Anne McMullin is President & CEO of Urban Development Institute (Pacific Region), a national non-profit association representing thousands of professionals throughout all facets of land development and planning. Robert Macdonald is one of the biggest developers Vancouver has ever produced and is now turning his business interests away from a city and province characterized by red tape, anti-business sentiment and exceedingly high building costs. Adam & Matt took 45 minutes to find UDI HQ and Adam took another 15 minutes to parallel park. Level up!
Vancouver Real Estate News, Market Updates, Insider Tips, Stats, & Analysis
About Anne and Rob:
Anne is the President and CEO of Urban Development Institute (UDI), and Rob is the President and Founder of Macdonald Development Corporation.
Rob grew up in Vancouver and went to UBC, where he earned a degree in tax and finance. He is 62 and has been in real estate since he graduated, as he thought there was more money and fun in this area than in finance. When he was young, Rob began buying houses in Kitsilano to renovate and sell.
Anne was born in Vancouver and raised in West Vancouver. She went to UBC and BCIT, as well. She started her career in broadcast radio and TV journalism. After a few years, she was recruited to work in the forest industry. Anne worked in the resource sector and logistics for the port authority for about 25 years. Her career has been in public policy and relations, helping to build industry in BC. This is what UDI does—helps the industry flourish. Anne comes in when an industry is in a time of crisis or change.
On Urban Development Institute and the state of the real estate industry now:
UDI represents the real estate development industry, from residential, commercial, and industrial sides. It has about 850 member-companies representing about 250,000 employees province-wide and $22 billion in GDP, which is about 25% of the province’s economy and job creation.
Arguably, yes, part of the housing industry is in a crisis. However, Anne sees the “crisis” as the sentiment people have around the real estate issue of housing, in general. This could mean people that don’t want their communities to change, or that can’t afford a home, or issues like urban sprawl, or that we’re not making the decisions we should be making to house people in the Lower Mainland or province in the homes that they want. From a public relations, pricing, and approval process perspective, it’s a crisis.
On whether home builders get a bad rap (like realtors) and if this is justified:
They do get a bad rap. Anne doesn’t want to debate whether it’s justified. She thinks people feel pain. The Lower Mainland has changed rapidly since 1986—our population has nearly tripled since then. People feel under pressure with change. Their communities have changed, and they can’t buy a home where they grew up. People look to blame and see realtors and builders as making a lot of money. Anne sees this as a bit unfair, but she also understands it.
Rob feels that 98% of the real estate community is tremendously professional. They’re honest and ethical, and they do a great job. Maybe someone like Bob Rennie is seen as driving up development prices, but he is one of the most wonderful people in the region, in every way. Some people on the left feel they should get housing, as a right, for free and don’t like what they see as “greedy” developers. Maybe this is about 20% of people out there. Probably 75-80% of the community sees developers in a reasonable light – as business people trying to build housing.
On how the perception of the industry has transformed over the past 15 years:
Rob graduated in 1980 and the market had been on fire through the 1970s. There was significant inflation and interest rates went up to 20%, so most of the 1980s were very difficult. The market started to recover in the later part of this decade. Then, the NDP Socialists were elected in the 1990s, which started out okay but went downhill with no GDP or population growth (though, during this time, Anne felt the city changed and had welcomed the world during Expo). In 2000, there was a change back to free enterprise government. Taxes and royalty rates were reduced, and the market started to flourish. There were 16 years of superb government that allowed for job and development growth, and a healthy community, overall. Time will tell if our current situation will return to the 1990s.
Anne feels things have changed over the past 15 years. For every action, there’s an opposite and equal reaction—the city has become a much better place with this growth. Think of Yaletown, Lower Lonsdale, or Coquitlam near the Evergreen Line—these places have been vitalized and there has been amazing building going on, but at the same time there has been pushback. So, the industry’s reputation may have gotten worse, not as a result of worse practices, but because situations have become worse for some people and they feel housing is a right. Shelter is a right, but there is an ideology in BC that housing is a right, and those who subscribe to this are opposed to and critical of what is going on.
Rob feels governments at all levels could have and should have done a much better job of providing affordable housing for the 10-15% of the population that really need it. We’re seeing the results of poor government behaviour.
Anne feels it’s easy to blame the developer and not look at ourselves in the role we’ve played as community residents, and the impact we’ve had on prices from saying no to projects and limiting supply and types of homes. We are only building on 30% of our land base. We’re jamming homes into small areas and not allowing more modest growth in other areas. When you restrict the land that can be built on, prices increase. As well, municipalities have not made the bold decisions and taken the leadership that was needed. They know the answers and how we need to create density. We’ve all had a role to play, but it’s easy to blame others.
