The Tyee Podcast: Is the Condo ‘Bailout’ a Housing Fix?

Note: Episode transcripts may contain errors. Always check the corresponding audio before quoting any part of the transcript.

Harrison Mooney
If you're like me, owning a home has been an unrealistic dream for pretty much your entire adult life. Even with a reliable income and a credit rating that isn't radioactive, I think the most modest Vancouver condo is still laughably out of my price range. But maybe there's hope. Maybe I'll be one of the lucky 2,200 who gets to buy a Carney condo.

This is the Tyee Podcast. I'm your host Harrison Mooney. Every episode, we dive deeper into the stories shaping the West Coast because Canada needs more B.C.

Back in June, Premier David Eby and Prime Minister Mark Carney announced they'll spend $1.45 billion buying up unsold condos and turning them into rent-to-own housing. But aside from the price tag, details about the Canada-British Columbia Partnership on Condo Conversion were slim. Eby insists this will help families find homes and won't just wind up being a bailout for developers. Marc Lee isn't so sure.

A senior economist here in B.C. with the Canadian Centre for Policy Alternatives, Lee thinks there are better ways to break the housing crisis. He joins us this week to make sense of this quote unquote bailout, what's needed to make this program work, and whether we're headed for a sequel to 2008's financial crisis. Stay with us.

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Harrison Mooney
How exactly does one convert a vacant condo into an affordable home? Because I would like to know how to do that. Maybe you can tell me what this plan is

Marc Lee
Well, I mean, I think you're getting to the heart of the issue, which is I think this was an extremely premature announcement on the part of the federal and provincial governments, possibly even a mistake that it was announced.

Harrison Mooney
A mistake?

Marc Lee
Because it was part of. Well, there was a bigger funding announcement. Actually, there's been a series of funding announcements for B.C. because essentially they're driving a truckload of money over the Rockies into British Columbia, so that we will accept this new pipeline from, from Alberta. So a couple weeks later was a bunch of money for LNG and mining and other infrastructure. But this was kind of the, the earlier housing and community infrastructure part, and most of it was just implementing what's in the federal budget. You know, some money for like you know infrastructure upgrades associated with new housing development, and then they just sort of threw this thing in there. ‘Oh, by the way, we're also doing this Canada-British-Columbia Partnership on Condo Conversion,’ and the only detail that was provided was that it would quote “leverage innovative financing tools to convert more than 2,200 vacant condo units in priority growth areas into affordable homes.” End quote. And that is it.

So, in the absence of any more details, everyone sort of piled on the left and the right. Everyone kind of hated it. The opposition leader Pierre Poilievre called it a condo bailout, and the ethics committee should investigate it. And it seemed like the two governments, B.C. and federal, were both scrambling to provide more details.

So I feel like this was something that they had maybe sketched out on the back of a cocktail napkin. It wasn't supposed to go public, and then it did. But I'd love to know the inside story at some point. So I think the part of the problem is that we don't really know what is going on on either side of the transactions that are being proposed. The government's going to be a middleman. It wants to, you know, buy up some of these unsold condos in bulk at a much lower price, and then somehow convert those into a rent-to-own program that would benefit a handful of households who are currently on the outside of the market, looking in.

Harrison Mooney
Yeah, there are a lot of questions here. So I mean, I guess we'll, we'll start with the, the kind of big picture ones. Regardless of, of what the plan turns out to be, why is this happening? You know, I mean, I know that this is unusual. I think that I'm expected to buy my own condo, but instead, the government is stepping in here to do this so like what's the actual problem here is it that there are just too many unsold condos you know we've built too many or is it that just nobody can afford to buy any of them?

Marc Lee
Well I think the, the longer term story on this is that we had a generation of rising home prices largely because, you know, population was growing at a steady clip, and then we had a period of unusually low interest rates. You know, essentially since the Great Financial Crisis in you know 2008 to 2010, you know they crept up a little bit, but once we hit COVID, they dropped like to rock bottom. So when you have low interest rates, it means households can borrow more money. It tends to push up the price of, of big assets like housing, and then we also had the evolution of an investor-driven model for condo development. So that was all well and good, but half of the units were eventually getting built by investors, most of whom weren't planning to necessarily live in the homes. You know they were looking to flip them before their contract came due for you know, $100,000, $200,000 profit.

