Developer urges conditional return of foreign buyers to boost rental supply | Daily Hive

Vancouver developer proposes bringing back foreign buyers — if homes are rented for five years

Construction of a new residential tower in Burnaby's Metrotown district. (EB Adventure Photography/Shutterstock)

This past July, in a joint open letter, 26 real estate developers and industry leaders in British Columbia urged federal and provincial leaders to relax their interventionist policies on foreign buyers in Canada’s real estate market.

More specifically, with many housing projects stalled by today’s exceptional economic headwinds, they are calling for relief from both the federal foreign buyers ban — introduced in early 2023 and set to expire in 2027 — and B.C.’s provincial foreign buyers tax, in place since 2016.

But the idea was swiftly rejected by Christine Boyle, B.C.’s new Minister of Housing and Municipal Affairs, who argued it would amount to backtracking on efforts to improve housing affordability.

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“We are not going to go back to the way things were with foreign investors buying empty condos, leaving neighbourhoods, parks, and streets empty – ultimately driving up the costs for people and families. But we are open to listening to ideas about having investment in purpose-built rentals, or other ideas, so long as they will help us build the right type of homes for people,” said Boyle in a statement to Daily Hive Urbanized upon inquiry early this month.

“We will not stop cracking down on speculation –- our actions have helped to bring thousands of homes into the housing market. People are struggling to find homes they can afford, and so our focus continues to be on ensuring homes are for people in B.C.”

However, Rick Ilich, CEO of Townline Homes, asserts the provincial, regional, and municipal governments have done more to harm housing affordability by ramping up the cost of construction, especially in recent years.

While pandemic-inducted inflation and the impact of U.S. tariffs are often cited as factors, Ilich suggests the government-induced factors north of the border have been greatly downplayed.

Government-related costs are now the largest expenditure in housing projects

In an interview with Daily Hive Urbanized in early August, Ilich asserts steep increases to municipal development fees, levies, and tax — and most recently the new development cost charges of Metro Vancouver Regional District — have greatly compounded with new building regulations.

These regulations relate to policies on energy and emissions propped up by climate action considerations on both the provincial and municipal levels, and new accessibility/adaptability and seismic building codes required by the provincial government. Together, the new fees, levies, taxes, and regulations can increase the cost of construction by up to nearly 50 per cent, depending on the municipal jurisdiction — especially in the City of Vancouver. If the project is built, these added costs or passed down to renters and buyers.

On their part, municipal governments and the regional district have hiked their fees to help cover the growing operating and capital costs of expanding and improving community amenities, utilities, and other infrastructure.

“They’re the ones that have piled on, and the industry has taken their foot off the gas. Most of us are just questioning real estate at the moment because the returns are so low,” said Ilich.

Rick Ilich, CEO of Townline Homes. (Townline Homes)

He says the recent direct and indirect costs imposed by governments are the single largest line item that is impacting the cost of housing and pro formas.

“We’re all talking to government about, ‘Hey, guys, it’s your turn to help kick start the market again, and by changing your view on using new housing as a cash cow or as an ATM machine’… They’ve been irresponsible in their lens while they state publicly they’re working on modelling affordability. Well, they’re not doing a very good job when they keep layering on new costs, and the only time we see any break on affordability now is through the social housing market, because governments subsidize it,” he continued.

“They’ve got to come to the table and wake up that they are the largest single line item that is impacting the cost of housing these days.”

Enabling foreign buyers to return with strict requirements benefiting rental supply

Townline Homes was not among the 26 signatories in last month’s letter from the real estate industry to governments, which called for blanket changes to interventionist policies on foreign buyers.

Instead, Ilich is advocating for a middle-ground compromise.

He wants the federal government to allow foreign buyers to return, but with strict requirements that the new homes purchased are rented out through an established professionally-managed rental company for the first five years of ownership or the first five years after project completion. This is perceived as an interim solution to provide governments and the real estate industry more time to consider long-term solutions.

“The letter that went out from some of our industry peers didn’t really give the politicians the tools they needed to shift gears from policies that have been quite popular. That’s why I am speaking up and suggesting that it should be reconsidered, and it should come with some guardrails,” he told Daily Hive Urbanized in the interview.

