Hunger for housing

BUSINESS

Boom time for homeowners—sad days for the 'outs'

Thomas Hopkins

At night, camper vans line beach parking lots, their snouts looking mutely over the tugs in Vancouver harbor. Inside the sleek vans are families drawn from elsewhere by the promise of jobs. First they must find shelter, and by day they cruise the streets, vainly looking for a place to rent and live. They find nothing. At dusk they return to the beach, the pale propane lights in their vans a melancholy symbol of boomtown.

On the other side of Vancouver, an eastern executive, offered a West Coast job, looks over a “handyman’s special,” a tiny house needing plenty of repairs that the $150,000 sale of his large Toronto house will buy. He decides to reject the job offer instead. At West Vancouver cocktail parties the talk, the obsession, is land, mortgage rates and prices. Even as they chat, Vancouver’s real estate boom is increasing the value of the house beneath their feet, sometimes by as much as $10,000 a month. The new Vancouver argot includes “flipping” houses—buying on huge short-term mortgages hoping for a quick resale in a rising market. It is a market that has become so expensive that speculators are moving east, where they pick up condominiums in Winnipeg, Ottawa and Brampton, Ont., at what seem, to numbed western minds, to be church-bazaar prices.

Certainly, Vancouver prices have been nothing if not sobering. In the eight months from June, 1980, to February, 1981, the price of an average fourbedroom house in Vancouver shot up 80.9 per cent. In February, 1980, the average single-family house in the Lower Mainland sold for $87,500. A year later it fetched $179,000. This, coupled with a housing shortage that has led the Canada Mortgage and Housing Corporation (CMHC) to label Vancouver the worst rental housing situation in North America, makes it a city vibrating with real estate jitters. •

Many Canadian centres, such as Regina, Ottawa and Charlottetown, remain largely unaffected by rising house prices. But in Montreal, after a decade of fear-causing separatist talk, house costs are now showing the fastest perunit rises outside Vancouver. In New-

foundland, fuelled by speculation about oil and gas finds, house prices are up 25 per cent over last year and rental vacancy rates have slipped to one per cent. Says Bob Noseworthy of the Newfoundland and Labrador Housing Corporation, “I think it’s fair to say we’re in a crisis situation.” In Toronto, “upscale” downtown housing is selling fast—often with several buyers bidding. One downtown condominium building sold long before it was constructed, with buyers earning a profit before moving in. “It’s not the real estate people that are pushing up prices. It’s the vendors,” complains Ann Wall, a Toronto realtor. Even in the prairie-flat market of Winnipeg, Murray Sigmar of Block Bros. Realty Ltd. says half of the sales of his business have been to non-Manitobans looking for good buys.

Across the country, the Canadian housing market is waking from a threeto four-year slumber which saw housing starts fall to a 14-year low and house prices rise less than inflation. It has awakened into a whole new housing game for the 1980s. Inflation psychology and panic buying, even more extreme than in the last boom in 1973-74, have taken hold in the West in the past 18 months and are heading eastward. The old idea of a mortgage (the term comes from the Spanish for pledge until death) is no more. Not only is the era of the 25-year five-per-cent mortgage on a house bought in the first year of the first job long gone but, increasingly, a house is being viewed as a commodity, not shelter. That profound change is rooted in a new belief that inflation, viewed as temporary in the 1970s, is permanent in the 1980s.

It is also rooted in fear. A recent poll conducted in Toronto indicated that two out of every three respondents were worried about future housing costs. For an increasing number of Canadians, a house is insurance, a meat hook lodged into the whirlwind of inflation. For the “boomies,” the drug generation of the ’60s, real estate has become the new addiction. Nothing, they claim, can beat the euphoria that comes from selling at a huge profit in a boom market. Even though the profits are often illusory, the game goes on because buyers and sellers fear that if they stop playing they lose. Says North Vancouver flight attendant Anne Hurlburt who, with her husband, bought a $138,000 house two years ahead of schedule because of rising prices: “The train is going and the sooner we get on the better.”