On if Vancouver has a supply problem (with sales ratios down about 10%):
Yes. There are so many factors that go into this. The NDP’s objective was to improve things by lowering prices. They’ve done this, but it hasn’t made homes more affordable and people aren’t buying them. A year after the budget, Anne feels we’re in a worse place. We do have a supply problem—housing starts are just as high as they were over the past few years. We’re not factoring in demolitions and housing formation. About 15-20 years ago, the average number of people per home was 2.5. Now, it’s 1.7 but we’re still building the same number of homes. Data clearly shows we are not building enough homes not only for the population, but for those not counted in the population (about 100,000 temporary foreign workers and foreign students per year).
On if the 2014-2018 period has been a net positive or negative:
Rob feels that it depends where you sit. This period generated $100 billion of development GDP – a staggering amount of jobs (e.g. foremen, framers, plumbers, lawyers, accountants, architects, etc.) It’s the largest industry in BC with many spinoff jobs and has created an extremely healthy economy for the Lower Mainland because of the growth. The negative is the increase in prices from lack of supply and increased demand, from not only homeowner residents but investors as well (long-term and speculators). It’s easy to blame speculators from China, but the vast majority are local people. The increased prices are very difficult for first-time buyers such as millennials. Of course, sellers who bought a home 35 years ago for $200,000 and can sell it now for $4 million are pretty happy.
On the factors that led to the market softening:
The government put in a host of new taxes, and they wanted to supress demand. The school tax is a wealth tax – this is ideological. The foreign buyers’ tax is an attack against foreign buyers to depress that demand. It’s also been more difficult to get money out of mainland China for those who want to invest here. Their own government has serious issues—the debt to GDP ratio is 300%; they carry $1 trillion in debt. They want to keep money in China, not invested internationally. Speculators must see the market go up to invest in it, so these investors are gone. Even long-term investors are very nervous; they need to see increases of a few percent, so they’re gone as well. There should be continued population growth and eventual organic demand, so the market should recover.
Anne agrees, and there is also the mortgage stress test which took 20-30% of people out of the market. This is a huge part. As a citizen of BC, what worries Anne the most is this uncertainty in the market that makes builders pull back. Over the next few years, they won’t launch projects, which will reduce supply and create pent-up demand. This will increase prices again in a few years time – the exact same cycle. Rather than looking at this holistically and not just on the demand side, we need to look at how to build and grow for the people moving here. These people are still coming and we’re not fixing anything by implementing taxes.
A lot of people were buying real estate because of the feeling of missing out; now, there’s uncertainty and people are not wanting to get into the market. When they’re more confident in a few years, we’ll be in the same situation. Whether the word is “developer”, “supply”, “density”, or “speculator”, they have become negative. Whatever business you’re in, you’re speculating, such as in retail. Why would you take a $2-3 million risk without speculating that you’d make money on that? Speculation is needed, as it builds the economy and finances projects. a huge part of the secondary market is people who buy one or three condos, speculating that people will rent them out or that in a few years they can sell and turn it into their retirement.
Rob feels longer-term investors buying condos and renting them out have provided the vast majority of rental supply, which is very positive in the marketplace. There have been virtually no purpose-built rentals developed in Vancouver for some time. Anne thinks this is for many reasons, going back to rent control from the NDP government in 1972 which was then relaxed, and the CMHC program being cut—it didn’t make sense and wasn’t financially viable to build rentals. This changed in the last few years but instead of incentivizing it, municipalities are cutting back. Anne thinks we’ll see the rental market, which was just getting going, fall off.
On whether this is like another time in Vancouver’s market history:
Rob was very active here and owned 500-600 apartment buildings. He knew Mike Harcourt as mayor and, when he was elected as premier, Rob’ company moved half of their business to Seattle and California. The day Glen Clark replaced Mike Harcourt, Rob decided to move the other half of his business out of BC. Rob knew the government would destroy the economy. He expanded in the US and did very well. Not until Gordon Campbell was elected did Rob know things would turn around. Eventually, he sold out of the US and moved things back here. Now, Rob knows the chief of staff, Geoff Meggs, well. He has socialism ingrained in him. It wasn’t good in the nineties, so Rob is quite concerned. All the growth we’ve had in the past 16 years can change.
