Private Equity Funds such as Abana, pension funds and other institutional investors like nothing more than to invest in revenue rental properties in major Canadian metropolitan areas such as Vancouver. So why don’t we see more purpose built rentals all over Vancouver? Why does Vancouver suffer from a severe rental stock shortage? The short answer is that due to strict rent controls and stricter density limitation imposed by the municipalities, construction of purpose-built rentals leaves less than 3% yield and do not provide much incentive for investors. The newly announced policies of NDP government with regard to housing taxation, will only work to exacerbate this issue further. Mark Milke report in Maclean’s magazine provides a clear picture of why these policies may have a negative impact.
“Ironically, by making it more difficult to own property in British Columbia and rent it out part time, the British Columbia government is creating a problem for everyone except the very rich (who can afford an extra $6,000, $12,000 or $18,000 every year). If that scenario unfolds, then the luxury condominium market may do just fine in British Columbia in coming years. But the market for lower and middle-income rental properties bought by out-of-province investors will collapse given the uncertainty and the existing restrictions on making a return. So congratulations Premier John Horgan and Finance Minister James: Your new tax will kill affordable rental construction that otherwise would occur”