So that all worked well as long as house prices were rising, as long as interest rates were low, and as long as the population was growing at a steady clip. Now all of those factors are sort of like are reversed. So you know part of it is, is a population story. We had really like record population growth, and after COVID, 2022, 2023, and then the government slammed the brakes on that. So, to some extent, there may be some developers who made decisions based on much faster population growth than we are currently seeing, and you know that was facilitated by CMHC, the Canada Mortgage and Housing Corporation, because they were like, well, we need like you know 800,000 units by 2039, or you know all hell's going to break loose kind of stuff. Those, the big big supply arguments, are really dominant in the media. But I think really what's happened is just that the price of those units in terms of dollars, but also if you get at a price per square foot, trying to standardize what those are, just became like ridiculously expensive for ordinary people. And you know, to some extent, the developers are just doing what developers do, like in a capitalist system, they're trying to sell to the highest bidder. You know, they want to make as much money on a particular development. That's not their fault. That's just how the system works.

But the upshot of it is, is that over the past couple of years, we've seen a really big increase in the total number of unsold new condos in the marketplace. So you know, across B.C., it's like almost you know 6,000, limited to Metro Vancouver, you know it's you know like 4,400 or so as of May. So part of the question is, well, where are these condos, and what are we proposing to buy, and whatever. But the main dynamic is that like that 4,300 was only like 1,200, you know, two years ago, and there's 30,000 units under construction right now, condos. So that's all gonna, those are all gonna close in the next, you know, 24 months. So I think the government is like stepping in here in a way, saying like, look, we have a lot of developers. They're distressed. If we buy these in bulk, we can maybe like help out their balance sheets a little bit while also providing affordable housing through this sort of rent-to-own program. I feel like for the most part their hearts are in the right place.

Harrison Mooney
Marc, I'm so glad you're here because I just have no clue about any of this, right? Like I tend to ignore real estate stuff because I can't afford real estate.

Marc Lee
Are you the only one in Canada who's ignoring real estate? Come on.

Harrison Mooney
Yeah, I mean, you know, I think I've lived my entire adult life knowing that my housing dream is not realistic, but you know, it does feel like maybe you know this announcement is squarely aimed at me and people like me who have kind of been waiting for the other shoe to drop on the housing market, you know, and are and are ready to move out of their terrible East Van tear down and into like a two bedroom starter condo, so you know there's a part of me that that thinks now is the time to pay attention. Maybe this is a big deal. This is the moment we've been waiting for, and I should be keeping a close eye on this. Should I have any hope of that? Is this the solution we've been waiting for, or yeah, is this just going to benefit developers and do nothing for me.

Marc Lee
Well, I guess the question is like, is this particular government intervention going to make that situation better than in the absence of that intervention? So, like I said, there's a lot of supply in the market. There's a lot more coming. I think up until now, developers have been trying to hold out. You know, they're like, you know, a year ago, six months ago, they're like, OK, well, we think interest rates are going to fall. That's going to juice the market a little bit, and we'll be back to the boom times of old. Trump's war in Iran has put the kibosh on that, you know, not because of anything housing related, but just simply because of the increase in energy costs, is feeding higher inflation. So central banks are not looking to lower interest rates right now, and we've been in a bit of a holding pattern as far as that goes. And it doesn't really look like we're going to see major drops in that, you know, at least for the next like six months, you know, maybe next year. So developers eventually have to sell, and to sell they need to lower their prices. So they've been able to hold out for now, but they have the carrying costs of those. They got to pay property taxes on them. You know they have to pay that. They have financing. They borrowed money to get these things, and the banks are getting paid. And I think that's another part of the story as well. It's not just distressed developers. It's that you have banks who have a lot of exposure in the in the tens of billions of dollars to you know the current mess. So the bailout works for both, right? It's for the developers and the banks. And but if anything, if the government steps in doing what it's proposing to, it's going to put more of a floor on prices, and if they didn't step in, those prices are going to fall anyways. It's just that they may happen fall in a more haphazard way, or you may get these corporate entities like these REITs, real estate investment trusts, buying them up and turning them into rentals, and then maybe flipping them at some point in in the future. So I guess the question is: Is this government intervention going to be better than what would happen if we just let the marketplace do its thing?

