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The curious effect
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LIFE AFTER THE BACK COVER…
what’s on BUILDING.ca
READ > The new International Property Measurement Daoust Vukovich LLP analyzes attempts to harmonize international standards for the measurement of physical spaces across international markets.
67 03
CONTENTS
FEATURES
11 > Airbnb in Canada /
28
Some consequences originally expected by home sharing platforms may not be happening, while other unintended consequences are forcing cities to re-evaluate it. By Andrew Sobchak & Laura LeBlanc
17 > Battle Lines on the Shifting Home Front /
READ > Aging Condominiums for Aging Residents Jeff Wilson, founder and CEO of Adaptability Canada, looks at aging condos and their residents.
Does debating the impact of foreign investment on residential prices obscure a more important debate? By Rhys Phillips
23 > The Co-Generation Conversation / EXPLORE > Viaduct at Université de Montréal Civiliti builds a new viaduct over a future access road to an expanding second campus.
The way we effectively heat, light, power and provide the need for day-to-day life in our buildings is changing. Co-gen is a viable option. By Paul Barker
IN EVERY ISSUE
05 > Editor’s Notes 06 > Market Watch 08 > Legal 28 > Site Visit
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30 > Viewpoint
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The George Stephen House, first owned and built by Lord George Stephen and later turned into an exclusive club, has been turned into a modern luxury hotel called Le Mount Stephen in downtown Montréal (Photo by Joe Alboero/Fotografika).
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Volume 67
03 Number Editor / Peter Sobchak Art Director / Roy Gaiot Assistant Editor / Shannon Moore Legal Editor / Jeffrey W. Lem Contributors /
Paul Barker, Richard Joy, Laura LeBlanc, Megan J. Lem, Gaurav Mathur, Rhys Phillips, Andrew Sobchak
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Pulled drawstrings
If infrastructure funding announcements in the 2016 Federal Budget and 2016 Fall Economic Statement — totalling $180 billion — seemed like a New Year’s party to many in the building industries, 2017’s budget unveiled on March 22nd was more like a buzz kill, merely repeating previous edicts and taking a more cautious, targeted approach to new infrastructure investment. What concerns me is how no new funding was committed to our cities’ desperately needed public transit systems and how little was offered in new details on the much-anticipated Canada Infrastructure Bank (CIB), simply reiterating its $35-billion commitment to the CIB which was made in 2016. It also revealed that less than 10 per cent of this funding (only $2.8 billion) will be spent over the next five years. For those who are still a little hazy on the CIB, here’s why it is so important. Roads, bridges and water-treatment facilities are among the desperately needed infrastructure that regions across the country require. “The purpose of an infrastructure bank is to provide low interest loans and credit enhancement services to provincial and municipal governments investing in priority infrastructure projects,” says University of Toronto associate professor Matti Siemiatycki, who authored a report on the topic last year. “The cost of financing is reduced by taking advantage of the federal government’s top credit rating.” Because of the relatively small difference between the interest rates at which the federal and most provincial and municipal governments borrow money, the lending services of an infrastructure bank would provide significant benefits but only for the largest infrastructure projects, focusing primarily on lending services to projects with capital values of at least $10 million. “Despite this restriction, if a CIB can shave 100 basis points off the cost of borrowing $500 million, it would save the borrower $100 million in interest payments over a 35-year loan term,” Siemiatycki stresses. Legislation to establish the Canada Infrastructure Bank is said to be coming soon, and the Government plans to identify a CEO and Chairperson to expedite a goal for the Bank to be operational in late 2017. But many professional groups are nervous about the length of time this is taking. The Association of Consulting Engineering Companies of Canada (ACEC), for example, is urging Parliament to finalize the passage of the government’s budget bill, as passed by the House of Commons, in order to establish the CIB. “Every day we delay implementation of the Infrastructure Bank represents a missed opportunity for Canadians. Infrastructure connects people and communities; it enables trade and commerce; it improves our quality of life; and it protects the environment. Tools like the Canada Infrastructure Bank can help us address deficiencies in our infrastructure,” said John Gamble, ACEC president, in a press release. “We understand that there will always be debate over the details of how the Infrastructure Bank will operate, and that debate is healthy and will continue after its establishment. But we need the legislation that’s currently before Parliament to enable the establishment of the Bank to pass before Parliament breaks for the summer recess.” “Infrastructure will always be a core role of government, but if we can combine public resources with private ones in an appropriate and transparent manner for projects that lend themselves to this kind of financing, then Canadians and the Canadian economy will be better off for it,” concludes Gamble. But before any of this happens, the legislation creating the Bank has to pass Parliament, and the sound of that ticking clock is maddening.
05
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Peter Sobchak Editor We welcome your feedback. Send your questions and comments to psobchak@building.ca building.ca
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06
MARKE T Spotlight: Commercial Real Estate
Canada’s other hot sector
over the next three years. The current environment is the perfect breeding ground for rental growth, and allows Toronto to catchup with major U.S. cities. To a lesser extent a similar model holds true for Montréal and Vancouver and even Calgary whose rates over-corrected due to subleasing activity after the drop in oil prices. Even though the Alberta market is witnessing historically low rents, an expected improvement in industrial activity in the oil and gas sector combined with recovering oil prices will provide a path for significant rent increases.
By Gaurav Mathur
Limited supply boosting rental growth Vancouver and Toronto have led demand from investors, landlords and tenants alike, and this trend is expected to continue. Low office supply is noticeable in Vancouver as two major projects — Solo District and Containers Phase II — have been preleased 85 and 100 per cent respectively. With only one significant development expected to be delivered this year in downtown Vancouver, rents will push upwards strongly as demand outCanada ended 2016 with a record $34.7 billion in commerstrips supply. cial property sales. The country witnessed a record influx Toronto’s office CRE market is facing the lowest downof foreign capital, especially in three of the four major oftown office availability rate in 10 years and has the lowest fice markets in the country and in particular Vancouver vacancy rate among major North American cities. Cadillac and Toronto, so much so that domestic investors took a Fairview and Ivanhoe Cambridge recently announced two slight pause in the market. Cap rates for trophy office product office projects spanning a combined 3.7 million square feet. were on par with those seen in New York, Paris, London and To no one’s surprise, approximately 46 per cent of which is Shanghai. Investors in office buildings justified their purchaspre-leased for delivery in mid-2020. Apart from the two es by forecasting strong rental performance of these assets projects, no other sizable projects are currently under conin the future. These forecasts are about to come true. struction. Approximately 75 per cent of Canada’s Class AAA Toronto entered 2017 as a star performer, a trend that is exoffice inventory is held by 10 institutions that are conservpected to continue as the city boasts one of the lowest downative in nature and will not build without large anchor tentown office vacancy rates among major North American marants. Furthermore, any new large projects downtown will kets. The trend is similar for Vancouver, Montréal and even likely not be ready until 2021-2022. Calgary. “I predict that rental rates of offices in the major markets will grow significantly over the next three years and by perhaps as much as 50 per cent in the most desirable welllocated trophy office buildings,” says Brett Miller, Chief Executive Officer of JLL Canada. The industrial sector too will see a rise in rental rates to the tune of high double digit growth. Industrial availability has steadily decreased since the financial crisis, providing upward pressure on rental rates. A strongly improving manufacturing outlook along with a weaker loonie should support an increased demand for manufacturing space ahead. Three favourable factors are influencing rental rates: a limited supply in the market and a conservative and risk averse ownership profile; immigration and the ongoing demographic change throughout Canada will result in higher levels of office space demand over the next three to five years and; yield preservation tactics as the cost of long term money begins to climb. As of the first quarter of 2017, Class A average direct asking gross rents for office space in downtown Toronto stand at $59.17 per square foot. Given Toronto’s attractive value propositions — livability, highly-skilled workforce, growing economy — rents can be expected to increase by up to 50 per cent JUNE JULY 2017
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Changing demographics will support demand ahead According to Statistics Canada, Canada’s population has increased by 1.3 per cent on a year-on-year basis. Highlyskilled immigrants constitute a major portion of new entrants in the market as Canada looks to attract talent across the world. In the same period, Canada has seen the addition of approximately 287,200 people in the job market. Highlyskilled workers occupy office space at an average of 150 square feet per worker and every 1,000 new jobs create demand for a small suburban office building. After President Trump’s immigration ban, Canada recently introduced new visa measures that make it even easier for tech companies to recruit foreign talent. With U.S. technology firms looking to further expand their presence in the country, Canada will see a flux of highly skilled immigrants enter the workforce. Demographics will change not only because of highly skilled workers but also because of international students. The University of Toronto recently saw an 82 per cent increase in applications from the United States alone, with 1,425
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Canadian exporters will seek to add skilled workers and expand operations which will increase demand for industrial space and push rents upwards.
