER_01: You know, I'd rather just like I want to liquidate and I want to put it into whatever, you know, the SP 500 or pick your poison, but I don't want to be in real estate because I don't see the returns over the next three, four, five, six, seven years from now.
• 11:07
  SPEAKER_01: And so I think that's what I'd say.
• 11:08
  SPEAKER_01: And what you're seeing today is you look at the tremendous growth and purpose-built rentals.
• 11:13
  SPEAKER_01: I think as much as we like to slam on government and the federal government and all the mistakes that they made, I think one of the programs that they brought in that worked tremendously well was the CMHC insurance for for rental construction.
• 11:27
  SPEAKER_01: It's created a boom that we haven't seen in many, many decades.
• 11:31
  SPEAKER_01: And so what we're seeing now in Vancouver is you've got a 30-year, 31-year high in the vacancy rate.
• 11:37
  SPEAKER_01: Rents are down anywhere from 10% to 30%, depending on the suburb.
• 11:41
  SPEAKER_01: If I'm an investor, what am I looking at today?
• 11:45
  SPEAKER_01: I'm looking at a situation where valuations are falling, my rents, my income is declining, and you know, your mortgage rate's up, and then there's no immigration.
• 11:55
  SPEAKER_01: And so you're like, well, how am I gonna get any sort of future return over the next three to five years?
• 12:01
  SPEAKER_01: And so I think that's ultimately what's sowing the seeds for the next shortfall because there's an inability today to pre-sell, right?
• 12:09
  SPEAKER_01: And if you can't pre-sell condos to investors, then they don't get built.
• 12:15
  SPEAKER_01: So you're seeing, of course, developers are completely turning off the taps on pre-construction units, and some are converting to rental, but that's gonna slowly, I think, roll over as well.
• 12:25
  SPEAKER_02: We're we're seeing the same thing here in Ontario where where you had all these investors for for years and years and years basically be on on the buy side when it when it comes to condos, either pre-construction or or built units.
• 12:35
  SPEAKER_02: And now we're going on the sell side, you know, which certainly accelerates things.
• 12:40
  SPEAKER_02: Uh, one thing we've started to see here, there was a report in the Toronto Star and a few other papers, is selling the bulk selling of condo units to purpose-built rental operators, you know, at pretty discounted prices.
• 12:53
  SPEAKER_02: So you're looking at condos that may have gone for you know$1,200,$1,300 a square foot, and they're being bulk sold at like a$700,$750 range.
• 13:02
  SPEAKER_02: Are are we seeing any of that activity in Vancouver yet?
• 13:06
  SPEAKER_01: Yeah, not really.
• 13:07
  SPEAKER_01: That's a good point.
• 13:07
  SPEAKER_01: Not really seeing any um like funds coming out, at least publicly, and that are saying, hey, you're gonna buy up all these unsold units.
• 13:13
  SPEAKER_01: I'm sure there's a few people out there, but like nothing like that's being sort of caught in the newspaper in the GTA.
• 13:19
  SPEAKER_01: Yeah, I don't think we're there yet, but I think what we're seeing is just more and more stories of people that bought pre-sales that aren't going to be closing, can't close, appraisal values are low.
• 13:29
  SPEAKER_01: Um, you're seeing units, of course, that that closed, and you know, people taking, and we're seeing million-dollar losses in some buildings.
• 13:37
  SPEAKER_01: It's significant.
• 13:38
  SPEAKER_01: The presale pricing was also grossly inflated.
• 13:43
  SPEAKER_01: I think what happened was that there was definitely a speculative mindset around it, which is like, hey, listen, the developer's charging 15% above the comparable resale product, but you know, when it completes in three years, like the market's obviously going to go up, you know, 7% a year.
• 13:57
  SPEAKER_01: So by the time you close, this is actually gonna look like a good deal.
• 14:00
  SPEAKER_01: And so I think that was the challenge of the presale market, is not only today your price is not rising, but they're declining.
• 14:05
  SPEAKER_01: And so that's I think really killed the whole presale engine.
• 14:09
  SPEAKER_02: Yeah, no, I I think so too.