Harrison Mooney
OK, so wait, is this actually a bank bailout? Like, are we just right back at the 2008 housing crisis?

Marc Lee
I mean, the magnitudes are not as large, but I mean, I saw you know one figure that that had the central, not central, a charter bank exposure to developers, and this is different than just mortgages that ordinary people get over like 25 years. This is like short term financing for like you know two, three, four years as they're building a project out. Their exposure was like $80 billion, so it's not a small amount of money. Can the banking system absorb, you know, losses on that scale? Yeah, probably. But do they want to? Definitely not. And so, yeah, it may be that Prime Minister Carney is getting a little tap on the shoulder from his buddies in finance, saying, "Give us an assist on this one.

Harrison Mooney
Why announce this with so few details? I mean, you know, you kind of suggested that it was a mistake, and maybe it is. And you know, regardless, I'm not judging. I'm also awful at planning ahead, but I do expect more from my government as a rule. I'm wondering how something like this comes out. How do we get a press release that ‘Oh, we're going to be working on a plan, and we'll have the details later’? Like, how does that happen?

Marc Lee
Yeah, I mean the announcement was in June, and then we won't get details from the B.C. government until September. So they are basically putting out a trial balloon like three months before having any details whatsoever. So at the same time, I think you know let's judge based on what comes back at us. You think we'd all agree that if the government's going to pay like a million dollars for an empty condo, that's a bad idea. But would they pay $100,000? Is that still a bad idea? Well, well, maybe not. I mean, if you could make that unit available now, would developers sell for $100,000? You know, that is a big question. So again, it's, it's there's a lot we don't know about you know the financial situation of those developers and you know how the government's going to work. I feel like, I feel like this it's a problematic situation on both the buying side and on the on the rent to own side. There's a lot of design details. There's a lot that could go wrong, and even if the government runs the table and gets all of those things right, it's only going to benefit like 2,200 households out of like 5 million people in in B.C. So how do you then even determine who those 2,200 are? Like that you're looking to target this narrow segment of the population that has enough income that they could participate in the program, but not too much income because then they would already, you know, qualify for housing. It strikes me as very tricky to do, and it's a little bit like a home a first-time home buyer program, and they've tried you know some of these plans, these shared equity mortgages and that stuff, and they've kind of just pulled the rug out on them because they're — it's kind of complicated. Like when you, you know, do you want the B.C. government as a co-owner on your mortgage? If you're at a strata council meeting, do you want to be sitting across the table from the representative from the B.C. government? Like, I don't know that anyone really wants that. So I feel like the government just didn't really think through how this was going to be received in the public, and I just still it still baffles me why they released it. It seems to me like a rare misstep for Prime Minister Carney, who's normally very thoughtful and controlled about his messaging. Seems like it was largely at the request of the B.C. government.

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Harrison Mooney
After the break, with only 2,200 condos available, how do we decide who's lucky enough to have the government as their landlord? That's when we come back.

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Harrison Mooney
Let's talk about what we do know, or at least maybe what we can infer. I mean, you know, you're talking about like $100,000 for a condo, so I can't imagine that this money is going to Vancouver condos. You know that's probably too expensive.