As prices rise, however, the train is becoming increasingly difficult to board for first-time riders. There are an increasing number of “outs”—young first-time buyers or the working poor who can only watch angrily as the Canadian dream of a detached house with a white picket fence fades. Dan Mothersill, 32, is a communications specialist with Calgary-based Esso Resources Canada Ltd. who is in danger of losing his recently acquired first house due to high interest costs. “I am the baby boom,” he says. “We weren’t as worried about the future as we might have been and we sort of got skunked.”

The rise and fall of rent controls

Propped against an easel at a housing conference in Ottawa earlier this month were three stark black-and-white blowups of the burned and abandoned tenements of New York City’s notorious South Bronx neighborhood. “Rent controls,” intoned economist Walter Block of Vancouver’s conservative Fraser Institute, who had brought the enlargements, “demonstrably ruin rental housing.” He argued that under controls “the message to developers is clear. If all other things are equal, avoid investing in rental housing.” Mary Billick, a suburban Vancouver tenant paying $235 for a bungalow, doesn’t buy his argument. “If I went off rent control I couldn’t afford it—not many people can without starving.”

While rent controls have become an albatross some provincial governments would like to lose, they are a life raft for rent-shocked tenants. First introduced as a national wartime measure in 1940, controls died off in the booming ’50s, only to return with a vengeance in the ’70s in response to rental housing shortages. Most observers blamed the 1975 imposition of wage and price controls and the 1971 budget, which removed tax breaks for rental builders, for the falloff. In the short term controls worked, but by the late ’70s New Brunswick and Alberta had removed them.

For the remaining provinces, however, it became difficult even to consider eliminating rent controls. Says Toronto housing economist Frank Clayton: “Rent controls have become a social policy, even though they were introduced as an economic policy.” In other words, with tenants outnumbering landlords, rent controls became politically sexy. Any doubt about their potency was put to rest in 1977, when the minority Tory government of Ontario’s William Davis was brought down in the legislature over an opposition amendment calling for the lowering of annual rent increases to six per cent from eight per cent.

Critics of controls, who include realtors, developers, academics and even the federal housing minister, Paul Cosgrove, charge that they are a disincentive to rental housing developers since they don’t allow rents to keep up with costs. Opponents argue controls are a blunt instrument applied unequally. Says Jack Hayes, executive director of the Rental Housing Council of B.C.: “Seventy-five per cent of the tenants covered by rent controls don’t need them.” Developers point gleefully to tumbling rental starts in Canada and the fact that new construction is heavily weighted toward ownership. In January, residential starts were up 42 per cent across Canada while multiple starts (rentals and condominiums) were down by the same amount.

Controls supporters point to the declining number of rental starts after controls were lifted in Alberta and New Brunswick. “The No. 1 deterrent to new rental starts is high interest rates,” says Dale Bairstow, director of Alberta’s Rental Investment Incentive Program. Further, supporters point out, by 1983 an estimated 63 per cent of units in British Columbia will be decontrolled but, with vacancy rates at an infinitesimal .1 per cent, CMHC estimates that up to 34 per cent of Vancouver tenants have already passed the affordability red line and are paying more than 30 per cent of family income for shelter. Of these, 10.9 per cent are paying 50 per cent or more.

Indeed, the demand for rent controls may grow in coming months. In addi-

tion to a .1-per-cent vacancy rate in Vancouver, Victoria and St. John’s, the rate in 19 of the 25 major Canadian cities has slipped to the danger level of below three per cent. As the current house price boom spreads, increased pressure will be put on renters to stay put and landlords to evict and convert to condominiums in order to jack up revenues. Partly in response to this, last November Quebec’s Bill 107 came into effect, making that province’s rent controls the toughest in Canada.

Still, in the rest of the country, controls appear to be in retreat. In the past three years, New Brunswick and Alberta took advantage of a fairly good vacancy rate to remove controls with relatively little fuss. For its part, B.C. is adamant about decontrol. “We can build our way out of controls,” says B.C. Consumer and Corporate Affairs Minister Peter Hyndman. And in Ontario, despite Tory election disclaimers, it is widely believed Bill Davis will move soon to ditch controls.

Controls critics say the best protection for the tenant is supply, supply, supply. Meril Agrey, 24, who lives in a Vancouver uncontrolled rental suite, is more concerned with reality than theory. “I’m for controls because living in a basement suite and paying $500 a month is ridiculous.” Ridiculous or not, says Toronto’s Frank Clayton, “I predict that by the end of the 1980s, we’ll be rid of rent controls.” —T.H.