• 14:11
  SPEAKER_02: And it's you know, I I I tend to, you know, mock that that idea of, you know, well, you know, yeah, it's 15% premium, but prices are gonna go up 7% a year.
• 14:19
  SPEAKER_02: But there was a 15-year period where that wasn't a bad bet uh at all.
• 14:24
  SPEAKER_02: And people who took that did quite well.
• 14:26
  SPEAKER_02: But when it comes to investors, I'd like to talk about the purpose-built rental market.
• 14:30
  SPEAKER_02: Um, part of what we're seeing here is you know, you've got a a set of developers who are you know looking at the the units under construction numbers, they're they're looking at starts which are still strong, and and they're saying, there's not there's no point.
• 14:45
  SPEAKER_02: Like I might as well, you know, the US, uh a 30-year T-bill is now at like 5.6% a year.
• 14:51
  SPEAKER_02: Like, why why am I going to take all this risk building purpose-built rental?
• 14:55
  SPEAKER_02: But there are some developers who are still out there starting new projects.
• 15:00
  SPEAKER_02: Do you see that in BC?
• 15:02
  SPEAKER_02: Are there people still going ahead, or is everybody kind of looking at the numbers, pulling back and just going, there's just way too much risk here?
• 15:09
  SPEAKER_01: I mean, they're definitely pulling back.
• 15:11
  SPEAKER_01: I think there's still you're still seeing starts though, right?
• 15:14
  SPEAKER_01: Like it's not, it's not like it's gone to zero.
• 15:16
  SPEAKER_01: I find it quite interesting.
• 15:17
  SPEAKER_01: I think, like, to your point, I mean, the risk reward to to start construction on a new rental today doesn't look overly appealing.
• 15:25
  SPEAKER_01: The reality is, though, is like when you talk to some of these developers and stuff, it's like a lot of them have, you know, a whole bunch of staff and overhead, and they they want to keep the lights on.
• 15:33
  SPEAKER_01: They want to keep these people that are on the payroll, they want to keep them employed.
• 15:37
  SPEAKER_01: They don't want to lose really, you know, good employees, skilled people because they got no work for them for the next couple of years.
• 15:42
  SPEAKER_01: So a lot of them are just starting projects with the idea that, hey, like, I'm not gonna make any money on this, but like we'll keep more of our staff employed.
• 15:50
  SPEAKER_01: But like again, you look at every big major developer in this city that's been around for 30, 40, 50, 60 years, and like all of them are laying off staff.
• 15:58
  SPEAKER_01: And it's not 100% of staff, but even 10, 20, 30 of staff, nobody seems to be immune.
• 16:05
  SPEAKER_01: And so I think that's just really telling of where the industry is today, and and arguably, I think where it's going to be over the next couple of years.
• 16:12
  SPEAKER_01: I think it's gonna be very, very challenging.
• 16:14
  SPEAKER_01: But yeah, we've got a full pipeline of rentals under construction today, comp that will be completing over the next 12 to 18, 24 months at a time when you already have a 31-year high in the vacancy, rents are falling and there's no population growth.
• 16:29
  SPEAKER_01: So I yeah, I don't I don't know.
• 16:30
  SPEAKER_01: I think the returns are gonna be very subpar.
• 16:34
  SPEAKER_02: Yeah, yeah, I think so.
• 16:34
  SPEAKER_02: It it surprises me.
• 16:36
  SPEAKER_02: Uh, but uh as you say, you know, some of these companies they want they want to keep the band together, you know.
• 16:41
  SPEAKER_02: As one developer said to me, it's like, no, I'm I I'm in the business of building homes, not just sitting still, you know.
• 16:47
  SPEAKER_02: So I do think they they have this bias that way.
• 16:50
  SPEAKER_02: I would agree.
• 16:51
  SPEAKER_02: Yeah, yeah.
• 16:52
  SPEAKER_02: And and I think when it when it comes to BC, again, we don't pay enough attention to it here in Ontario.
• 16:56
  SPEAKER_02: And when we do, we kind of use it as a cudgel uh a little bit to make a political point.