undergraduate applicants compared with 784 last year. More workers and jobs will increase demand for space across asset classes and will pressure rents upwards in a tight market. Since the U.S. election, Canadian tech firms say far more U.S. coders are showing a serious interest in migrating north just as the Canadian government has put out the welcome mat. An improved manufacturing outlook and a weaker loonie should incentivize manufacturers to grow their operations and take advantage of new trade relations that Canada has penned with Gaurav Mathur is the European Union and China. ProResearch Manager, gressive trade policies translate to Capital Markets at JLL. billions of dollars in bilateral trade For more information and investment. As new markets open, visit: www.jll.com
07
The future shines bright A strengthening U.S. economy, newly signed bilateral trade agreements with the European Union and China, improved competitiveness of the Canadian dollar, stabilization of oil prices and a highly stimulative fiscal and monetary policy should translate into better growth prospects not only for Canada but also for Canadian commercial real estate. Investors, landlords and tenants will pursue attractive product with the same fervor that was seen in 2016 and significant rental growth won’t be far behind. b
Downtown Class A office average asking gross rent per square foot (C$) 1Q 2017
88.76
85.79
60.60 Chicago
Washington DC
59.17 Toronto
84.91
58.13 Fairfield County
New York
57.28 Seatle
64.34
57.21 Los Angeles
London
San Francisco
Toronto in 3 years
Boston
Silicon Valley
Miami
41.02 New Jersey
Atlanta
Source: JLL Research
$30
40.08
$60
62.84
82.37
$90
101.46
120.48
$120
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08
LEGAL Tax now, ask questions later Ontario mimes B.C. and announces a new Non-Resident Speculation Tax to be followed by a program to collect data on foreign ownership. By Megan J. Lem In a press conference at the end of October 2016, Premier Wynne categorically rejected the adoption of British Columbia’s Foreign Buyer Tax which imposed a 15 per cent surcharge on foreign buyers in the Greater Vancouver area. At the time, she said, “We’re not going to go down the road that British Columbia has gone down...I’m not interested in doing something that would have an unintended consequence in Ontario, something that was designed for a totally different market.” Most commentators, this author included, determined that her statement was bold enough and unequivocal enough to dispel the rumors that Ontario might also soon impose a significant land transfer tax hit on foreign real estate buyers. Alas, how wrong we were. On April 21, 2017, the Ontario government reversed itself by introducing a 15 per cent Non-Resident Speculation Tax which, while having a different title, was, for all intents and purposes, identical to the British Columbian Foreign Buyer Tax.
sold. The tax is triggered on acquisition only, whether the foreign buyer holds it forever or flips it the next day. Indeed, if anecdotal evidence is right, most foreign buyers are actually acquiring Canadian real estate as long term investments and are not actively flipping their properties, yet the Non-Resident Speculation Tax will be payable by those foreign buyers anyway. The even greater irony, and one that is almost lost on the general public given the hoopla of the Non-Resident Speculation Tax, is the fact that the provincial government had announced a data-gathering exercise to determine, amongst other things, the extent of foreign ownership in the province. This data gathering exercise is colloquially referred to as the “5.0.1 Process” based on the section of the Land Transfer Tax Act that calls for comprehensive data collection. The 5.0.1. Process came into effect on April 24, 2017, three days after the Non-Resident Speculation Tax. So, the government mimics the British Columbia Foreign Buyer Tax before it has any hard data on the extent of foreign ownership in Ontario, and after it has publically stated that it would not
The 5.0.1 Process goes far beyond residency and asks a host of questions about the proposed use of the real estate and the true beneficial ownership of the real estate, information that the government has never gathered before. Of course, the geographic scope changed somewhat. Instead of a “Greater [City] Area,” Ontario’s new Non-Resident Speculation Tax involves a broad swath of Southern Ontario called the Greater Golden Horseshoe, a geographic area running from Waterloo/Kitchener/Cambridge in the west, Midland in the north, Peterborough in the east, and along the Niagara Peninsula all the way to Niagara Falls in the south. The amount of the tax, a whopping 15 per cent above the regular land transfer tax payable, is identical to the amount charged to foreign buyers in Vancouver. The name of the tax is also a bit of a misnomer. Although the Non-Resident Speculation Tax implies a “residency” criteria (which has, historically, meant “residency” based on connection to the province for income tax purposes), the tax is actually exigible based on a “nationality” criteria (in other words, on the colour of one’s passport, whether or not they are otherwise a resident of the province for income tax purposes). Likewise, although the Non-Resident Speculation Tax implies that it is a “speculation” tax, it does not operate based on speculation principles because there is no trigger based on when the property is reJUNE JULY 2017
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implement such a tax! While resident Ontarians may feel immune to the process, they would be wrong. The 5.0.1 Process is not restricted to foreign buyers or to the Greater Golden Horseshoe: it collects data from all purchasers of Ontario residential or rural land, whether they are local or foreign buyers. Furthermore, the 5.0.1 Process goes far beyond residency and asks a host of questions about the proposed use of the real estate and the true beneficial ownership of the real estate, information that the government has never gathered before (Big Brother conspiracists take note!).
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Unlike the British Columbia Foreign Buyer Tax, Ontario’s Non-Resident Speculation Tax grandfathered all binding agreements of purchase and sale that had been entered into prior to the announcement of the tax. This was well thought out, and prevented the “race to the Registry Office” that followed the announcement of the British Columbia Foreign Buyer Tax and which almost crashed B.C.’s land registry office computers. Finally, in Budget 2017 unveiled at the end of April, the provincial government announced that it would also be going after “flips,” which the budget defined as “the practice of entering into a contractual agreement to buy a residential unit and assigning it to another person prior to closing…[including] arrangements in which one party substitutes another party in a contract to buy a residential unit.” Again, this is not limited to foreign buyers or the Greater Golden Horseshoe: it seems like any flip, anywhere, by anybody is the behaviour being targeted. The exact mechanism of how the government is going to identify a flip was not announced in the budget, although it was clear that it would also be through the Land Transfer Tax process. Similarly, the penalties for “flips” were not disclosed, just the fact that the government would be gathering data on such transactions.
Curiously, the definition for “flips” in the budget also expressly contemplates the simple re-direction of title on closing, something which happens frequently in residential deals and which Megan J. Lem is a most real estate observers would not corporate lawyer in the intuitively have considered to be a “flip.” Toronto office of Oslers The staggered timing of these LLP. This article reflects amendments to Land Transfer Tax is the opinions of the also baffling, at least to this author. The author alone. 5.0.1. Process was announced first, in mid-April. The Non-Resident Speculation Tax was announced about a week later, but with an effective date making it payable before the 5.0.1. Process even started. The war against “flips” was announced as part of the budget, which came a week after the announcement of the Non-Resident Speculation Tax. There is surely some method to the madness, but I leave that strategizing to the political wonks. In the meantime, Ontario’s real estate lawyers start the height of the 2017 residential closing season subject to a myriad of new Land Transfer Tax related provisions, none of which anybody saw coming. b
09
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11
Vancouver bets on ‘thoughtful’ regulation of home-sharing but will continue to lose to Airbnb’s mounting urban consequences without modern enforcement. By Andrew Sobchak & Laura LeBlanc
THE RECKONING OF AIRBNB
PART 1:
Seeking a fair share
irbnb stands to lose 57 per cent of its revenue in Vancouver if new municipal regulations are approved this summer as expected. The story is a familiar one globally as cities in many of the 191 countries in which the company operates rein in the explosive growth of home-sharing and short-term rentals (STR’s), perpetuated largely by the easyto-use platform of the start-up-turned-giant. Berlin and Barcelona have banned forms of STRs outright. American tech hubs like Austin, Tex., and Boulder, Colo., implemented — and struggled with — a permissive approach. Vancouver is somewhere in the middle, its new policies looking to extricate benefits from home-sharing’s mess of unintended consequences. Despite the well-promoted international progression to better regulation, the challenge is, and has always been, with regulation enforcement. Vancouver has had in place for years a bylaw designed to control STRs. Most cities have one. Their failures have been rooted in an enforcement approach out of step with Airbnb’s advances and a modern digital culture. With new targeted regulation, Vancouver could become the Canadian vanguard of STR control, but only if they evolve as home-sharing community police.
