A number of government regulations aimed at improving the housing market are having the opposite affect, according to one Kelowna real estate professional.
Jeff Hudson co-founder of HM Commercial Realty made the comment to a room full of interested onlookers during the company’s annual Crystal Ball event on the state of the real estate and development market in Kelowna.
“New high rise projects need to be average $1,200-a-square-foot to provide any level of profit and the developer needs 60 to 70 per cent in pre-sales,” said Hudson.
“There are not enough home buyers to have these projects make sense. It relies on investors and the problem is between high finance costs, the speculation tax, prohibition on foreign buyers and the change to short-term rentals, it’s removed the flexibility for a lot of these investors.
“Ask any condo developer…investors for condos are not at the table right now.”
Hudson said demand for housing is strong and will continue to be as immigration and inter-migration numbers increase, yet interest rates, new regulations and rising construction costs continue to be the biggest obstacles to overcome.
“The effects of the short-term rental program are yet to be seen and we predict a slow recovery this year with increased activity in the second half of the year.”
Panel lends its voice
Thursday’s event also featured a diverse panel with expertise on various aspects of the industry including Shane Worman with Worman Commercial, Dr. Lesley Cormack deputy vice-chancellor and principal at UBCO, Krista Mallory from the Central Okanagan Economic Development Commission and Daniel Walsh project leader for the Tolko mill site.
“I don’t know how many units (STR regulations) it’s really going to free up going to the long-term market. I worry it will hurt the economy more from a tourism standpoint than it will help us from a housing standpoint,” said Worman.
“If we are opening up a few hundred units, is that really going to make a difference. I say no.”
“I have students and their parents concerned they have been able to rent eight-month rentals, then the owner has been able to Airbnb for the summer and now that won’t be possible,” said Cormack.
“That might decrease the amount of space for student rentals.”
“Anything that discourages units being built is going to hurt,” added Worman. “As many rules as we are putting in to build stuff, we are putting in a few that are hurting it as well.”
“Whether it’s the foreign buyer or the short-term rentals, all of those things are killing the condo market.”
He says take away those investment type buyers and the condo market is dead.
Vacancy rate
The low vacancy rate, pegged at just 1.3 per cent, continues to be one of the contributing factors to the high cost of rent in the city.
And while the city continues to approve new rentals almost weekly, the vacancy rate needle has barely moved.
“For students, they come and they are surprised. The don’t do their homework and find they can’t afford a two-bedroom apartment,” said Cormack.
“We have hired people that have then looked at the real estate market and said they can’t come.”
“It’s a concern for us (at the COEDC) and impacts where we are looking to draw people from,” said Mallory.
“The markets we do promotions in are very much dictated by markets that are more expensive than us. It’s a difficult sell when you are trying to get someone to move from somewhere where houses are half the cost.”
Looking at her faculty, Cormack says many will end up being well paid over a 40-year career, but it’s that first house that is always the challenge.
“Finding that affordable place to start is the key. They can ladder up but it’s that first one,” she said
Cormack says more and more employees are living in Vernon or trying to find something in the country because they can’t afford Kelowna.
Not all gloom and doom
While the housing market continues to work through its issues, the commercial and retail market continue to flourish, highlighted by the fact the city eclipsed four million square feet of occupied office space for the first time.
The office vacancy rate has dropped to 6.61 per cent while the retain vacancy rate dropped for the fifth straight year to 1.65 per cent. It’s the lowest retail vacancy rate in about a decade.
The retail market also looks strong with more than 400,000 square feet of space under construction, including a shopping mall at The Ponds in the Upper Mission at more than 200,000 square feet.