• 17:02
  SPEAKER_02: And one of one of the political points that that we've heard over the past few years, the Ford government put, you know, basically exempted new units from from rent control, you know, on the idea that that would help get more built.
• 17:16
  SPEAKER_02: And I know the opposition, particularly some some members in the NDP, like to point to British Columbia and say, hey, they have really strict rent control and they're still building all kinds of purpose-built rentals, so so that isn't necessary.
• 17:29
  SPEAKER_02: So I guess my question is like what is the the rent control regime like in in British Columbia and is it having any effect on development?
• 17:37
  SPEAKER_01: Yeah, I I mean from my observation, looking at various housing markets, I think BC, I think, has the strongest rent controls or pro tenant policies in North America.
• 17:49
  SPEAKER_01: We don't have so if again, if you're building a brand new condo building or you're building a brand new rental building, there's rent controls basically from day one, right?
• 17:58
  SPEAKER_01: Which means like, hey, if I just finished a purpose-built rental building, it's it's ready to be leased up.
• 18:03
  SPEAKER_01: I put a new tenant in there, it's the rent growth is capped every year from that day forward.
• 18:10
  SPEAKER_01: Under the previous BC liberal government, they had a policy that stated it was rent, it was whatever CPI was, CPI inflation plus two percent.
• 18:20
  SPEAKER_01: So let's just say inflation is two plus two percent.
• 18:22
  SPEAKER_01: So you could raise your rent four percent a year, which allowed you to sort of like maintain the buildings and cover, you know, rising costs of repairs and insurance and things like that.
• 18:32
  SPEAKER_01: Or the BC NDP came in and they said, you know, during COVID, they actually said no rent debt increase is zero.
• 18:38
  SPEAKER_01: And then they changed it to basically uh just CPI.
• 18:43
  SPEAKER_01: So if inflation is two and a half percent, you can raise your rents by two and a half percent.
• 18:47
  SPEAKER_01: I mean, when you look at the rental numbers, it hasn't really you say, well, it hasn't really throttled construction.
• 18:52
  SPEAKER_01: I mean, I'd argue that it's disincentivized investors from deploying capital there.
• 18:58
  SPEAKER_01: I think if you look at the pre-construction, like who's I don't know, for me, it's kind of like I think people have learned a valuable lesson over the pandemic era and then the era of rising interest rates, which is like what we saw on the ground was a scenario where you'd have a mom and pop investor that let's say they've owned a condo for 10 years, they've had a tenant in there for the last six, and so the tenant, you know, like, well, I don't really raise my rent on the tenant, he's so good, he always pays on time.
• 19:25
  SPEAKER_01: So I kept they kept the rent pretty low.
• 19:27
  SPEAKER_01: It didn't really raise it that much.
• 19:29
  SPEAKER_01: Then what happened was their variable mortgage went up, you know, 400 basis points in the span of 12 months, and suddenly, like, oh my gosh, like I just went from cash flow neutral to negative$800 a month.
• 19:40
  SPEAKER_01: What do I do?
• 19:41
  SPEAKER_01: And so we're like, well, there's nothing you can do because the tenancy laws state you can only raise it 2% a year.
• 19:47
  SPEAKER_01: So effectively you became a forced sale.
• 19:50
  SPEAKER_01: People go through that experience, they're like, Well, why would I want to be a landlord of BC?
• 19:53
  SPEAKER_01: I just think we were in an environment where we had stability, you had stable interest rates for 10 years, and you didn't it would never it was never a concern.
• 20:02
  SPEAKER_01: So I think a lot of the policies were just built in in a different era.
• 20:08
  SPEAKER_02: Yeah, I think we can say that a lot uh about a lot of housing policies where you know we had this you know era of you know fairly stable uh interest rates, you know, about 25 years of of 2% inflation, and you know, that does change things.
• 20:22
  SPEAKER_01: So, Mike, just to add to that point, just to add to that point on the purpose-built rental side, so what you're seeing now, for example, right?
• 20:28
  SPEAKER_01: Again, because in Vancouver, we're not used to having a three and a half percent vacancy rate, it's always been like one percent, right?