Headlines have been turning on Airbnb for the better part of two years, first in cities like San Francisco and New York, then, with more frequency in 2016, as the platform achieved scale in other cities. At a time in Vancouver of peak foreign investment and plummeting vacancy, advocacy groups lined up in opposition: Renters claimed Airbnb siphoned away long-term rental stock, thereby driving up prices; hotel industry lobbies claimed Airbnb facilitated the operation of informal hotels, reducing bottom lines and threatening employment; condominium boards and neighbourhood associations claimed Airbnb increased transience, decreasing safety and quality of life; city budget hawks claimed Airbnb diminished the tax base, making it easy for landlords to avoid paying dues; and real estate investment watchdogs claimed Airbnb attracted off-shore buyers, heightening an already critical foreign ownership crisis. For many, Airbnb was the key to an over-stuffed closet full of urban skeletons. Of course the STR issue is bigger than just Airbnb, but in Vancouver, not by much. According to Host Compliance LLC , a San Francisco-based STR analytics and services firm, while there are currently nine STR platforms operating in the city Airbnb has cornered an 85 per cent share of the 5,927 unique, active listings. The firm also helped city staff prepare a September 2016 report for council which suggested Airbnb’s listings have been doubling year over year since 2009 but with only three per cent properly permitted and following the law. building.ca
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Vancouver Dream Rentals 1% Craigslist 1%
12
2009: 2010: 2011: 2012: 2013: 2014: 2015: 2016:
STR PLATFORMS IN VANCOUVER
22 55 117 253 536 1200 2600 5200
Roomorama 1%
FlipKey
4%
HomeAway Family
8%
Source: Home Compliance – September 2016
THE RISE OF AIRBNB # OF AIRBNB LISTINGS IN VANCOUVER
Source: Airdna – May 2017
Airbnb
85% REGULATION 2.0
Section 10 of Vancouver’s Zoning and Development Bylaw codifies a ban on any rentals for less than 30 days. Kaye Krishna, Vancouver’s General Manager of Development, Buildings and Licensing describes this “core planning principle” as a residue of cities’ antiquated attempt to define a renter from a tourist. “It’s my understanding that [the bylaw] evolved over time in response to how hotelling and SROs were contributing challenges in neighbourhoods and with transient populations.” But despite altruistic motives, the bylaw’s anachronism has been the source of its impotence. “Our bylaw enforcement is complaints based,” says Krishna. “We don’t have a practice of going into peoples’ homes and checking on those [compliance] things.” According to the staff report, a total of 80-nuisance- and safety-related STR complaints were logged
term rentals and a disproportionate effect on the vacancy rate.” By simply limiting STRs to only principle residences, Vancouver sweeps out most of the unwanted consequences: The threat of units leaking away from the long-term rental market, attracted by the more lucrative business model Airbnb and others can provide, is avoided with units rented only in a shared capacity or when the permanent residents have temporarily vacated. The city expects half of the estimate 4,450 “entire unit” listings and most of the “private room” listings could be legalized and up to 1,000 STR units may return to the long-term rental stock. The definition also precludes professional landlords from operating informal hotels and foreign interests from participating in the market, while the licensing requirements help facilitate host compliance for safety, cleanliness and tax remittance purposes. Following provisional Council approval in October 2016, the proposal was returned to staff for final consultation and drafting. “As it stands, we are planning to stick with what we put forward in the fall,” says Krishna, who expects the final report to be submitted to Council for approval in June or July. An additional tax on STR s is still being explored which would include GST, PST and likely the three per cent Municipal and Regional District Tax. “We’re [now] working out the “how” – the implementation.”
“Airbnb serves two ends: helping families make ends meet and increasing the tourism pie.” — ALEX DAGG, AIRBNB, PUBLIC POLICY MANAGER – CANADA
by the city’s 3-1-1 hotline between 2013 and September 2016. The inability to widely enforce the bylaw was not so much a matter of choice but a dearth of intel. Krishna has recommended the city move on from the Berlin-esque ban to a nuanced regulation which proposes to allow property owners or renters to rent on a short term, but only their principle residences and only with a Cityissued business license. Rental of non-principal residences — investment properties, accessory units or some laneway houses, as examples — for less than 30 days would remain illegal, a stance consistent with the City’s “emerging policy on taxing empty homes.” Additionally, STR units would have to be maintained as safe dwelling units, as defined by the Vancouver Building Bylaw. “We really want to enable people — residents who live and work in the city — to benefit from short-term rentals,” she says. “But we want to mitigate against people doing this in a way which has a negative impact on the availability of longJUNE JULY 2017
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TECH V. TECH
Host Compliance’s CEO and founder Ulrik Binzer has worked with 65 municipalities in the United States and Canada seeking a fair approach to STRs and believes Krishna’s next step is the most critical. His own interest in STRs piqued in 2015: “In the little town I live in just north of San Francisco, out of the blue, they decided to put in a full-out ban.” At the time, Binzer would rent out his home during the
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Source: Home Compliance – September 2016
Canada’s STR Canary three weeks each year he travelled with his family to Europe. With the new ban, he couldn’t. A second reading of the policy by town council attracted a crowd. “To be honest, there wasn’t any data or thought to it,” he said. “I think it was one of those ‘stick your head in the sand’ kinds of things, like, if we ban it, we can pretend it will go away.” A Harvard graduate and self-professed data nerd, Binzer set out to discover the true impact of STRs in his community: the type and number of listings; their locations; occupancy rates; and so on. He was appointed to a town committee to re-evaluate the ban but quickly found a wide gap between the data he wanted and was able to collect, and the data on offer from STR platforms — this was, in effect, the reason most municipalities were incapable of effective STR regulation enforcement. Of course Airbnb had the data Binzer needed, but the company believed it was not obligated to help, quietly seeking protection under the United States’ Communications Decency Act, which other websites like eBay and Craigslist had successfully leveraged to avoid the liability of questionable user-generated content. In November 2016, however, Airbnb’s assertion was struck down in a San Francisco court and they have been facing a growing call to fully share their data and actively participate in the enforcement of municipal policies around the country. A Communications Decency Act-style precedence does not exist in Canada, yet surprisingly Airbnb here has been trying to support cities in implementing a modern municipal code — a delicate effort balancing interests in profit and public image. In 2016, when Kaye Krishna called on STR platforms to participate in Vancouver’s consultation process for new regulations, only Airbnb stood up. On May 17, Airbnb released their Tool Chest 2.0, a document of best practices and “lessons learned through partnering with governments.” Although the document cites numerous official partnerships with jurisdictions around the globe, Airbnb confirmed to Building none exist in Canada. Kaye Krishna sees a strengthening relationship with Airbnb as a key component of her work-in-progress enforcement strategy which also includes an “aggressive” reporting mechanism, data scraping and maximizing penalties and legal implications for violators. “[We want] to identify where there are egregious hosts operating clearly as a business with multiple listings, multiple units per building, or they are clearly running something like 365 nights per year.” The anticipated 57 per cent slash of Airbnb revenue comes as these multi-listing landlords are removed from the Vancouver market. “They understand the policy framework we are trying to put in place,” notes Krishna of Airbnb. “On two separate occasions they’ve scanned their site and pulled down anyone who has posted who fits that profile.” In a November letter to Mayor Gregor Robertson, Airbnb indicated they had “proactively” removed 130 listings from the site believed to be
The Province of Québec was the first Canadian jurisdiction to take short-term rentals seriously. Although new licensing regulations for Tourist Residences took effect in 2015, enforcing them hasn’t turned out to be a science. Despite the increase of inspectors from two to 23 over a five month period, the system is still largely dependent on whistle-blowers: unless someone complains, there’s a good chance illegal Tourist Residences can go on operating indefinitely. Québec has been detailing and defining its tourist accommodation laws since 2013: — As a response to complaints in 2013, the Québec government starts enforcing existing laws regarding short term rentals; — January 2014: A task force is assembled to examine how to improve the system. Hosts were already required to have a $250 license to operate; — December 2015: Québec passes Bill 67 to improve the regulation of tourist accommodation. Short term rental hosts were required to obtain a classification certificate from the Ministry of Tourism and charge a 3.5 per cent lodging tax. The number of inspectors in Québec increases from two to 18 to enforce the new legislation; — April 2016: Québec law is amended to better define “regular users” who would now require $2 million of insurance plus the $250 permit and pay the nightly hotel tax. Fines for violators were also increased from $750 to between $2,500 and $50,000; — September 2016: The Canadian Press reports fewer than 500 permits had been issued across the province and only 41 in Montréal despite an estimated 10,000 units listed on various STR platforms in Québec; — May 2017: Over 5,200 permits have been issued indicating a surge in compliance. According to CITQ, the organization mandated by Tourism Québec to certify and inspect noncertified accommodation establishments, 1,056 potential violators have been identified since July 1, 2016. 850 of these violators were identified via community reporting, indicating a persistently high rate of illegal operation, and only 36 cases have been fully prosecuted. Québec continues to refine the enforcement process.