Marc Lee
Well, David Eby's already taken the Vancouver condos off the market. He said, "Oh, they're too expensive, so we can't buy those. So you know, if you look at the numbers, a lot of it are concentrated in Burnaby, Coquitlam, Richmond are like I'd say the big three. It's possible that in the interests of provincial fairness that some of the other 1,200 empty condos around the province in like Kelowna or Nanaimo or what have you could also be brought into the program because the province always loves to you know not be too focused on Metro Vancouver. We just don't know so ultimately it depends on what kind of a discount they can get you know like OK it's listing for a million dollars right now, and I certainly can't afford that. I'm sure the vast vast majority of people can't afford that. But can they get it for $800,000, $600,000? And then if for that price, what are you getting? Like, are you getting a one-bedroom, a two-bedroom, a three-bedroom? We don't really know, and that's what the data don't tell us, you know, they can they can tell us what some of the asking prices are, and the distribution of that is a little bit problematic, right? A third of the units that are empty are priced over a million dollars, and if you take the threshold of $800,000, which I consider to be incredibly unaffordable, that's like 58 per cent, like three and five of the units are super high. So again, how much of a discount is the B.C. government able to negotiate is the key determinant. Because the lower the price they can get, the more people they will be able to potentially be part of the program. That's the sweet spot.

Harrison Mooney
It seems weird too to have the government as your landlord, like I mean, historically speaking, I don't know that I actually want to enter into a land deal or a property deal with the B.C. government because then it just feels like well later on they'll run a pipeline through my condo or something. Probably not, but well, you can't promise they won't.

Marc Lee
They definitely can't. I mean, anything's…

Harrison Mooney
They're popping up all over the place.

Marc Lee
Yeah, my maxim for B.C. politics is it can always get worse.

Harrison Mooney
OK, well, who's overseeing all this? You're saying that it's kind of mostly the B.C. government that is leading this. So if I get one of these condos, you know, and win this lottery because I imagine it'll have to be something like that. Is my mortgage payment going to the B.C. government or to the federal government? Do we have any of those details at all?

Marc Lee
No. So I mean, it could be that they require the successful households to put up a small down payment, you know, two to five per cent, something like that. It could also be that they don't have to put a down payment down at all, so they just start paying from day one this mortgage. But the government is essentially guaranteeing it for the first, you know, five or maybe even more years, and then you know, then when you sort of look at the plausible price points, I just did a little illustrative table to say, well, like, what would that mean in terms of like, you know, mortgage payments and strategies and property taxes, and then if you had a what what income do you need for that to be quote unquote affordable? Which typically in housing circles they use this sort of 30 per cent rule of thumb, like 30 per cent of your gross income, your pre-tax income. So at that 30 per cent threshold, you know what does that mean? And it just means that a lot of what is currently out there is only affordable to this like very tiny proportion of households. So again, housing is cheaper out in Burnaby or Coquitlam. If they're able to get like larger discounts, yeah, it could work in some cases. But I think a lot of things have to go right for that to happen.

Harrison Mooney
Does the development industry like this plan? Like it feels like if the goal here is to maybe bring housing costs down, that's just not actually what developers want. But at the same time, if they're stuck with all these condos, maybe it is what they want. I'm interested in what the reaction has been in those circles.

Marc Lee
From what I've seen from developers or developer organizations, they're sort of saying, "Well, we never asked for this. You know, we didn't go to the government saying, ‘Help us out here.’ We weren't consulted about the plan. We want to, you know,” they have their own agenda for what they'd like to see. At the same time, some of them are probably like, "Yeah, that would really, you know, help me out because I'm in a tight spot.”

Harrison Mooney
I guess maybe it's nice that the developers don't feel like they were consulted because I mean, which condos the government buys, that seems fraught with potential for corruption and collusion and buddies of the government getting their deals and so maybe if they're if they're caught off guard by that, that's a good sign. But I do still feel like we're looking at potential corruption. Is there is there any chance that this will all be on the level and fair, or is it just going to be you know investors and donors that that seem to reap the benefits?

Marc Lee
Hard to say, and I don't know that because there's going to be such a spotlight on all of this. I feel like they're going to have to have fairly high standards of transparency, so I'm not as concerned about like corruption. I think the harder part is on the program side, this rent to own program. Like, there's so many design details about how you would do and like how you whittle down 5 million people down to like the lucky 2200 that would benefit from this, and you'd have to put some kind of provisions on resale so that it itself doesn't become its own, you know, speculative investment. So that you know we get this great deal, and then 10 years from now we flip it for double the amount of money or something like that. So I'm not sure how they're thinking about dealing with all of those things.