• 20:35
  SPEAKER_01: So, like it's just it's just the times have changed.
• 20:37
  SPEAKER_01: You have a 31-year high in the vacancy rate.
• 20:39
  SPEAKER_01: So, what you're seeing from the purpose-built rental operators today is they're extremely reluctant to drop the rent.
• 20:48
  SPEAKER_01: So, what they'll they would rather do is they would rather say, hey, listen, um, you know, we'll give you two months free rent, we'll give you a year free of internet, we'll give you free parking, but they'll do everything they possibly can to not drop the rent because they know as soon as I drop the rent and that tenant moves in, I'm now rent controlled indefinitely.
• 21:09
  SPEAKER_01: So, yeah, I find that that an interesting dynamic that's playing out today.
• 21:14
  SPEAKER_02: Yeah, I always I've always found that that interesting as as well.
• 21:18
  SPEAKER_02: And I, you know, back when I you know taught business school for about 20 years, you know, I'd always tell my students like when you see a really bizarre pricing strategy or a bunch of add-ins, you know, more often than not, uh, you know, it's it's due to uh getting around some kind of regulatory uh factor.
• 21:34
  SPEAKER_02: Um so you know, we it's not an unusual thing.
• 21:38
  SPEAKER_02: And we've seen that here in on Ontario as well.
• 21:41
  SPEAKER_02: Now, I I want to pivot to uh you know, we we talk about uh one market uh where you have an NHL team that didn't make the playoffs, and we'll move to another market with an NHL team that then didn't make the playoffs, and that's my Calgary Flames.
• 21:53
  SPEAKER_02: We spent some time and attention here.
• 21:55
  SPEAKER_02: We we had uh an episode of uh on this on demographics early.
• 22:00
  SPEAKER_02: Around the city council who agreed to upzoning as part of the housing accelerator, and then you know, flipped that on its head and pulled that back.
• 22:09
  SPEAKER_02: So, you know, that we we've talked a lot about the the what that happened, but you know, what's your perspective as somebody who understands this market of like why did that happen?
• 22:18
  SPEAKER_02: Why did we see uh after the municipal election, council flip from um you know being kind of a pro-intensification to you know taking a pause?
• 22:30
  SPEAKER_01: Yeah, I almost think like it's really interesting just around like zoning and density, and there's always that you know internal debattle between the Yimbies and the NIMVIS, but like I think what happened with Calgary is like because they just went so far so quick, like you know, they did the blanket rezoning, which basically said every sort of inner city property can effectively build uh like a multiplex or a townhouse or whatever you infill they call them there.
• 22:54
  SPEAKER_01: And so all of a sudden you'd have like an old little rancher, and then you know you'd have a three-story um sort of stacked townhouse right next door.
• 23:02
  SPEAKER_01: And so I think what we saw, of course, was that paw that blanket zoning was brought in at a time when home prices were going up double digits, rents were inflating at a record pace, you had a whole ton of immigration, and of course, that slowly started to dissipate.
• 23:18
  SPEAKER_01: And I think everyone was like, hold on a minute, this is like I don't want these, you know, multiplexes infills right next to my house.
• 23:25
  SPEAKER_01: And so the public sentiment shifted, and ultimately that became like I think one of the number one talking points of the municipal election.
• 23:33
  SPEAKER_01: And of course, you know, people that campaigned on saying, hey, listen, I will repeal this blanket zoning, I will change it, vote for me.
• 23:41
  SPEAKER_01: Um, that's the way that the Calgary citizens voted.
• 23:45
  SPEAKER_01: So I think that's just a like a lesson in density.
• 23:48
  SPEAKER_01: I mean, we actually ironically, we've seen it um here in Burnaby, um, you know, 15 minutes outside the city of Vancouver.
• 23:55
  SPEAKER_01: They adopted the BC government's mandate, carte blanche.
• 23:58
  SPEAKER_01: The first townhouse multiplexes started going up, neighbors complained, and immediately council uh balked and changed their mind and and adjusted the heights.
• 24:12
  SPEAKER_02: Yeah, so so on on that, uh, you know, your your background is is real estate, but my understanding is you've actually done some development uh in in that uh area.