13
“commercial operators.” When asked by Building, Airbnb did not commit to performing similar sweeps in the future. Until Airbnb and other platforms such as Expedia’s recently acquired HomeAway network are completely transparent with their operations, the data gap Binzer identified will persist and municipal enforcement will struggle. Vancouver has yet to decide if it will engage an external consultant to assist with analytics and host compliance, but this is exactly the niche Binzer is in, and competitors to his Host Compliance are hoping to fill. “We’ve built a whole suite of building.ca
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CANADIAN HOTEL OPERATING METRICS YEAR: OCCUPANCY: ADR
14
compliance and enforcement tools which makes it much easier for local governments to enforce the rules that they have put in place,” he says. “Most cities have found it is incredibly hard to solve the compliance challenge on a manual basis. You really need software and tools to do this.” Binzer’s tools include a streamlined host registration and permitting process, data scraping and analytics, host communications and provision of a 24/7 complaints hotline. “We realized the data side and the information needed at the time when you adopt an ordinance is only a small part of the solution. What we really needed was an ongoing compliance monitoring solution.” Host Compliance is now working with several Canadian municipalities, including Toronto, Edmonton, and B.C. ski-and-surf towns like Sun Peaks, Nelson and Tofino. When asked about Host Compliance’s future with a completely transparent Airbnb, Binzer responds: “I spend a lot of time thinking about that... We monitor 22 websites on a weekly basis and there are 125 websites out there which facilitate [STRs]. People are making a lot of money right now renting illegally on Airbnb, they are not going to stop when Airbnb potentially is forced to be more open. They are just going to move to these other websites. We have lots of examples of that in our data where a listing goes down and it comes up on another website a day later. It’s a cat and mouse game.” Employing one tech start-up to police another has a certain binary poetry, but Binzer sees Host Compliance’s future as an industry “auditor” because most cities won’t have the faculties or desire to internalize the required effort and most platforms won’t want to deal with 30,000 cities or jurisdictions in North America. “It would be easier if the platforms have a relationship with us and we have the re-
2011: 2012: 2013: 2014: 2015: 2016:
61.9%: 62.4%: 63.3%: 64.9%: 64.3%: 64.5%:
$128 $130 $133 $137 $144 $149
Source: Smith Travel Research via 2017 Canadian Hotel Investment Report, Colliers International Hotels
PART 2:
The fuss that isn’t (yet?)
T
ourism Vancouver announced, on February 24, 2017, the number of overnight visitors to the city in 2016 had ballooned to over 10 million. Occupancy and average daily rates (ADRs) for Vancouver hotels, too, were reported as outperforming those in Toronto, Montréal and Ottawa for the same period. 2016 was a record year for the city’s $4.4-billion tourism industry, and the third record-breaking year in a row. But this new high mark comes at a curious time, one paralleling the exponential growth of Airbnb many early commentators predicted would deal a devastating blow to Vancouver’s hotels. Instead, there appears to be no impact all, a trend seemingly mirrored across Canada. According to the 2017 Canadian Hotel Investment Report released by Colliers International Hotels in April, occupancy rates and ADRs of Canadian hotels have generally been increasing since 2011, consistent with Statistics Canada reporting an increase in tourism of 9.4 per cent in 2016. “The Canadian hotel industry is firing on all cylinders,” the Report suggests, also predicting another banner year in 2017 with Canada 150 celebrations. “A direct line between Airbnb and the lodging industry? I think you are going to have similar challenges as [determining] Uber’s impact on the taxi industry,” says Dr. Chris Gibbs, assistant professor at Ryerson University’s Ted Rogers School of Management. “It’s difficult to measure that.” Gibbs has been studying disruption in hospitality, sports and tourism for 20 years, and, in collaborative research with Toronto-based HLT Advisory, converted Airbnb listings to equivalent room nights to determine a truer sense of Airbnb’s market share. In Vancouver, he found “entire places” accounted for approximately five per cent of market demand and revenue over the last six months of 2015, with ADRs on these units only $5 less than those of traditional hotels. “No one has really done it properly, and I think it would be really challenging to do what we’d call a true displacement where you say this is causing hotels to lose 10 per cent of their business,” says Gibbs. “You’d have to model it and make some assumptions.”
“We know of no developers who have delayed development plans. Logic would dictate it could happen; however, we have no evidence it has.” — JAMES CHASE, PRESIDENT, BC HOTEL ASSOCIATION
lationship with the cities and that way you can keep everyone to the same standard and make the software integration easier for everyone,” he says. Airbnb achieving scale in Vancouver unlocked a clutter of consequences. But unlike Berlin and Barcelona, Vancouver sees value in a healthy home-sharing economy and have created new regulations targeting its benefits. Their greatest challenge in realizing those benefits, though, remains in the unpublicized and dull realm of enforcement. They’ve failed once here already and an unsettled strategy moving forward is cause for some concern. In the absence of complete transparency from Airbnb and other STR platforms, enforcement’s tech-based, data-driven modernization is the key to Vancouver’s fair share future. JUNE JULY 2017
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WHAT VISITORS PAY VANCOUVER HOTEL
ADR (JAN-MAR, 2017)1:
$7.49 PST (8%): $11.99
VANCOUVER AIRBNB “ENTIRE PLACE”
$149.89
ADR (MAY, 2017): GST (5%):
GST (5%):
MUNICIPAL & REGIONAL DISTRICT TAX (3%):
$4.50
DESTINATION MARKETING PROGRAM (VOLUNTARY2) (1.5%):
$02 PST (8%): $03
$134.031
$2.25
15
MUNICIPAL & REGIONAL DISTRICT TAX (3%):
DESTINATION MARKETING PROGRAM (VOLUNTARY2) (1.5%):
$05
AIRBNB FEE (3%):
$4.02
CLEANING FEE (SPACE-DEPENDENT):
TOTAL
- $176.12
$04
TOTAL
$306
- $168.05
1
Source: HVS Canadian Lodging Outlook Quarterly 2017 – Q1 2 Of the 72-member Hotel Association of Vancouver, 34 hotels participate in the DMP
1 Source: Airdna for 1-bedroom “entire place” 2 B usiness owners typically do not pay GST if annual revenue is less than $30,000. The average host in Vancouver makes $6,500 per year 3 H osts would typically not pay PST on rental units with less than 4 rooms according to CRA Policy 78(1)(b): Source Hotel Association of Vancouver 4 Vancouver hosts do not typically pay the MRDT 5 Vancouver hosts do not typically pay the DMP 6 Cleaning fees applied at host discretion
In the absence of tell-tale data, the rationale for imperceptible impacts as Airbnb achieves scale is left to speculation. Some in the hotel industry have always believed Airbnb’s product targeted a different core consumer and that their popularity and hotel revenue were not inversely proportional. “We are in the business of hospitality. We are in the business of people serving people. We are not, in my humble opinion, in the business of lodging. I think Airbnb is more in the business of lodging,” said Hilton Worldwide CEO Christopher Nassetta at the Americas Lodging Investment Summit in 2016. Canadian hotels on average appearing unfazed by Airbnb may also be due to the overwhelming influence of other positive inputs to the tourism industry at large. Or, Airbnb’s own argument about the value of their offerings could be credible. “Airbnb serves two ends,” says Alex Dagg, Airbnb’s public policy manager for Canada, “helping families make ends meet and increasing the tourism pie.” A controversial report commissioned by Airbnb and released in October suggests Airbnb guests and hosts in Vancouver contributed $402 million to the local economy during a 12-month period ending in August 2016. Critics, distilling Airbnb’s own data, suggest the majority of this activity is not new and would have been generated if guests had stayed in traditional accommodation. But independent consumer research released in August 2016 by Dr. Daniel Guttentag, a colleague of Dr. Gibbs at Ryerson University, suggests 30 per cent of Airbnb guests would not have travelled to a city were it not for Airbnb’s offerings, suggesting there is a hotel displacement factor of 70 per cent, but also that 30 per cent of all economic activity generated by the Airbnb community could be fresh. If true, record-breaking tourism in Vancouver could partly be Airbnb’s award to claim.
Alex Dagg also champions Airbnb’s ability to “democratize” the tourism dollar — redistributing it from downtown strongholds to mom-and-pop restaurants and shops in outlying neighbourhoods. But the elasticity of Airbnb rental stock may be the most intriguing factor for cities and hotels. “I think Canada is well-positioned in global travel these days,” she says, “we’re going to continue to see an expansion and I think you need Airbnb to deal with that elastic supply.” Dagg cites Canada 150 as an example. “The hotels in Ottawa have been sold out for months, so if we didn’t exist in Ottawa, a lot of people wouldn’t be able to come and share in the celebrations.” Servicing visitors during peak travel periods is quickly becoming a hallmark of the platform and has helped cities bid for and accommodate big-ticket events, like the 2016 Rio Olympics and the 2017 NFL Superbowl in Houston, Tex. Availability of this mutable supply, though, gives pause for hotel developers as cities like Vancouver reach record-breaking occupancy. For now, James Chase, president of the BC Hotel Association doesn’t believe the rise of Airbnb has impeded hotel development in Vancouver. “We know of no developers who have delayed development plans. Logic would dictate it could happen; however, we have no evidence it has.” Without strong proof of Airbnb negatively impacting the bottom lines of Vancouver hotels, calls from the lodging lobby and tourism advocates have largely focused on creating an equal playing field, ensuring Airbnb hosts pay all appropriate taxes and contribute to voluntary destination marketing funds. In a statement released to Building, Tourism Vancouver indicated their continued support for responsible home-sharing and short-term rental regulation. With the proper Vancouver-specific framework in place, many believe Airbnb can be a significant contributor to record tourism in years to come. b building.ca
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4222_Walltite_PlanToAd_FINAL-BM.indd 1 BLD JunJul 17.indd 16
2015-03-11 4:29 PM 17-06-19 1:05 PM
BATTLE LINES ON THE SHIFTING HOME FRONT
17
By Rhys Phillips
Does debating the impact of foreign investment on residential prices obscure a more important debate?