Ilich’s proposal is rooted in the reality that, historically, Metro Vancouver’s rental housing supply has been driven overwhelmingly by unsecured units — condominiums purchased by private/individual investors and then rented out.

“Some of those homes [sold to foreign buyers] were in fact vacant, but they were also the only source of rental housing for a couple of decades,” he said, asserting that foreign buyers made up only a small minority of purchasers — typically less than 10 per cent in each project. Previous provincial data also suggested that foreign buyers made up only a small percentage of overall home sales activity.

“We were building, the market was happily building condos and selling them, and most of the product was entering the rental market. That’s actually a good thing, because nobody else was building purpose-built rental because the math didn’t line up.”

This long-held trend of focusing on ownership condominiums began to really wane before the pandemic due to weakened home ownership market demand and initial government interventions on foreign investment, specifically B.C.’s foreign buyers tax. A short-lived improvement in demand emerging out of the pandemic quickly ended, initially largely due to rising borrowing costs from the Bank of Canada’s policy interest rate hikes. Demand further faltered when the federal government decided to curb foreign buyers and overall immigration levels, which was followed by the election of U.S. President Donald Trump and his unpredictable tariff schemes.

Over the last seven years or so in Metro Vancouver, with such challenging conditions, developers began to pivot their traditional residential development focus from strata market ownership condominiums to secured purpose-built rental housing.

For the first time since the 1970s, in recent years since just before the pandemic, the region has seen a wave of secured purpose-built rental housing, with the first projects from this wave now well under construction, nearing completion, or newly/recently finished. But that wave has abruptly broken.

With construction and borrowing costs soaring, even secured purpose-built rentals are now very difficult to deliver.

Potential rental housing supply in new condo projects face cancellation

Ilich told Daily Hive Urbanized there is now a pressing need for governments to help revive the creation of new unsecured rental housing by stimulating more condominium construction, supported in part by foreign investors. He argued that even a small share of foreign buyers can provide the financial nudge needed to push stalled projects into viability and ultimately into construction, since lenders and financial institutions require developers to meet specific pre-sale targets before releasing construction financing.

“Why not take advantage of introducing that mobile cash back into the Canadian system and have it satisfy a core need, which is rental? It’s kind of logical,” he said.

“There’s a lot of those projects that haven’t hit their required pre-sale requirements that will not get built — they will get cancelled. There’s a lot of homes that are under construction and coming to completion with a lot of unsold inventory, and that product is going to sit empty. Over time, if the demand side doesn’t pick up, pricing will fall to some degree, but it’s not going to fall by hundreds of thousands of dollars — it’s going to fall in moderate chunks, because there’s always an organic demand of some level.”

His proposed five-year requirement is based on the idea that some foreign buyers may not currently live here, or may live here without yet having permanent resident status — a process that can take years. At the end of that five-year period, they might move in themselves once their status is secured, thereby vacating the rental tenant. For developers, he added, this approach frees up capital otherwise tied up in unsold inventory, allowing them to reinvest in new residential projects — whether secured purpose-built rentals or additional strata condominiums.

“I’d be very confident that most of that freed up capital is going to go into purpose-built rental versus condos, so it’s a huge win on the movement of capital to get housing built,” said Ilich.

With very little foreign investment activity, drastic changes to bring down annual immigration levels, continued challenging economic fundamentals, struggling consumer spending confidence, very weak employment and personal income growth, an exodus of B.C. residents to other jurisdictions outside the province, and overall weak housing demand, he says all of this adds up to a need for governments to acknowledge that the previous norms that led to the great need for interventionist measures on foreign buyers no longer exist, and there is now an urgency to attract outside capital into the country.

More broadly, Ilich argues that Canada must move past its insular, protectionist mindset, which restricts the flow of capital, investment, and economic growth.

He points to the fact that Canadian pension funds are increasingly primarily investing outside the country as a troubling indicator of Canada’s economic health — evidence, he says, that government policies and tax regimes have made it increasingly difficult to achieve returns domestically.

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