• 24:21
  SPEAKER_02: So, you know, what has it been like to shift from uh you know being on the real estate side to the development side and you know uh operating in these markets?
• 24:29
  SPEAKER_01: Yeah, I'm definitely, I mean, I'll I'll sort of put an asterisk there, which is to say I don't consider myself like a builder, developer, uh you know, I'd say the casual investors, but like you know, I built uh fourplex there from scratch.
• 24:41
  SPEAKER_01: We were working on a 24-unit townhouse uh rental construction.
• 24:45
  SPEAKER_01: But what I can tell you is like my experience from like operating day to day in Vancouver and then going and doing the investment side in Calgary, like two very, very different markets.
• 24:54
  SPEAKER_01: I mean, I think like the ability to obtain a permit and the and the development fees in Calgary are like a tiny fraction, like it's so quick to get a permit there compared to like Vancouver, and it's just dramatically cheaper, which ultimately is is interesting because when you look at it, like the ability for a city like Calgary to add density and add supply happens at a very, very fast pace.
• 25:21
  SPEAKER_01: Like the free market or the private sector, when the market gets hot in Calgary, they build and they build really, really quick.
• 25:29
  SPEAKER_01: And so it's not long before they become oversupplied, prices correct, rents decline, and it kind of starts like the next cycle.
• 25:36
  SPEAKER_01: Whereas like in Vancouver, like once the housing bull market starts, now you start working through your rezoning, you start working through your applications, and like that takes you know, you're waiting three years.
• 25:49
  SPEAKER_01: By the time you get your permit, like the bull market's almost done.
• 25:52
  SPEAKER_01: So, like the the inability of places like Vancouver, I'm sure Toronto's the same, the inability for the market to respond to the market conditions because of the permitting process, they just can't move quick enough.
• 26:05
  SPEAKER_01: And so you get these wild swings in in home prices to the upside.
• 26:10
  SPEAKER_02: Yeah, and that that lack of elasticity is a huge problem, and particularly when we see unexpected population growth.
• 26:18
  SPEAKER_02: And again, I've been a fan of yours for a while, and one of the reasons why is I feel like there were very few of us a few years ago that had kind of connected the dots between uh population growth and you know what was going on in the housing market, you know, you know, Ben Rabado and you and I, and maybe a couple other folks.
• 26:37
  SPEAKER_02: Like it was a it was a very small uh fraternity.
• 26:40
  SPEAKER_02: You know, we saw here in Ontario, we saw you know rents uh shoot up in in cities and towns.
• 26:46
  SPEAKER_02: Um and some of that was you know migration out of the GTA, but some of it was uh you know big surge in population in college towns like Kitchener Waterloo and London and so on.
• 26:57
  SPEAKER_02: We know at least kind of anecdotally that uh you know BC had kind of a similar phenomenon when it came to both you know permanent uh residency, but also non-permanent residence.
• 27:08
  SPEAKER_02: So how how did that play out in in BC?
• 27:10
  SPEAKER_02: Is it in lower mainland in particular?
• 27:12
  SPEAKER_02: Was it like southern Ontario or or were there some subtle differences?
• 27:17
  SPEAKER_01: I think based on my observations, anyways, I don't think it was like as extreme.
• 27:21
  SPEAKER_01: I mean, I think like just reading all these stories about like you know, basements filled with like 10, 12, 14 like foreign students.
• 27:29
  SPEAKER_01: Like, I don't think we had that.
• 27:30
  SPEAKER_01: I mean, certainly not in the city of Vancouver.
• 27:32
  SPEAKER_01: I think if you go to the suburbs and the outskirts, like obviously we saw it, but the pressure on the rental market was so extreme.
• 27:39
  SPEAKER_01: That was obvious in any market.
• 27:41
  SPEAKER_01: And so many of the people that became uh home buyers were people that were frustrated with the state of the rental market.
• 27:51
  SPEAKER_01: So what they would do is they'd say, Hey, listen, I've been renting this condo in downtown Vancouver, and like every it seems like every 12 months or 18 months, I'm getting like basically evicted because my landlord is selling, he wants to capitalize on the rising home valuations and cashing out.