F
or Canadians, a few deep-seated public issues seldom stray far from media headlines and opinion pages: children and their education; healthcare; and accessibility of home ownership. The last is now dominated by astronomical increases in Vancouver’s and Toronto’s residential prices, particularly ground-based housing. With their nominal house prices almost doubling over the last seven years, affordability continues to be hotly debated in the media, academia and public forums along with provincial and federal legislatures. This debate usually constitutes two sides warring in the bosom of a single concept: the principle of supply and demand. On one side, largely embraced by governments, the argument holds that excess demand, notably from foreign investors, is responsible for bloated prices. Not so, say some building.ca
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MLS home price index YOY % change, composite price, January 2017
economists, bankers and developers. The real problem is a shortage of supply largely created by foolish government land policy and inefficient regulatory procedures. There are those, of course, whose opinion includes both views although leaning more or less to one side or the other. The recent introduction of foreign owner taxes in B.C. last August and in Ontario this April suggests the demand argument has the endorsement of governments. The real impact of foreign owner investment on demand, however, remains hotly debated; so too is the question of actual land supply. But in the end, does this debate only muddy a much more important debate about affordability and the viability of our current urban form and home ownership culture?
An Excess of Demand?
“Excess” demand exists when it is higher than expected given household formation and domestic incomes, such as the situation created by U.S. sub-prime mortgages prior to the 2008 collapse. Some argue an extended period of ultra-low mortgage rates in Canada is contributing to excess demand that will prove problematic when/if interest rates rise or house prices in Greater Vancouver (GV) and the Greater Toronto Area (GTA) fall significantly. The federal government gave credence to this argument when it reduced the maximum mortgage payback period from 30 to 25 years and introduced tighter Canada Mortgage and Housing Corporation (CMHC) insurance restrictions. Media headlines have tended to focus not on domestic but foreign demand, especially from China. B.C. and Ontario taxes suggest provincial authorities accept this narrative. Josh Gordon, an assistant professor at Simon Fraser University’s School of Public Policy agrees. In his March 2017 report, In High Demand: Addressing the demand factors behind Toronto’s housing affordability problem, and a lengthy interview with Building, he squarely points the finger at excess demand precipitated by foreign investment. In summary, he argues the astronomical increase in income-to-price ratios (above five is considered problematic) in GV and the GTA compared to other Canadian cities indicates low interest rates and poor investment in social housing but cannot explain the magnitude of the price increases. While he concedes there is some inelasticity in Toronto’s housing supply, “its estimated impact,” he writes, “is not nearly large enough to generate the price levels Toronto has witnessed.” Even assuming a high level of inelasticity of supply, American evidence suggests Toronto’s income/ price ratio should be not much above five, whereas it is actually 10 to 11. In Vancouver, the ratio is 12, but a whopping 28, 23 and 37 in Richmond, Burnaby and East Vancouver respectively. “There is no way local income is buying houses,” he says bluntly. In fact, a recent Vancouver report on income relative to house prices by municipality found the higher the house price the lower the jurisdiction’s income. JUNE JULY 2017
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Aggregate
15.0
Fraser Valley
24.9
Toronto
22.6
Victoria
22.0
Vancouver Island
18.0
Vancouver
15.6
Regina
3.8
Ottawa
3.7
Montréal
3.1
Moncton Saskatoon Calgary
-0.2 -1.0 -2.9
Gordon presents data suggesting Toronto housing construction over the last decade has actually kept up with population demographics; that is, the ratio of population to housing completions has not changed significantly. This suggests “that shortfalls in supply are due to demand factors not captured in population growth, such as foreign investment and multiple property ownership by both domestic and foreign investors.” Similarly, in September 2016, the Globe and Mail presented data from Andy Yan, a senior urban planner with Vancouver’s Bing Thom Architects, showing a 25-year near constant “new population to new residential unit” ratio of 2.4. The problem, Yan says, is affordability with the type of housing being bought by largely foreign money. “In a 2014 survey,” writes Gordon, “Vancouver ranked third globally as a preferred target for [foreign] real estate purchases, while Toronto ranked sixth.” Ben Myers, senior vice president of Market Research and Analytics at Toronto-based Fortress Real Development, leans toward the supply side argument, but also reports many reasons why Chinese investors are attracted to the Canadian market. On the push side are concerns over possible devaluation of the Yuan; desire for diversification and relaxed investment outflow rules; and, on the pull side are Canadian asset safety; low volatility of rental rates; acceptance of long term commitment despite low return rates; and intent to establish a second home or destination for immigration. To these drivers, Gordon adds two cities with large diaspora communities and growing populations and econ-
Source: The Canadian Real Estate Association, RBC Economic Research
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Average house price-to-income ratio
Saskatoon
Ottawa
Halifax
Winnipeg
Montréal
Calgary
Victoria
Toronto
Vancouver 0
2
4
6
8
10
12
Average price/median family income ratio
2001 Q4 2005 Q1 2016 July
omies. This is supported by Canadian public policies including limited concern with money sources; weak capital gains taxation and enforcement; low property taxes leading to low carrying costs; and a weak currency. “We have created an extremely attractive equity,” he summarizes.
Source: BMO
No, Supply Suppression Drives up Prices
A rising chorus within development-related industries argue lack of supply and not inappropriate demand is the culprit. Gordon, they argue, is wrong for two reasons. First, the level of foreign owner investment is not sufficient to explain the
steep climb in prices; and second, his argument fails to appreciate that the type of supply coming on stream is not what the market really wants. In February 2017, the Globe’s Mike Hager reported foreign ownership at a very modest 4.1 per cent according to Toronto Real Estate Board estimates. In Vancouver, estimates from CMHC, realtors and some banks vary between five and 10 per cent. While there can be a ripple effect down the residential food chain as foreigners purchase high-end houses, Meyer says, “to have a big impact the value of the residences they were buying would have to be significantly high.” In fact, reported the B.C. government in 2016, average prices paid by foreign investors were only marginally higher than domestic buyers. Post Foreign Buyer Tax figures from five weeks of data collected by the government, however, indicated a much higher 20 per cent rate for the region, a figure disputed as unreliable by the real estate industry. Frank Clayton, a faculty member at Ryerson University’s Centre for Urban Research and Land Development and co-author with David Amborski of Countering Myths about Ground-related Housing Prices in the GTA: New Supply Really Matters, does accept that low interest rates, high in-migration and government growth policies create vigorous but valid “fundamental” demand. The bigger problem, however, is with the changing ratio between ground-based housing and apartments being built. “The problem in Toronto is not a unit problem; 40,000 units are needed and that is what we were building; it was the mix that was the problem.” A 2005 study forecast a demand ratio of 68/42 between groundbased dwellings and apartments while the actual for 2011 to 2016 was 46/54. And, he says, people just do not want to move from ground-based to apartment living. This also helps explain both the sluggish rise in condo prices until recently and a growing gap between high-rise approvals and starts. This misbalance, says Clayton and Amborski, falls squarely on the shoulders of municipal planners and Ontario’s Places to Grow plan. The supply side consensus appears to be that the provincial government has artificially limited the supply of available land and, in conjunction with municipal governments, failed to expedite the all-important servicing of land.
19
But is there a Shortage?