Anne agrees. The average person doesn’t see it yet, but the closer you are to business the sooner you’ll see it. Many UDI members are pulling back by not proceeding with projects or by delaying them. We won’t feel that for six to eight months. This is troubling, because right now it seems our economy is fine. These demand measures put a real damper on the economy and industry and Anne is worried how things will look in 12-18 months. The number of units on hold are in the thousands. A member survey at Christmastime showed 18,000-19,000 rental units could be proposed. With rent controls and other things, 14,000 of these are on hold. This doesn’t include other projects that could have started this spring or even a year from now. These represent construction and marketing jobs which will get laid off a few years out because companies go through three to four-year approval processes and still delay projects. With people still moving here, low supply, and rising prices, Anne is fearful of how things will look. Rob knows many developers here, such as McAllister and Polygon, are deferring their projects. We need 20,000 units a year but about half are deferred.
On top of this, many municipalities want to slow things down even more. Anne is on the Burnaby housing affordability task force and when they have delays in making decisions, she points out even if a decision is made today, it’s seven years before people needing homes can move in! That’s unacceptable.
On the biggest challenges facing the homebuilding community right now:
There are so many. For rentals, the City is looking to scrap the Rental 100 program which provided incentives to bring in market rentals. They’ve brought in a new pilot project, MIRH (Middle Income Rental Housing), that some communities are trying to fight (for instance, in Kitsilano). The provincial government, through its housing affordability task force, was considering rent control and has eliminated rental building owners’ ability to increase rent to cover costs. Just in the rental area alone, there are enormous challenges and policies that make it impossible to build. When builders look at building more townhomes or duplexes, for instance, neighbourhoods they need to build in push back (for instance, in the District of North Vancouver there are three cancelled projects, all below market rental).
Is that because of lack of vision or political will? A misunderstanding of how things work?
It’s all these things. They’re not easy decisions, but municipalities seem to be looking for a silver bullet. This takes bold leadership going into communities to bring about change. You can make modest change—it doesn’t mean a massive tower in every neighbourhood. There is nothing new, innovative, or creative—you need to build more homes along transit, you need to re-zone areas for duplexes and triplexes, you need to incentivize rentals, you need to look at land costs, you need to build rental or market housing on city-owned land. The City of Vancouver’s housing affordability task force identified these things ten years ago and most were not implemented. Solutions are there but they’re hard to implement.
On whether Vancouver’s challenges are unique for developers:
Rob is doing a project in Toronto for which he got permits in 90 days—the same approvals in Vancouver would take a year. The same goes for their projects in American cities like Phoenix and Atlanta, including large buildings. They can take projects from start to finish in 12 months, while here it can take up to four years. In Greater Vancouver, there are 22 municipalities and some of them are superb in dealing with developers and issuing permits. However, some are terrible, including the City of Vancouver.
Anne agrees and feels the problem isn’t necessarily the staff or councillors, but the piling up and overlapping of policies, and lack of policy hierarchy. There are so many things the City wants, and it takes such a long time to check off all its boxes. Some requirements violate others. Being the heart of the region, it’s more difficult in the city of Vancouver. There are as many sets of rules as there are municipalities, some doing a good job and others not. So, the Province has a role to play in incentivizing municipalities. We put a $1 billion Evergreen Line out to Coquitlam, and the City of Coquitlam planned ahead by building a host of condos and townhomes to create a great community. The same line goes through Port Moody, which didn’t do anything. From a taxpayer’s perspective, that’s wrong. We need a region-wide plan to build homes and leverage this huge investment. Municipalities shouldn’t be able to pick and choose whether they do it.
Yes, and if you build rental property in Vancouver, the vacancy rate in Surrey will rise. It’s an integrated environment and planning separately isn’t the smartest approach.
The current and previous provincial governments haven’t taken the leadership that they should have. The City of Vancouver used to issue development permits for major projects within 12 months. It was run in an amazing way when Gordon Campbell was mayor. It’s so bureaucratic now, with so many layers and rules.
Despite having to go into existing communities now, rather than creating them from scratch as before, people are still calling five-story buildings in Kitsilano mega-towers! Anne feels for city council as this is what they’re up against. The media allows this to go on and it’s disingenuous. Kitsilano was where you found cheap rent 30 years ago. Communities change. It takes leadership, bold decision-making, and communicating with the public. There needs to be dialogue the public buys into—we’re a major urban centre and we need to house people as we grow. Everyone should understand there should be significant density around transit lines. Rob feels politicians need to be better at communicating this. Anne agrees. North Vancouver did a great job of this in Lonsdale, as did Coquitlam and Burnaby (there was a fair bit of displacement in Burnaby with lower-income housing, but they did a great job with market housing. They took the position that social housing was the Province’s job, not theirs).