• 28:08
  SPEAKER_01: And so people were so frustrated because again, think about this when you get like evicted, for example, because your landlord's selling, you're now going into a rental pool with a sub-1% vacancy rate, and you know, you were you were paying$2,000 a month for your one bedroom, but the new market rate is$2,500.
• 28:28
  SPEAKER_01: So it's like you're just subject to the turnover rate of the market.
• 28:32
  SPEAKER_01: And so I think what we saw is basically those renters that would have probably stayed renting, they just got so frustrated of having to compete in a sub 1% vacancy market that they would they were choosing to go into the purchase market, and so I think that's ultimately supercharged the demand side on on the resale market, right?
• 28:52
  SPEAKER_01: Like they're all correlated, right?
• 28:54
  SPEAKER_01: I mean, I think like I think that's the one thing where I sort of advocate for what we're seeing in the rental market today, which is the tremendous growth and purpose-built rentals, like giving people in a healthy alternative to home ownership relieves sort of the demand pressure on the purchasing side, right?
• 29:12
  SPEAKER_01: Like if you have a stable rental in a professionally managed rental building, like you might not be inclined to say, hey, I need to go and buy a condo because you're happy in your rental place.
• 29:22
  SPEAKER_01: So I think like, you know, when you have a three and a half percent vacancy rate compared to one percent, um, it takes a lot of the pressure off not only the rental market, but it takes the pressure off the the the resale market that for home buyers.
• 29:34
  SPEAKER_01: And so I think they're all they're all correlated.
• 29:37
  SPEAKER_02: Yeah, no, it's I I'm really glad you mentioned that because it's one of the kind of frustrating lessons I had, you know, that I see policymakers and and you know, even kind of advocates kind of silo off these these things, right?
• 29:50
  SPEAKER_02: Where they say, well, uh, you know, look at it as sort of a kitchen or waterloo.
• 29:54
  SPEAKER_02: They're going, well, you know, it's not you know international students' fault, and and nobody's blaming the international students for uh blaming a particular college, which we we won't name because I like not being sued.
• 30:05
  SPEAKER_02: But you know, we're you know, particular college, you know, brings in 30,000 international students, and you know, you got people going, well, that wouldn't affect the single family market because international students aren't aren't buying single family homes.
• 30:17
  SPEAKER_02: It's like, well, no, but investors are and then renting them out to students, right?
• 30:21
  SPEAKER_02: So, you know, part of the lesson I'm I'm trying to impart to governments is is that housing is a system, and you know, one part's broken, it's gonna affect those other parts.
• 30:31
  SPEAKER_02: You know, what what other lessons do you see that the government should be taking uh from this experience?
• 30:38
  SPEAKER_01: Oh, that's a tough one.
• 30:40
  SPEAKER_01: Um yeah, I don't know.
• 30:42
  SPEAKER_01: I just think a lot of it's I don't know, like a lot of the policies were created at different times.
• 30:47
  SPEAKER_01: I think developers just have to pivot, right?
• 30:49
  SPEAKER_01: I think that you know, we're we're sort of pivoting away from like the dog crate condo, which was like catered to like the investor, and we're sort of moving back to more of an end user market, we're just seeing, of course, changing and zoning that's allowing multiplex, um, ground-oriented housing.
• 31:04
  SPEAKER_01: I think ground-oriented housing is actually very, I think it's great.
• 31:07
  SPEAKER_01: I mean, I think like I understand that it's it's sometimes you have to move at a slower pace because people don't like change.
• 31:15
  SPEAKER_01: It's just the reality of human beings.
• 31:17
  SPEAKER_01: Like, you know, if you're used to a single family neighborhood and all of a sudden you go carte blanche multiplex, it's can be can be challenging.
• 31:23
  SPEAKER_01: But I think like you look at like if you look at housing that is relatively cheap and quick to build, I mean, wood frame ground-oriented multiplexes, for example, are a lot cheaper than building a 40-story concrete tower.