This has led to a second hotly contested debate around the actual supply of land. While a few extremists in the development sector want the GTA Greenbelt opened up, the central debate is over calls to expedite servicing of “whitefield” areas sitting between plan-approved greenfield development lands and the Greenbelt. Quinto Annibale, a lawyer at Loopstra Nixon citing Getting the Growth Plan Right by Malone Given Parsons Ltd. (MGP), argues the lack of land engendered by the plan is the root cause of the affordability crisis. Others argue this is nonsense. In 2016, the NEPTIS foundation reported building.ca
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there was enough serviced land to accommodate even ground-based housing to 2031 while also pointing to reports by both CIBC and TD on hoarding by landowners. In its March 2017 report, NEPTIS broke out numbers for the entire Greater Golden Horseshoe area. Subsequently, a May statement by executive director Marcia Burchfield responded sharply to “egregious errors” in Annibale’s Globe and Mail op-ed piece. She outlined how NEPTIS’ estimates were quite consistent with those of MGP. In an interview, she explains the objective of MGP’s reports was to argue, with some merit, against the proposed increased greenfield density requirements in the planned growth plan revision. This said, however, MGP also lists supply constraints caused by cumbersome municipal planning and phasing policies, high charges, resistance to change and lack of financial capacity as well as truncated servicing, traffic capacity and transit funding. Conversely, however the Globe’s Jeff Gray, using government supplied data, outlined recently a different scenario in which 56,762 ground-based units are ready or almost ready to go within greenfield lands, which at 3.89 years of supply exceeds the mandated reserve of 3.5. Vancouver is a different situation, having reached zero-land for ground-based housing in 2001. With 65 per cent of Vancouver designated primarily for single family homes, according to the Urban Development Institute, intensification is mandatory but faces intense NIMBYism. An additional 25 per cent of all land is designated agriculture reserve since 1972 and these reserves remain strongly entrenched within the region’s sense of place psyche. With such supply inelasticity, and unlike in the GTA, condo prices have generally kept pace with those of ground-based units. Significantly, Gordon points out, dramatic price increases did not emerge with the zero-land moment but only later as foreign capital flowed in.
Is Foreign Owner Investment a Drop in the Bucket?
No, says Gordon, because even if we concede foreign owner investment is only five to 10 per cent, this fails to include foreign money invested through Canadian residents or landed immigrants. And that, he says, is significant. “Foreign money is much more substantial than foreign citizen buying.” He quotes CIBC’s Deputy Chief Economist Benjamin Tai’s recent talk where he estimated the market share of foreign money in Vancouver was greater than 25 per cent (35 per cent in Vancouver North). Others, such as Bob Rennie, “estimate that 60 to 70 per cent of the money in the west side of Vancouver is tied to China and that is a consistent estimate,” says Gordon. A controversial study by Yan, working with NDP MLA for Vancouver-Point Grey David Eby, looked at six months of JUNE JULY 2017
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sales in West Vancouver and found 70 per cent of buyers (88 per cent for houses above $5 million) had non-Anglicized Chinese names. Meyers agrees in part. “I have always said that it is foreign capital and not foreign owners.” In the end, Gordon argues, while the supply side issue certainly is part of the problem, it cannot come close to explaining the price increases since 2010. While not a demand-sider, Meyers suggests foreign investment explains “something less than 50 per cent of gains,” suggesting not an insignificant amount. There is agreement that huge price increases over the last year — including for Toronto condos — is in part a function of “panic buying” as domestic investors, watching steady price increases, have jumped into the market. The two-to-three year gap between reserving and paying for new condos has also contributed to greater “flipper” investment.
The New Foreign Buyer Tax Conundrum
At first glance, the impact of the foreign buyer taxes imposed by B.C. and Ontario suggests game set and match for the demand-siders. By February 2017, a steep decline in sales and even a four per cent price decline were reported in Vancouver, although April figures released by the Greater Vancouver Real Estate Board suggest this may have been more a pause than long-term stabilization. A recent report in the Toronto Star estimates all homes sales dropped 61 per cent and ground-level home sales 26 per cent in the month immediately following the province’s Fair Housing Plan. At the beginning of June, appraiser Claudio Polito told the Financial Post prices in the GTA had dropped between five and 15 per cent over the last 30 days. Both sides, however, see these results as primarily psychological. “By putting in that tax you got domestic buyers saying, “Maybe I don’t have to buy now,” says Clayton, and Gordon concurs, “The foreign tax was so potent because it shocked the market by changing expectations.” The real impact was on domestic buyers. Another contributing factor was CMHC’s tightening of insurance eligibility, which by May had resulted in spectacular drops in both individual and institutional approvals. Additionally, the much publicized problems with sub-prime lender Home Capital sharpened the focus on a possible bubble burst. This said, most do not see a long term tax impact. Gordon also argues the B.C. government was already backsliding by February although more importantly domestic-owned but foreign capital-based investment is not affected. Therefore, current measures implemented by the federal, B.C. and Ontario governments may slow or even halt price increases for a period, but are too little and too lax to guarantee long term stabilization. Complicating B.C.’s future, however, is the NDP government-in-waiting’s proposed doubling of the tax, instituting a two per cent tax on non-resident owners who purchased
Source: Canada Mortgage and Housing Corporation, RBC Economic Research
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Too Little, Too Late and Missing the Point
Ontario Housing start year 18
Forecasted values
17 16 15 14 13 12 11 10 09 08 07 06 05 04 03 02 01 00 99 98 97 96 95 94 93 92 91 90 0
10
20
30
40
50
60
70
80
SAAR, Thousands of units
prior to the tax and closing loopholes exempting foundations. Additionally, says Gordon, there is a need for a broader progressive property surtax that would kick in at a certain value but which could then be offset by income taxes paid, thus impacting primarily all foreign-based capital. Ontario Minister of Finance Charles Sousa has gone further by asking the Feds for a 50 per cent capital gains tax on non-principal residences, while even Scotiabank economist Francois Perrault has suggested a graduated tax system to curb domestic “flippers” whom he sees as a greater problem.
21
But little of this speaks to affordability, a case of closing the proverbial barn door long after the horses have bolted. Even if governments could crash the housing market, the economic impact of forcing prices back to an affordable 5:1 income/price ratio in GV and the GTA would probably also crash the economy. And this is perhaps the most pernicious outcome of this debate; it ignores restoring affordability and diverts attention away from the very difficult but necessary discussion about adapting both our urban/regional form and our residential culture. Vancouver’s net-zero supply, unless agriculture reserves are inexplicably released, creates its own dynamic. In the GTA, with huge reserves within the Greater Golden Horseshoe area, there is potentially land for significant groundbased development, but the associated implications of continued development with current suburban-style forms makes such development untenable. Negative environmental impacts, impossible commutes, crippling public costs of sprawl and extended lead times to implement required transit infrastructure means urban form must change. Many on both sides keep coming back to the issue of employment centres and the need to create a diffusion of highly livable centres with focused clusters of well-paying jobs. The overpowering dominance of Toronto’s shoreline core as the creative economy hub constitutes an untenable alternative. It also explains why older established urban centres like Hamilton, Guelph and the Kitchener/Waterloo Region are emerging as new urban leaders ahead of older suburban centres. The second and most hotly debated issue, as Clayton argues, is our preference for ground-based housing. Part of this stems from the development industry’s imposed polarity: houses versus multi-storey towers. Vancouver is already placing limits on towers outside the core, requiring instead a mix of mid- and low-rise units in lively villages. Hamilton’s proposed Pier 7 & 8 redevelopment is just such an example of an alternative urban residential culture. And, as outspoken Vancouver urban planner Brent Toderian argues, we will only move the needle on NIMBYism when the N is replaced with Q for quality. The original 2006 Ontario growth plan, Clayton says, claimed a “shared approach to future growth that just didn’t exist.” The Ontario government’s just-released revisions to that plan, however, makes it clear the Liberals are in no mood to open up endless land for continued sprawl. The clear, if certainly tough, requirement is first to intensify taxes and other controls on both domestic and foreign investors to stabilize long term prices; and second, to forge a new consensus on urban form and residential culture. b building.ca
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SIMPLEX TrueAlert ES speakers: the new sound of safety.