Harrison Mooney
Why not just do government housing or, or non-profit non-market housing instead of this plan.

Marc Lee
Yeah, and that's where the sting is in all of this. Because if we just go back a few months to February's B.C. budget, one of the things you know because it was all about austerity and the deficit's too large, and you know we have to have restraint all over the place. They cut the government's community housing program. So, you know, if we roll back the clock to you know the 2017 election when the NDP was running to be in power, they promised like 114,000 you know affordable units for British Columbians, and they've been sort of backpedalling on that ever since. But they still kind of hold out that that number, and a lot of the promises they made when they first tabled their housing plan in 2018, they just simply haven't really delivered on those promises. They've increased the total number of targets, and then they were starting to get going on it. But what we think of as traditional social housing or non-market housing, very little that has actually been supported at this stage. Now, ostensibly, they're not cutting it entirely; they're just delaying it into the future. But the amount that was on the table was like 1.4 billion, exactly the same amount as what's being proposed for the for the condo program. And it's worse because they actually had this whole competition, like that was running through 2025. So you had, you know, dozens of these non-profit housing developers, you know, spending a lot of money developing their performers, submitting their applications, only to have the rug pulled out from under them at the very last minute. So I would rather have the government put its money into that because we're building housing that will be dedicated, affordable over the long term for the populations that are going to need it, as opposed to trying to be matchmaker and sort of like hope that we can find these deals out here in the marketplace and get them to people that are going to need them. And the way they're structuring that, inevitably, they're not going to be benefiting like the bottom half of the of the population simply because of the way the numbers work and what household incomes are, that disconnect between household incomes and home prices is one of the core challenges that we're facing in B.C. So we, I think it's fair for the market to reset and those prices to come down. And I would just sort of let that happen. If they do want to go in and still buy them up, they could put them into like a pool for non-profit rental housing. Be another way of thinking about it. Also, just how politically unpopular this was in the immediate aftermath of the announcement suggests that there's still room for just backing off and not doing this at all, or changing the way that that they do it, but does seem like the B.C. government in particular has some commitment to wanting to test out a rent-to-own program. That's not necessarily a bad thing, but I don't know that taking these empty condos and making them into that rent-to-own program is the is the right way to go about it.

Harrison Mooney
Do you really think the government would just back off of this now. It seems like you know this has given me like a scintilla of hope that maybe the market is going to change in some way. So if they actually said, well, you know, we thought about it and once we fleshed out the plan, we didn't like it, so we're junking it. Good luck. Like that just seems that seems worse.

Marc Lee
I I don't know. I mean, I think it's possible. The government has walked back from a number of its bold initiatives over the last few years. If you look at you know drug policy for as an example, if there's enough political pressure, the government will back off. You know they don't have to face the electorate for a couple more years, and you know, I think we're at a stage now where this government needs to be talking about what legacy it is leaving behind, and maybe it thinks that this rent-to-own program is a way of like dealing with not affordability for everybody, but for a narrow segment of the population. That this is something that that will improve the overall housing affordability situation. It's not entirely clear to me that it does, and I personally think that we need a lot more non-market housing, and that like that's the key to the affordability. Like we only have about three, four per cent of our total housing stock is non-market. So co-ops, you know, rentals operated by non-profits. If you go to a lot of European countries that have done better on housing, it's like 15 to 20 per cent. You know, it's like it's a much higher share. So I think you know, if we're talking about targets, we should be targeting growing the non-market housing stock, most of which was built in like the ’70s and ’80s, and still remains you know really core to the affordable housing stock that's actually available to people. So that's what we need. Housing advocates have been saying that for years and years, and both the federal government and the provincial government have not wanted to really go there in a big way. They've rather wanted to try to like create the conditions where the market will do its thing and do all the heavy lifting. I don't know that it's been particularly successful.