• 31:39
  SPEAKER_01: I think it's a very useful product.
• 31:40
  SPEAKER_01: And I think if you look at the cohort of people that are coming up into the home buying years, it is like younger millennials that are starting families.
• 31:51
  SPEAKER_01: And like the reality is is they don't want to start a family in like a junior two-bedroom, 650 square foot condo.
• 31:57
  SPEAKER_01: They want to start it in, you know, a 1300 square foot, 1400 square foot three-bedroom with you know their own front door.
• 32:04
  SPEAKER_01: So I think that I think the market is kind of shifting that nature.
• 32:08
  SPEAKER_01: Obviously, it took governments some courage to get on board to to alleviate some of the zoning uh and to to allow this product.
• 32:15
  SPEAKER_01: So I think it's uh I think it's gonna be a very useful product moving forward.
• 32:20
  SPEAKER_02: Well, I I certainly think we you know we need more of all housing, and I think there has been this resistance to building more family-friendly units, right?
• 32:28
  SPEAKER_02: The the counting sort of as a as a unit is a unit is a unit, and you know, you get a higher to unit count if building uh a high rise.
• 32:36
  SPEAKER_02: But I think that's probably another conversation uh you and I can can have another time because we are kind of running out of time here.
• 32:42
  SPEAKER_02: But if you want to invite me on, I mean I'd be I've got some thoughts.
• 32:45
  SPEAKER_02: Uh I've gonna have you back on for sure.
• 32:48
  SPEAKER_02: But you know, I have to say, you know, we're big fans of your channel.
• 32:51
  SPEAKER_02: Uh you guys are hugely successful.
• 32:53
  SPEAKER_02: Uh, you've been doing this more years, you've got more subscribers.
• 32:57
  SPEAKER_02: We're trying to grow our audience to get to where you are.
• 33:00
  SPEAKER_02: So can you give us some advice?
• 33:02
  SPEAKER_02: You've been where we are.
• 33:04
  SPEAKER_02: You know, how can we take this podcast and take this YouTube channel to the next level?
• 33:09
  SPEAKER_01: I think you guys are doing a great job.
• 33:11
  SPEAKER_01: I think it's more just uh just keep doing what you're doing.
• 33:13
  SPEAKER_01: I think it's just consistency, like day in, day out.
• 33:15
  SPEAKER_01: I mean, I've obviously been following your work predominantly on Twitter for the last number of years.
• 33:19
  SPEAKER_01: And I think yeah, I think you've just done so much of the the homework, the deep dive on the numbers is again, especially around like the population growth, immigration, rents.
• 33:28
  SPEAKER_01: Like, I I mean, I think you've been a strong advocate for shifting the narrative of of the housing market and and bringing in policies that that really make a difference.
• 33:39
  SPEAKER_01: So I mean, I think you just keep doing what you do.
• 33:41
  SPEAKER_01: Like, I think good good content and and smart thinking stands out uh stands out on its own.
• 33:48
  SPEAKER_02: Well, really appreciate that.
• 33:50
  SPEAKER_02: And uh, I I'm gonna always be who I am, and I'm a I'm all I'm a wonky, nerdy numbers guy, right?
• 33:55
  SPEAKER_02: I'm I'm not gonna uh that's that's never gonna change.
• 33:58
  SPEAKER_02: So, Steve, I I really appreciate you coming on today, uh, giving us the the Western uh Canadian perspective, which we haven't been doing enough on on the channel.
• 34:06
  SPEAKER_02: We hear you uh YouTube commenters, uh, and this is something we'll be doing more of the future.
• 34:11
  SPEAKER_02: So so thanks again for coming on.
• 34:13
  SPEAKER_02: Thanks for having me, Mike.
• 34:15
  SPEAKER_02: Thank you so much for watching and listening.
• 34:17
  SPEAKER_02: Thanks to our producer Meredith Martin and our editor Sean Foreman.
• 34:20
  SPEAKER_02: And if you have any thoughts or questions about NHL teams that didn't make the playoffs, please send us an email to missing middle podcast at gmail.com.
• 34:29
  SPEAKER_00: And we'll see you next time.