For renters, a boom as extreme as Vancouver’s means upward pressure on rents, as much as renewed attacks from landlords on rent controls (see box, page 36) and a declining vacancy rate. At Vancouver’s valiant Red Door Rental Aid Society, Acting Manager Pat McClain says they regularly try to shoehorn 800 to 900 tenant inquiries a month into 200 vacancies. At their worst, as in Vancouver, price rises do redistribute income and widen the gap between rich and poor. In fact, the image of windfall speculator profits recently moved even the cautious Vancouver Sun to warn editorially, “Many a revolution began with cries for land reform.”

In many ways the real estate boom is a repeat of the one in 1973-74 when, starting in Toronto, house prices soared up to 40 per cent above inflation across

the country and vacancy rates declined. As it happened, the federal government was ready. Heralded by the 1968 report of Paul Hellyer’s task force on housing, a fundamental change in federal housing attitudes had taken place. According to University of Toronto political economist Lawrence Smith: “This shift coincided with the adoption of the belief that housing was not a good whose consumption should be subject to the usual income constraints, but rather was a basic right, and that decisions concerning its production and distribution should not be left to the market but must be politically determined.” One result was the creation of the illfated ministry of state for urban affairs in 1970 and the assembly in the early ’70s of a briefcase full of acronyms for government housing programs. Many of the programs were adopted in response to the falloffs in rental starts following the 1971 removal of tax writeoffs for rental housing construction, and included the Assisted Home Ownership Program (AHOP), the Assisted Rental Program (ARP) and the Registered Home Ownership Savings Plan (RHOSP).

As with most massive national programs, however, once given life they were difficult to push back into the test tube. AHOP, for example, built houses but saw massive foreclosures, especially in Ontario, after it was ended in 1978, when subsidized mortgages started to run out, along with most of the federal programs. In fact, the programs worked too well, producing a glut of housing which the market has only recently digested, thus leading to declining construction and stagnant rents throughout the late 1970s. When resource-based prosperity drew upward of 1,000 people a week into the West, in centres such as Vancouver, housing shortages quickly developed. The situation there was aggravated by the physical restrictions of the surrounding mountains and the political decision to freeze agricultural land in the Fraser Valley outside the city. The results for the established homeowners have been enormous paper profits.

The problems for the “outs” are acute, however, and expectations have been altered. Ferry ticket agent Steve Thorn, 24, has been looking for an inexpensive house that he can fix up in the suburbs. Vancouver’s central Dunbar area where he grew up is closed to him now and he knows he may have to move up the coast to Powell River, but he remains philosophic: “Anything can be done if you work at it.” In Halifax, Dave Ness, a building manager in that less-heated market, has scaled down the plan for the house from 2,000 to 1,400 square feet that he and wife, Pat, wanted to build on land given to them by Pat’s mother.

For first-timers and others who are finding that a $100,000 mortgage is commonplace, the only option is to refuse to play by the rules and to ignore old guidelines about what they can afford. The trick is accounting sleights of hand encapsulated in the phrase “creative financing.” Mortgaging used to mean a single small monthly cheque to a single bank. Today it can mean a dizzying chess game of firsts, seconds, brokers and lawyers. Some of the buzz words: “assumption,” in which the buyer takes over the existing mortgage; “taking back paper,” in which the seller agrees to play banker for a buyer in lieu of cash and often at less than market

rates; “wraparound payment,” in which all financial encumbrances are combined and offered by the seller in one lump payment, often at a reduced rate.

Other “foxhole” measures for creative financing in inflationary times involve loosening up the conservative welend-you-pay lockstep of the banks. Although there is little that is new, crisis financing has pushed some schemes back out of the shadows where they

have languished as a result of bank noninterest. In B.C., for example, Consumer and Corporate Affairs Minister Peter Hyndman has proposed that banks offer lower interest rates and down-payment requirements for young first-time buyers in return for a guaranteed percentage of the profit when the house is sold. Known as shared appreciation mortgages (SAMs), they have been popular in the U.S. Banks were quick to reply that there is no guarantee housing will always appreciate. Undaunted, Hyndman has invited the foot-dragging bankers and lending institutions to a meeting this Friday to discuss his panacea. “A family refinancing a mortgage at higher rates is the ticking bomb in the whole piece,” he says.