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The way we effectively heat, light, power and provide the need for day-to-day life in our buildings is changing. Co-gen is a viable option. By Paul Barker there was a single message that resonated in a 2015 report entitled The 14th P wC Global Power & Utilities Survey it was this: a “clear” majority of the 70 energy companies from 52 different nations surveyed expect “significant market model change by 2030 in response to energy transformation and that current business models won’t be sustainable for long.” This has been caused, in part, from what the authors of the report described as a “considerable disruption in the power sector arising from how we think about, produce and use electricity. In some parts of the world, disruption is already taking a strong hold. In other parts of the world, it is just beginning.” For Brian Poth, national utilities leader at PwC Canada, the reason for the transformation is a telling one and comes down to this: the way we heat and efbuilding.ca
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Single-purpose coal electrical generation boiler
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fectively light and power and provide the electricity we need for day-to-day life in our buildings is changing, which means there are fundamental impacts on the supporting value chain as well. “We look at energy in a different way today than we did 40 years ago even as individuals,” says Poths. “In the same way it is important for utilities to consider not just what capabilities do they have, but how do they make money, I also think the same would apply to the building trades and the architecture community as well. Do they understand all the various regulatory frameworks and the economics of energy options, not just today, but five, 10, 15 years from now? You have to understand the trends. It will be increasingly important moving forward.” Canada’s utilities, he wrote late last year, have “tremendous opportunities right now to work with their customers to better understand their needs and preferences and what’s important to them.” He went on to state that four key forces are transforming energy markets across Canada and around the world: fast moving, disruptive technology; changing customer needs and expectations; government and regulatory policy; and innovation. A key innovation piece, still somewhat in the embryonic stage in Canada but far more popular in Europe, is a form of distributed energy called co-generation, defined as the simultaneous production of power and heat, which one estimate stated can offer “energy savings between 15 to 40 per cent when compared against the supply of electricity and heat from conventional power stations and boilers.” This is not hype, as there are 20 or more solid examples of it in action across the country. And there’s even an organization — Cogen Canada — with two energy experts who have been key association movers and shakers either currently or in the past: Manfred Klein, who spent 33 years with the federal government and is now an independent consultant on environment and JUNE JULY 2017
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water from turbine
steam to turbine turbine
generator transformer
ash collectors
coal
pump
cooling water from lake or cooling tower
Single-purpose thermal electric plant
electricity fuel
half of fuel heat to river, lake, the ocean or the atmosphere
Co-generation electricity fuel half of fuel heat to process
energy issues for industries and cities; and Michael Kuriychuk, a past association chair and the president of Toronto-based Pathchoice Energy Consulting Inc. “I believe that a lobby organization at the federal level is needed to raise awareness of the benefits of simultaneous generation of thermal and electrical energy from a common fuel source,” says Kuriychuk, whose firm specializes in business development and electricity strategy development. “Generating electricity by combustion of any fuel — whether natural gas, oil, coal, biomass, etc. — necessarily results in a large portion of the heat value of the fuel being rejected to the environment. There is no avoiding this law of physics because a heat sink is necessary to make a thermal cycle work. Co-generation is a way of using this waste heat for application such as space heating, process heating, or (through absorption cycles) to produce refrigeration.” building.ca
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Geothermal field
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OPPOSITE:
Half of the
fuel heat supplied to a steam electric power plant delivering only electricity, goes into a river, lake, the ocean or the atmosphere. With co-generation this heat rejected by the power cycle is used in industrial processes or buildings. RIGHT: UOIT’s geothermal well field is the central component in the borehole thermal energy storage system.
It Makes Cents
Kuriychuk, points out that co-generation impacts both utilities and building professionals. In one respect, it is a dollar and cents issue. Large-scale use, he says, can reduce an electricity utility’s sales and thus revenue, leading to questions about how to manage the fixed costs of a utility’s operations across a smaller customer base. On the other hand, “building professionals will need to understand the concepts and economics of working with co-generation systems and either have the in-house expertise to manage such systems or suitable contractual arrangements with service companies to do so. “Fortunately, the level of automation and reliability of such systems have been increasing, especially in the smaller size range suitable for commercial, institutional and small industrial applications. It is much easier to plan for co-gen at the outset building.ca
rather than trying to retrofit systems after building construction has been completed. Co-gen thinking should be included early in the design cycle.” Despite co-generation’s obvious ben efits, it seemingly is not without its critics. One conference stream organized by the Canada Green Building Council last year (in an event that ultimately was cancelled due to logistics problems) even questioned its worth. Had it taken place, the subject of one seminar track was ominously titled The future (or end?) of co-gen. Authors of the session topic wrote that the “economic and technical viability of co-gen continues to be undermined by lower heating demands as building envelopes are improved and hot water demands drop as water efficiency is increased. There are growing concerns around co-gen’s impact on urban air quality, and as electricity grids decarbonize the carbon
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emissions reductions offered by co-gen disappear. Has co-gen had its day?” Asked where the conference topic sentiment comes from, Klein, who spent 16 years with Environment Canada specializing in energy issues, suggests that there is a “lot of siloed thinking or cherry picking going on where organizations or people look at one issue within the context of itself without looking at several objectives at once. “My role in government used to be looking at several issues at once. In the past, the thinking was that you have to make sure that your policy is consistent with other departments. Well, that is not happening today. Individual branches of government pretend that they are the only branch of government and therefore they make decisions based on their own objectives. Trying to get people to think about three or four things at once and come up with solutions that are consistent and cost-effective is the challenge right now.”
The Policy Hurdle
Klein, who has been involved with Cogen Canada since 1993, is no stranger to rejection at the policy level. The turning point for him came with the election of Stephen Harper in 2006 when his role at the time at Environment Canada was to establish a national co-generation program. “We had a change in government and that died immediately,” he recalls. “There was no way the Harper government was going to let a small group of people influence policy. It shut me down right away, literally within weeks of taking office. He was elected and immediately the budget was gone. “Energy is electricity, heat, cooling and mechanical power. Those four things in a structure represent the energy needs of a building or system. Electricity is not the only element. People get really, really upset when they are too cold or too hot, whether they have power or not. This is also something that is not being considered by governments, the fact that energy is much more than just electricity.” JUNE JULY 2017
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Despite the setback, Klein, who went on to serve as Coordinator, Energy & Environment at the Gas Turbine Labs of the National Research Council, was heartened by the fact co-generation projects were not going to vanish. Two examples are Markham District Energy (MDE), which he says had the “best co-generation system in Canada for 10 years” and the University of Ontario Institute of Technology (UOIT). A fact sheet from MDE defines district energy as the “production and supply of thermal energy where hot water and chilled water are produced at central plants and distributed to surrounding buildings via a closed-loop underground distribution system known as a thermal grid. The thermal energy delivered in the building is used for space heating, domestic hot water heating and air conditioning. “District energy is not a new concept. Its origins stem from the hot water-heated baths and greenhouses of ancient Rome. Today, it is an internationally accepted method of heating, cooling and powering communities. In some European countries, such as Denmark, district energy is mandated. Once a thermal grid is established, a common next step is to connect small power generation plants. The generation plants recover waste heat to be used in the thermal grid and deliver electricity to the local power grid.” UOIT, meanwhile, is home to Canada’s largest geothermal system. Located at its Oshawa campus, the installation is made up of more than 370 bore holes (180 metres deep), which are used to heat and cool campus buildings. Water circulates through the underground network. In the winter, the system takes heat from the earth and carries it to the buildings. In the summer, it removes heat from the buildings and disperses it into the ground. A ground source heat exchanger is used as the primary source for heating and cooling at the central plant. Thermal energy produced is used to heat existing and new buildings on the UOIT and Durham College joint campus, while the electricity produced is used to displace electrical load from the provincial supply grid. Poth says the classic way of describing co-generation is the use of natural gas typically, but it really is about broadening the “footprint beyond fossil fuels into things like solar, wind and other types of renewable technologies, which really should be contemplated when considering alternative power sources for a building. “If you broaden the conversation of the distributed generation concept where buildings and campus [officials] are thinking about effective alternative energy sources or self-provisioning, it makes them prosumers as opposed to consumers of energy. There is a whole other set of drivers here. There is sustainability [and] the community engagement, social license to operate angle, which is quite impactful. Why on Earth would Loblaws or IKEA put solar panels on their buildings? There is a whole host of reasons why they are doing that. Economics is one for sure, but there is also a branding and a whole other conversation that they want to have. That’s important for someone who is involved in that early stage of the construction process in the communities they live in to consider.” In the end, says Kuriychuk, the decision to implement a co-generation plant could ultimately be decided by the need for an assured supply and desire to reduce energy costs. “Some customers are critically sensitive to electricity supply interruptions or to power quality issues,” he says. “In some cases such as hospitals standby generation is mandated, whereas in other cases such as drug manufacturers or petrochemical plants short interruptions can result in major financial losses due to damage to product or production processes. Self-generated electricity from a co-gen plant can supply such critical loads. “In some jurisdictions, electricity prices have risen to a level where self-generation is becoming competitive with grid-supplied power when the benefits of also displacing heating or refrigeration costs are included. Co-gen is especially attractive where electricity costs are high and fuel costs relatively low.” b building.ca
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special feature
THE CITY OF CALGARY, LIGHTING THE WAY By The Communications Bridge
Bain also noted the city has grown from the inside out for over a century and has unique roadway designs because of this. The neighbourhoods chosen for this project were from different periods from the 1930s to the 1980s, each with different lighting strategies and lighting geometries to consider. The challenge was to find a lighting product that would meet all of the needs of the different communities and still achieve a minimum lighting level on various roadway types. As the Roads team was learning, advances in the optical arrays in LED street lights would make it easier to aim light where it was needed, as opposed to “throwing” light in all directions like the city’s older street lights tended to do. The LED fixtures the team evaluated also delivered different light distribution patterns to the ground, making it less of a challenge to optimize new lighting layouts around the city’s existing light poles without having to relocate or install new poles. General feedback from the citizens of Calgary and its dark skies community was also that the city was over-lit in many aspects. In older communities, however, prevailing tree canopies left citizens feeling as if those neighbourhoods were too dark. Thus, the retrofit became an opportunity to make lighting consistent across the city.