On how Vancouver may have become uniquely dysfunctional:
It’s people. Ken Dobell was a genius. He worked 14 hours a day and had a great team. People respected him. He went to the Province under Gordon Campbell and Judy Rogers, a student of Ken’s, took over. She did a good job as well. Then, Gregor Robertson came in and Judy Rogers was replaced by Penny Ballem. These new people didn’t know how to run a city. You need to have the best people in senior leadership who know what they’re doing. We haven’t had that.
Anne remembers it was the Vision group that brought in the community amenity contribution system. This whole thing screwed up planning. The City wanted as much money as possible out of development, which drove planning, building heights, and even building prices. It wasn’t about building a city and considering the neighbourhoods and amenities and how to pay for them; rather, it was about extracting as much money as possible. Developers would go along with this, and it went on for many years. They’re now trying to fix this, but Anne thinks it’s the single biggest issue that screwed things up. Rob agrees and notes it’s completely illegal.
It’s been one of the biggest causes of price increases, too. They’re setting a benchmark: a developer will come in and say they want to build something that will earn a certain amount of profit, and sell it for, say $1,200 per square foot. The City would say no if the developer next door is selling for $1,500 per square foot and extract that same amount from the developer. So, the developer agrees and spends more to make more. Every time this was done, it set a new and higher benchmark. It affected prices, planning, and negotiation, along with the amount of time these things and the approval process took. It created distrust and an “us vs. them” mentality. There was no partnership, which is what the municipalities doing a good job have established.
The City was estimating builders’ profit and saying they wanted a percentage of that, which is what made it completely illegal. Federal and provincial governments can take income tax, but civic governments, by law, are not allowed to tax income, which is effectively what happened. It bastardized the planning process, as well. The City didn’t even use the money wisely—we don’t have great swimming pools, soccer fields, or other amenities. Who knows how the money was spent—it was horribly managed.
Anne knows the new government recognizes this hasn’t worked or resulted in good planning, and we don’t know how the money is being spent or whether it’s addressing community needs. In Vancouver, maybe the money is going to something you don’t necessarily see right away, but something in the general area, such as a pool. Whether we can fix things is the hard part.
Rob feels community amenities are incredibly important, and we should have the best and this does cost money. We just need a level playing field where everyone knows what the deal is. We’ve screwed this up in every possible way.
On whether, with the rise of the foreign buyers’ tax and other factors, Vancouver has a future as a superstar, global city:
Rob believes so. We’ve had foreigners coming here forever because of the high quality of everything we have: the mountains, ocean, climate. Long term, that won’t change. The only thing that screws things up from time to time is inept government. We’ve been so blessed with a multicultural community that gets along and provides a rich quality of life. We’ll stumble here and there, but Vancouver will always be an amazing place, in global terms.
Anne agrees wholeheartedly. In terms of the foreign buyers’ tax, it’s annoyed Chinese people for sure. We’ve all been part of building this region; we all come from immigrants, and it is offensive to some. Anne notices that with the housing market dropping 20-30%, you’ve still lost that equity and have to sell your home for less. The foreign buyer is arguably spending the same amount, but that 20% now goes to the government, rather than in your pocket. The government is pleased you’ve lost equity that is now with them. The tax doesn’t create more affordability, but some people felt it was a good punitive measure. When you look at it though, it hasn’t helped.
Individual offshore investors were still financing projects in the Lower Mainland that provide housing supply we need.
Right. Anne feels we also mistake foreigners with immigrants. New residents line up at presales, not necessarily foreign buyers. Most banks don’t recognize foreign buyer transactions in the required 80% of sales that are necessary in the first nine months of a presale project. So, foreign buyers are not driving the sales or financing. Foreign buyers are an important part of our economy, whether in real estate, LNG, or other sectors, yet we penalize them because it’s easy.
On the one hand, we have events like Expo ’86 and the 2010 Olympics and invite people to come here, invest here, and be part of this great community. They came, and now we’re kicking them in the teeth.
On how long the slower market will last and general predictions on the coming years in Vancouver:
Rob thinks it very much takes political predictions. The NDP hasn’t been in long enough to screw things up but given time they will—that’s what socialist governments do with 97% certainty. If they are re-elected, and Rob thinks they will be, by their second term who knows what will happen. In the long-term, it’s the greatest place and worthwhile to invest. In the short-term, Rob isn’t sure.
Anne agrees; it’s hard to say. She’s concerned about what will happen in the next 18 months. When will the average person feel the pain? She interviewed John Horgan two years ago, who was very excited about the future and 114,000 rental units. However, she pointed out that given the approval processes, we’ll be into the next election before we’ve even built one of those units. Rob feels that was a political lie and the promise was empty.
To find out more about Rob and Macdonald Development Corporation, visit http://macdevcorp.com/.