LILLEY: Mark Carney's outrageous condo bailout plan for Vancouver
· Toronto Sun
Have you heard the story about Mark Carney spending $3.2 billion to buy 2,200 condos in the Vancouver area and turn them into affordable housing?
It’s an outrageous story that would see the Liberals bail out developers by paying $1.45 million per condo unit all so developers don’t lose any money on their oversupply.
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The problem with this outrageous story is that it’s not true, at least not the way it’s told.
The true story is still outrageous enough, and we still don’t know all the details.
Last week, as part of his plan to make housing more affordable – that’s the claim anyway – Carney announced that the government would look to buy 2,200 condos. The mention of $3.2 billion price tag was in the news release, but it was for an entirely different purpose, not buying condos.
Under a deal with British Columbia, the federal government will offer up $1.6 billion over 10 years, matched by the B.C. government for a total of $3.2 billion to reduce development charges levied on new homes. The two governments also pledged during that same announcement to spend more than $1 billion on infrastructure improvements.
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Condo buyback plan light on details
As for the purchase of more than 2,000 condo units, there was very little detail offered.
“The federal and provincial governments also agreed to launch the new Canada-British Columbia Partnership on Condo Conversion. Together, through Build Canada Homes and BC Housing, we will leverage innovative financing tools to convert more than 2,200 vacant condo units in priority growth areas into affordable homes,” the news release said.
Which condo units will be bought? In which areas? At what price?
“There’ll be more details to come,” Housing Minister Gregor Robertson said this week in Toronto when asked about the bailout.
Robertson didn’t push back against the idea that it was a bailout but did point out the confusion around the $3.2 billion cost.
Clearly a bailout for developers
There should be no doubt that this move to buy so many condo units is a bailout. Just look at the way Prime Minister Mark Carney framed the plan, albeit with limited detail, when making the announcement.
“Demand continues to outpace supply and at the same time there’s too many completed condos sitting empty. Metro Vancouver alone, around 2500 finished units are standing vacant with no buyers,” Carney said.
In a market-based economy, which Canada ostensibly has, that would mean the developers would lower their prices to a point where the units would sell. Increasingly though, Canada under Mark Carney is moving towards greater government control of the economy and so he says we must buy them.
“Higher interest rates, weaker investment demand, developers are stuck. They don’t want to sell at a loss. They can’t afford to hold those empty units indefinitely,” he said.
First off, let’s deal with his claim of higher interest rates. In Vancouver right now, as in most of the country, you can get a five-year variable mortgage as low as 3.3% and a five-year fixed at 3.99%.
Those are incredibly low interest rates that should be attracting buyers.
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The problem is that prices are too high.
Carney’s solution is to buy the existing units at who knows what price. If we don’t do this and force the developers to sell at a loss, he says it will “disincentivize new construction.”
His solution will only incentivize developers to keep charging inflated prices in the hopes of either continuing to drive prices up or getting a bailout when units don’t sell.
Thankfully, it doesn’t look like the condo bailout is headed to Ontario and Toronto’s struggling condo market.
“Absolutely not,” said one senior member of the Ford government when asked if Tuesday’s joint news conference between Minister Robertson and Premier Doug Ford on Tuesday was about importing the Vancouver plan.
Given what we know about the Vancouver plan so far, it’s not as bad as its loudest critics are claiming, but it could actually be worse.