Vancouver “land constraint” bull arugment in jeopardy

One of the often cited reasons given to support Vancouver real estate valuations as the most unaffordable in the world is that of land constraint.  The argument focuses on the fact that the slice of land that is the Lower Mainland is bordered to the east by the Rockies and to the west by the Pacific, inhibiting expansion.  Hence land demands a premium as it is in relatively short supply.

As is the case with so many of these arguments (like the hot Asian money argument), it contains an element of truth.  Yet even this most sacred of half-truths is being strapped to the altar by new legislation.

The First Nations Commercial and Industrial Development Act came into force in 2006.  From their FAQ page:

”The reserve lands of many First Nations have the potential to be used in large-scale commercial and industrial projects….(such as) large real estate developments. Given the amount of money required to get such large-scale projects off the ground, they are usually developed in partnership with private sector investors.

FNCIDA enables a First Nation that has decided to pursue a large-scale commercial or industrial on-reserve project to ask the Government of Canada to develop regulations applying to a specific project on a specific piece of reserve land.”

In other words it seeks to cut red tape for First Nations looking to develop reserve lands.  As noted by this article from the Mission City Record (hat tip to DR), it ”allow(s) them to greatly expand their populations of non-aboriginal tenants”and it is ”about to set off a building boom on First Nations-owned land in the Lower Mainland”.

First in line to cash in on a new streamlined system for developing First Nation land is the Squamish Nation with plans to build 12,000 condos on its reserve lands in Vancouver and West Vancouver.  Given that this roughly equals the total number of condos sold in the Greater Vancouver area in a given year, this is a very significant amount of inventory that will come online at some point in the next few years.

Expect more to follow.  The Mission City article does a great job of delving into the issues surrounding the loss of city tax revenue when 25,000 people up and move to an area with very different and arguably more advantageous tax laws.



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5 Responses to Vancouver “land constraint” bull arugment in jeopardy

  1. jesse says:

    I’m not sure, but it’s likely this stuff will be leasehold. There was a lot of bad press in years’ past when expensive SFDs on native land had their leases renewed at significantly more money than previous. The leaseholders were irate but there was nothing they could do about it. Their property values dropped like a stone when the new lease rates came into effect.

    I’m not sure how short memories are, but unless there is a guarantee of renewal value at the end of the lease (there is typically an implicit guarantee with city land), I wouldn’t expect much to come of this. Too much risk.

    • Hi Jesse
      I would think they would be leasehold. The condos will sell at what the market deems an appropriate price….no doubt substantially below those in the city of Vancouver. Even as leasehold condos, they still represent additional inventory competing for a declining pool of buyers as the market will adjust prices to a point that they are appealing. I wouldn’t be too quick to shrug it off as insignificant, particularly given the recent sales weakness out of Vancouver.

      • jesse says:

        My point is people will of course buy these as viable places to live but I don’t see them commanding a huge premium above rental value. I don’t know the lease length.

    • John in Ottawa says:

      How long were those leases? In 2003 I bought a condo in Ottawa on National Capital Commission land with a 99 year lease. I was indifferent to freehold ownership or a lease due to the lease term.

  2. Lumpen says:

    As others have said, lease length and predictable annual adjustments if not completely prepaid for the term are key. But it’s been going on for centuries in London, with land leases as long as 999 years. It seems that there, people only really start to pay attention when the lease approaches the 30 year mark – above 50 years, there’s minimal/no discount ascribed to the property vs. freehold.

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