Harrison Mooney
Right. So you're saying maybe instead of trying to fix the market, we need to be looking at a solution apart from the market, right? Non-market housing, rather than trying to you know do this in the most capitalistic way possible.

Marc Lee
Well, I mean the rent-to-own program is like other first-time buyer programs. It's not about lowering the prices in the market-it's about getting people who currently can't get into the market into the market at those elevated prices. You know, by tweaking the various incentives and tax breaks and other stuff like that. So, yeah, it's tricky because so like ultimately, you know, you're targeting this sort of fairly small band of people who are probably doing OK in terms of like overall incomes because they're going to need to be able to pay a mortgage on you know $400,000 or $500,000 of home whatever the number ends up being. So again, so a lot of this is kind of speculation. I was trying to like put some numbers to it. I wanted to see if I could make the math work, you know, because I was like, well, let's not throw it out entirely. Let's, you know, let's see what what's the supply look like, and what could a program look like? What price point would you have to get to in order for it to be affordable for like be an ordinary household? And the reality is that like household incomes are still pretty low. You know, particularly for people who live on their own. You know, like it's we're talking like less than $50,000 a year in Metro Vancouver, you can't afford any ownership housing at that income level. Family households, yes, higher income, but also need more space. So you're looking at higher prices for those condos too.

Harrison Mooney
Right, but you're doing it with the old math. And if this blows up the market, if this is the Big Short moment for the real estate market, then maybe we're talking new math. Is it possible that there's still some hope that this turns into me being one of the lucky 2,200, and I get and I get my condo?

Marc Lee
Yeah, I mean prices are dropping not rapidly, but again, I think as this inventory continues to accumulate, and it's not just new builds as well, right? It's like the rest of the whole housing and condo universe is also, and we've had very minimal number of transactions lately. So there is this accumulation of inventory, as they call it, and that will tend to keep bringing those prices down, but it may take a little bit more time. And on the other side, housing hopefully incomes will also rise. And so at some point we start to bridge that gap. But that that's been a really you know a big phenomenon. It's just like how many multiples of your household income do you need in order to afford a condo or much less a detached house.

Harrison Mooney
Well, Marc, last question before I let you go. I guess it's actually two questions. Should I try to buy a Carney condo, and should I be calling it a Carney condo? Is that or is that just an annoying thing to say?

Marc Lee
I mean, I feel like the impetus from this is from the provincial government. So maybe you have like maybe it's the Eby-Boyle condo plan, or…

Harrison Mooney
That doesn't really have the same alliteration. Doesn't roll off, the Eby-Boyle condo plan doesn't roll off the tongue in the same way.

Marc Lee
I mean, again, it depends on what we see if the government goes ahead with this plan. I think the overall dynamics in the market are going to see prices continuing to fall, so yeah, probably best to just hold off a little bit and see where things go if you can.

Harrison Mooney
Right. So keep doing what I've been doing, which is not buying real estate.

Marc Lee
Yeah, sitting on the sidelines, just you know, peeking, seeing if you can, you can get in the game. Just wait. Yeah.

Harrison Mooney
Just wait. Yeah, just wait. I'm biding my time. I'm coming. I'm coming. Thanks so much, Marc.

Harrison Mooney
Marc Lee is a senior economist with the Canadian Centre for Policy Alternatives here in B.C. Are you going to buy a Carney condo? An Eby abode? Let us know by sending an email or voice note to [email protected]. The Tyee is a non-profit reader- and listener-funded journalism organization, made possible thanks to the support of our Tyee Builders. That could be you, listener. Head over to support.thetyeee.ca to sign up so we can keep publishing journalism in the public interest. That's support.thetyee.ca. If you want to advertise on this podcast, we have a team that wants to hear from you. You can email them at [email protected]. Today's episode was hosted by me, Harrison Mooney. It was produced by Jacob Boon and engineered by Isaac Phan Nay. Our music is by Bryan Binnema. Join us again in two weeks.