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The Solution GE’s Evolve LED roadway lighting fixtures were considered alongside other North American manufacturers and scored the highest across the majority of products the city evaluated from an efficiency and efficacy perspective. Roads considered various aspects of GE’s product solution, including light distribution and glare, the appearance of the fixture, how easy it was to install, and how easy it would be to maintain in the future. GE was also chosen to supply more than 2,500 street lights for the initial project because of its manufacturing capacity.
Results and Benefits
W
ith a mission to provide a safe and well-maintained road system within the city, the Roads group, a business unit of Calgary’s Transportation Department, recently led an initiative last summer to begin illuminating five communities with more than 2,500 new energy-efficient LED street lights.
The Expectation The plan is to eventually retrofit 90,000 fixtures citywide in a second phase of the initiative. “Calgary is a growing city, so every year we are adding upward of 3,000 fixtures, which increases the strain on our operating budget in the range of five per cent,” said Canace Bain, senior leader of traffic design for Roads. “Our first goal is to save energy. Over the last three years of our operating cycle, the energy spending has always exceeded the budgeted amount. It’s important to note our utility rates are going up as well, and so not only are our citizens impacted by an increasing cost of energy commodities in Calgary, we as a service provider and as a major consumer of energy here in Calgary are impacted too.”
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Based on its phase one evaluations to date, the Roads team has seen a 52 per cent reduction in street lighting energy costs (based on 1,771 fixtures running at 115,191 watts). “We’re performing a detailed lighting analysis alongside phase one installations, so it’s more than using a simple rule of thumb to measure savings,” said Bain. “It turns out the models we’ve put together are showing an over 50 per cent reduction, which we think is pretty good. Currently, we spend $12.5 million a year to light Calgary’s roadways and that number is growing. With those kinds of improvements we can be talking about millions of dollars of reductions with a payback period of just five to eight years by the time we roll out the technology across the city.” The development of a new and replicable lighting design standard that can go across all of Calgary has been another significant achievement for the city. “We’ve created a unique lighting model and design approach that lets us leverage the LED technology that’s available and the different lighting effects that can be achieved. LED technology has allowed us to focus light where it is more important on our roadways and on the pedestrian route,” said Arsheel Hirji, leader of sustainable infrastructure for Engineering and Energy Services at the city of Calgary.
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S I T E
History repeating
Clockwise from above: The new 11-storey addition is barely visible from the street, due to a successful integration into the cityscape. George Stephen’s house was the home of the prestigious private Mount Stephen Club for nearly a century. The hotel’s palette is manifested in neutral beige, grey, black and white tones, merging into coppery and metallic hues, reddish-brown marbles, and gold and silver finishes. The lobby and reception counter located on the ground floor of the new wing sparkle with pale marble.
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building.ca
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Photos by Joe Alboero/Fotografika
Lemay and Provencher_ Roy convert one of Montréal’s stately historic residences into a new hotel.
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By Shannon Moore A historic monument erected by railway pioneer George Stephen has been reimagined as a contemporary hotel in Montréal’s Golden Square Mile. Designed by Lemay and Provencher_Roy, Le Mount Stephen connects a new, 11-storey structure in the rear to the original mansion out front. Carefully introducing contemporary accents, the extension ensures that Stephen’s neo-Renaissance home — designed by architect William Tutin Thomas and built by J.F. Hutchison in 1880 — retains its character and charm. George Stephen (1829-1921) was a Scottish immigrant who arrived in Montréal in his twenties. A figurehead of the financial community, he was appointed president of the Bank of Montréal before devoting his efforts to the development of the railway system. On the eve of the 20th century, he was one of the richest men in North America, and would receive the title of “baronet” before becoming a baron as “Lord Mount Stephen” in 1891. The original Stephen house, which acts as the entrance to Le Mount Stephen hotel, served as a private residence until 1925. Two years later, the structure became home to a gentlemen’s club founded by businessmen in an effort to save the house from demolition. The club brought together Montréal and international elite, welcoming countless dignitaries before being purchased by the Tidan Hospitality & Real Estate Group in 2006. Recognized as a National Historic Site of Canada by the Historic Sites and Monuments Board of Canada and classified as a “heritage immovable” structure by the Ministère de la Culture et des Communications du Québec, work began to preserve the building’s heritage in 2015. Today, the hotel has been recognized as one of three in Canada among the ranks of “The Leading Hotels of the World.” “We were deeply committed to this real estate development project, the biggest we have ever undertaken,” said Mike Yuval, co-founder of the Tidan Hospitality & Real Estate Group. “We wanted to revive this heritage site, while endowing Montréal with a new jewel.” The extension features an angled glass roof, marble-decked reception desk and lobby, and an overall modern palette of beige, grey, black and white tones. Discreet historical reminders dress the space, including period furniture from the Stephen home judiciously placed in corridors and suites. In addition to a 5,000-sq.-ft. ballroom and 1,800-sq.-ft. meeting space, the hotel features 90 rooms, a gym, spa, sky-loft and more. As if repeating history, Le Mount Stephen welcomes travellers from all over the world today, just as Stephen did as a key figure in the construction of Canada’s transcontinental railway, over a hundred years ago. b building.ca
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V I E W Walk With Joy ULI Toronto’s Executive Director wonders if I.Z. & S.A.M’s could spell housing a ffordability. By Richard Joy
No Toronto real estate story has dominated 2017 more than the sudden spike of housing prices and its social consequences. While the dream of becoming a homeowner of anything larger than a shoe box has long escaped those with their sights on downtown neighbourhoods, the nightmare of being priced out of our region’s suburbs is also setting in. This concern was at the foundation of a recent housing conference that the Urban Land Institute (ULI) Toronto helped organize with the Canadian Urban Institute and the City of Mississauga, titled Making Room for the Middle. Any discussion about housing affordability can quickly splinter into the vast complexity of policy options, economic models, and the myriad of social needs that must be addressed. There are no silver bullets. Prudently, the conference explored just a few pieces of the equation, mostly oriented toward the demographic of middle income residents seeking to leave the rental market. On the financing side, the conference examined two nascent concepts in Ontario: Inclusionary Zoning (I.Z.), a key new tool that is being put into the municipal tool box by the Province, proposes that an affordability percentage of units of all new development projects; and Shared Appreciation Mortgages (SAMs), a relatively unused concept offering affordable second mortgages to new home buyers. Separately, these tools likely have limited utility. A recent ULI report on I.Z. in the United States observed that where this policy tool has worked has almost entirely been in the context of purpose-built rental buildings, not condominium projects. And where they have proven viable, offsetting incentives ranging from extra-zoning, development charge waivers, or government funding, have always been part of the economic equation. None of these circumstances are on tap in Ontario, where I.Z. is intended to work in an ownership (condo) model without any public financial incentives. The Shared Appreciation Mortgage model allows a purchaser of a home to share a mortgage (essentially a second mortgage) with a non-profit company, like Trillium HousJUNE JULY 2017
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ing or Options for Homes, thereby lowering the monthly cost of carrying a loan. Equity is accrued as the value of the property increases and the mortgage paid down. While several thousand SAM housing units have been developed in Ontario, these projects generally enjoy few public incentive advantages, if any, to that of a for-profit developer and must compete in an ever more competitive market. Not surprisingly, there are comparatively few such ownership opportunities available in Ontario. What if these two concepts were to be brought together? Could the SAM housing affordability tool be the economic incentive that I.Z. needs to be viable? And could the expanded opportunity of I.Z. units be the inventory of opportunity that the SAM model needs to expand? It’s an idea, of many, that needs to be examined. And it’s an idea that might also attract greater government support, by providing real and tangible advantages to development projects that pursue such hybrid homeownership affordability models. The pursuit of affordable home ownership may not be the most efficient use of public resources to deliver housing affordability. International experience demonstrates that public policies oriented around rental accommodation offer the greater scale of opportunity. But not unlike universal health care, Canada’s (and Toronto’s) high homeownership rate — whereby two-thirds of our population owns their resiRichard Joy is Executive dence — is a decided socio-economic Director of ULI Toronto. advantage. It is almost certainly the Previously, he served as foundation of financial security for Vice-president, Policy and most Canadians. Government Relations at Skyrocketing housing prices and the Toronto Board of the knowledge that Millennials are Trade, and was the opting out of home ownership at rates Director of Municipal well below 40 per cent is a growing urAffairs and Ontario ban crisis that cannot be ignored. And (Provincial Affairs) at while we may have lost the opportuniGlobal Public Affairs. ty to address this segment of affordFollow him on Twitter able housing in the central core of our @RichardJoyTO or email region, it may not be too late to find at Richard.Joy@uli.org solutions in our suburbs. So it is encouraging that Mississauga, a city with a legacy of offering affordable homeownership, is creativity looking at how to keep it this way. b
building.ca
17-06-19 1:05 PM
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