All this is merely confusing to families increasingly distanced from ownership. Groups such as Vancouver’s Columbia Housing Advisory Association

are angry. Early this month they flooded a Canadian Real Estate Association-sponsored national housing conference in Ottawa, mau-mauing realtors and government officials with the Vancouver underground hit play Buy, Buy Vancouver, an acid view of Vancouver’s housing fever, landlords and flaccid politicians. Says David Diamond, one of the creators of Buy, Buy Vancouver. “I would like to see the people speculating in Vancouver behind bars because they’ve effectively taken what should be a basic human rightadequate shelter—and put it out of the working person’s reach. And that’s wrong.”

Not surprisingly, it is “outs” groups such as these that the federal government has targeted as recipients of its new toned-down housing programs of the 1980s. Since the high-profile, highcost sallies of the 1970s, Ottawa has withdrawn from the field with the CMHC capital budget for housing construction and land assembly, for example, slashed from $1.6 billion in 1975 to $326 million last year. It will continue to support co-op and nonprofit housing programs, but increasingly the call is: let the provinces do it. Says CMHC President Ray Hession, “I hope I never see again that kind of massive intervention in the market.” The major initiative from Ottawa’s suitably mild public works and housing minister, Paul Cosgrove, will be to try to sell cabinet on a Shelter Allowance Program for an estimated 400,000 families who pay more than 30 per cent of their family income for housing. It would cost a modest $333 million to $415 million, although Cosgrove candidly admits his cabinet colleagues are now “more interested in promoting industrial development than in [housing] subsidies.”

The provinces, which until recently restricted housing support to so-called “demand-side” programs such as rent controls, first-time homeowner grants, income supplements and cut-rate mortgages, are now developing “supply-side” schemes. The most notable of these schemes is in Alberta, where $1.1 billion in housing programs will be in place by September. The provincial government expects to build or finance 50 per cent of the new housing in the province this year. It has been successful. Aided by the dampening effect of Ottawa’s National Energy Program on the oil boom, price rises were kept to 14 per cent in Calgary last year, with the average house selling for a relatively moderate $98,500 despite massive immigration.

This year, Ontario launched a $63million no-interest loan scheme to rental developers. In beleaguered B.C., the provincial government, which has taken fire from Cosgrove, among others, for a do-nothing attitude, has begun servicing new lots in suburban Vancouver—about 19,000 of them over a 10year period—and hints at other rental building incentives. It has, however, stopped short of supporting the land banking and public housing proposals of Vancouver Mayor Mike Harcourt.

For its part, CMHC, despite cutting its complement of social housing starts in B.C. from 5,200 last year to 2,800 this year, this week announced it was modifying its lending policy to allow increased loans to rental developers on a regional basis—a CMHC first.

But for consumers who own homes and can hang on in the new housing shuffle, the monetary gains can be enormous. In West Vancouver, a cedar-andglass three-bedroom house appreciated 86 per cent last year, leaping from $172,000 to $320,000. Patricia and Peter Robinson, professionals in their 40s, bought a Toronto townhouse for $95,000 four years ago, renovated it extensively and now have it listed for $359,000. “Even my mortgage broker says a year from now it will be worth $459,000,” says Patricia Robinson. In recent months a Toronto house offered at $269,000 sold for $350,000. “You get a buy-fever worked up,” marvels Toronto realtor Terry Martel.

The worry of many professionals is that the current overheated market will leave families overextended, especially

in light of new interest hikes or a market downturn. “It’s like buying penny stocks on margin,” says Keith Tapping, CMHC’s general manager for the B.C. region. “They can get called.” Foreclosure reports already indicate a dramatic increase in problems: 616 in 1977 for CMHC compared to 7,538 last year (although many of these were AHOP defaults). Says Cedric Fresco, who owns a Victorian semidetached house in Toronto’s fashionable Cabbagetown: “If I quit my job, Sandra and I can kiss the house goodbye.” Far from worrying about the loss of shelter, they are satisfied they have doubled the value of their commodity. As Fresco puts it, “We’re using the house [their fourth] as an

opportunity to change our lives.”

But it is the continuing dependence on inflation that angers those on the outside. “More and more individuals are betting on inflation as though it were a certainty,” warns Earl Bederman, assistant vice-president of Canada Permanent Trust Company in Toronto. For most, a drop in inflation would be a disaster. Renters argue that one sure way to cut off speculators at the knees would be to tax profits on principal residences that are now tax-free. It is an unlikely solution. Says Michael Goldberg, associate dean of the University of British Columbia’s faculty of commerce: “If there is one way to commit political suicide, it is to tax those gains.” The bad news from the renter’s point of view is that the house wars will likely continue—although not as extravagantly as in Vancouver. Both government and homeowners have a stake in inflation and, since there are far more “ins” than “outs,” there is more than sufficient money to play with. The Vancouver

market is viewed as an aberration. But, says Goldberg, “The rest of the country should beware. We have already seen the start of this hot money flowing back to the East.”

Despite the fact that there appears to be no stemming the flow of people to the West Coast, there is evidence of a momentary slowing in Vancouver. Last year, 77 per cent of houses were sold in the usual listing period (three months); so far in 1981 only 31 per cent have done so. As a result, realty catalogues are fattening and FOR SALE signs are blossoming with the cherry trees. Although it takes government housing programs up to 18 months to work through the system, government and industry appear to be recognizing the problem. Housing starts in B.C. are the highest in the country, and national housing starts are expected to rise this year for the first time in four years. As well, experts predict that demand for new housing will ease by 1985 as the flow of household-forming “boomies” passes through “like a watermelon through a garter snake,” says Toronto planning lawyer David Greenspan. By the end of the decade, emphasis for the construction industry will have shifted toward renovation rather than new housing. Expectations will have to be lowered; higher density in-fill housing, smaller lots and factory-built housing will be the norm. Cautions the CMHC’s Ray Hession: “Healthy, safe housing is a right, but I don’t extend that to the point of some people who say that home ownership is a right.” He predicts it will be increasingly difficult for first-time homeowners to enter the market and that some $13 billion will have to be spent on social housing in the 1980s.

Still, Canadian homeowners continue to line up to play. It makes them uneasy to resell at huge profits, but the government blesses it, absorbing 1979 revenue losses of $2.6 billion from taxes it might have levied on housing transactions. No wonder there is a curious sense of resignation in a time when popular reading consists of real estate books such as Nothing Down and Crisis Investing. Calgary’s Dan Mothersill is a “boomie” with a sense of the new game. He seems content to lose his house if interest rates continue high. He says he will simply invest his 30to 36-per-cent profit and go back to renting. In the 1980s, houses are for buying and selling, not for living in. “We’re dealing with a gypsy economy,” Mothersill shrugs. “People have to develop gypsy lifestyles.”

With files from Diane Luckow, Suzanne Zwarun, Dale Eisler, Peter Carlyle-Gordge, Ann Walmsley, Ann Beirne, Sue Calhoun and Ann MacGregor.

The little house that grew

It’s more of a cottage than a house. The daffodils were ringing the little place on Vancouver’s West 30th Avenue late last week. A new coating of pale-green stucco glinted dully in the spring sunshine. Inevitably, some realtor in its 57-year history must have labelled it an “ideal starter home” for a young family. It had certainly been a good house for Etherl Middleton. She had lived in it for decades. When she moved out in 1977, she sold it for $51,000 to a new couple as their first home. It seemed like a lot of money to her, but those were strange times. Something similar must have crossed the mind of Katherine MacRae recently when she

bought the little green-roofed house for $215,000.

It’s the hunger for land, of course, and the location of the 10-metre by 40metre lot on Vancouver’s West Side that really matter. The couple who bought for $51,000 put in two bedrooms and a bathroom in the basement. In 1978, they sold to a veterinarian for $76,000. A year later, a husband and wife team, both professors, picked it up for $82,500. They landscaped the small front yard, plugged the leaky walls with insulation and moved a wall. The $215,000 they got for it raises no eyebrows in Vancouver and will certainly mean it will be a very long time before the little house with the daffodils will be anybody’s first home again. —T.H.