Relatively affordable: on the market for approximately $4.4-million.  Source: ViewPoint Realty

Seems likely that this is not the intention of the definition, or any measures put in place to encourage the supply of affordable housing.  And in fact, CMHC’s Housing Continuum graphic implies that affordable housing is separate from market housing.  Wikipedia offers a slightly more specific definition:

Source: CMHC 

If we combine the two, that would indicate that affordable housing is housing which costs no more than 30% of the median household income – and for practical purposes, let’s assume that is in reference to local median incomes, and not, for example the national figure…more on that later.    

We conducted a very high-level analysis of the median incomes for the four Atlantic provinces and a selection of cities.  We used average rental rates for 2-bedroom units because this is by far the dominant unit type for rental accommodation.  The calculation is simple (very!): divide 30% of the median household income by 12 to get the monthly income, subtract off the average rental rate and an allocation for utilities of $150 per month (property tax and water are included in the rental rate; electricity/heating may or may not be included, so to play it safe, we assumed that it’s not for most units) and see what’s left over.    Great news: positive balances all-round, averaging $620 per month surplus – hoorah, there’s no affordability issue! 

Data Sources: Environics Analytics via Sitewiseweb; CMHC; Dalhousie University

Here’s the “but”…and it’s not inconsequential by any stretch.  Median household income is, by definition, the middle of the income spectrum.  So, a household earning the median income being able to afford average costs for rental housing tells only half the story.  Our next analysis worked the figures backwards: we took the average rent plus the same allocation for utilities, on an annual basis and figured out how much a household would need to earn in order for housing costs to equal 30% of their gross income – then figured out approximately how many households fell below that income threshold, based on the number of households in various income brackets.  Reports of an issue don’t look overblown at all.   

Data Sources: Environics Analytics via Sitewiseweb; CMHC; Dalhousie University

Prices for owner-occupied housing have increased substantially over the course of the pandemic.  We ran the same sort of analysis as above, for average/median sale prices in 2020 and 2021.  The geographic availability of data is a bit inconsistent, but our aim is a general idea, so overall, the data is fit for purpose.  Mortgage rates impact the cost of housing; we used discounted rates (rather than the posted rates) relevant at the relative times.  To keep things simple, we assumed a 5% down payment, then based on a very unscientific poll around the office cross referenced against an online monthly expenses calculator, we allocated 40% of the mortgage cost to cover property tax, utilities, and insurance costs: rough idea, fit for purpose.

Data Sources: Environics Analytics via Sitewise^web; CREA; ratehub.ca

We also looked at the year-over-year change in house prices: in 2020, the median income was sufficient to afford a house in all Atlantic provinces, and the selected cities (2020 house price data for Moncton is conspicuous by its absence), but in 2021, the income needed to afford a typical house climbed over the median level for Nova Scotia and PEI, and their capital cities. 

Data Sources: Environics Analytics via Sitewise^web; CREA; ratehub.ca

Obviously, averages and medians are the central figures: there will be houses priced lower as well as houses priced higher, so the above analysis is not to say that in HRM, for example, you couldn’t find a house priced within your means if your household income is less than $100,000 (though it’s getting trickier, especially with our recent embrace of the “offers over” system of home buying).  But this does provide an indication of affordability, and leads us to the next A on the list: attainability. 

Again, the definition is slippery, and in some senses, attainability is defined the same way as affordability, i.e., at no more than 30% of gross household income.  It seems that the key difference is the removal of reference to median income: each income bracket will have its own price range of attainable housing – and associated appropriate housing types, categorized by type, size, and tenure.  Implicit in the idea of attainability is that suitable housing exists in the local market in a variety of forms and price points, sufficient to meet the needs of the population.

We used data on household income brackets to model the proportion of households in each province/city by maximum monthly housing budget.  We then used the same $150 allocation for utilities for rental units to determine affordable rental ranges, and the same ratios for expenses-to-mortgage (i.e., 60% of budget is available to service the mortgage, with 40% allocated to property tax, utilities, and insurance) to determine affordable house prices, as were used in the earlier analyses.  All figures are approximate at best and should not be relied upon for life decisions, but they give a sense of what is attainable to each income bracket from a price perspective. 

Data Sources: Environics Analytics via Sitewise^web

Data Sources: Environics Analytics via Sitewise^web.  Note that the annual income from a minimum wage job, at 40 hours per week and 52 weeks per year varies by province but all four Atlantic Canadian provinces would fall towards the low end of the $20,000-$39,999 income bracket, averaging $26,000 overall.  

And so we come to the final A: availability. It's an important one, because it's effectively the supply side of the supply and demand equation, which is the driving force behind prices. For this portion of the discussion, we're abandoning price points in the interest of balancing level of effort that can be allocated to a blog post.

One of the components of the attainable definition was that a variety of housing formats would be available locally to serve the various budgets - the CMHC housing continuum graphic gives a rough sense of what this might look like, as does this Housing Life Cycle graphic borrowed from the City of Belleville, Ontario.  

Source: City of Belleville, Ontario

From an availability perspective, we start with rental tenure.  With the exception of Cape Breton and St. John’s, vacancy rates are low across the selected cities. 

Source: CMHC (annually in October)

At a provincial level, in October 2020, there were just over 3,000 vacant rental units in Atlantic Canada, of a total rental universe just shy of 114,000 units.  Once those 3,000 units are sliced and diced by price, style, and location, availability is probably problematic. 

Source: CMHC (October 2020)

For residential sales listings, we have to rely on data for Nova Scotia only, due to availability, but we suspect that a similar pattern will be in evidence in the Maritime provinces at least.  Prices continue to climb in 2021, but it appears that the supply-side driving force behind that trajectory may no longer be in play: the number of listings for the period 1^st January to 16^th June in 2021 was greater than any other year in the past five years, versus 2020, which had the fewest listings of the five years. 

Source: NSAR MLS^®

But what about affordability of these available houses?  That’s a question that could have many answers – in that it can be answered in a myriad of ways.  We’ve opted for a very simple one, using price points of affordability for the median household income under two interest rate scenarios: the current posted rate and a current available discounted rate, and ignoring down payments because we’re more concerned with monthly costs in this analysis. We’ve also ignored time – and changes to mortgage rates and income levels over its course, for illustrative purposes (horseshoes, hand grenades, and this blog post).

Mortgage rates from ratehub.ca

Let’s just pause on the one-hundred-and-seventeen-thousand-dollar difference in what is “affordable” under those two rates.  In some areas, you could buy a house for that.  Maybe not for much longer, if interest rates stay low, but there are rumblings from economists that as interest rates rise, the “affordability” of houses will contract and what some fear is a housing bubble, may burst. 

The second half of 2021 is yet to be, so here are the Nova Scotia listing counts annually to 16^th June.  A few things jump out:  (1) there were more listings in the first half of 2021 than in the same period of any other year in the past five (we already knew that from earlier); (2) other than at the outset of the pandemic, when home was so distinctively the safest place to be and few wanted to let strangers walk through theirs, 2021 had the fewest listings below the posted interest rate affordability threshold; and (3) 2021 had the fewest listings below the discounted interest rate affordability threshold, full stop. 

Source: NSAR MLS^®, with affordability thresholds calculated using data from Environics Analytics via Sitewise^web; and ratehub.ca.  

Back to that mention of localized median household incomes.  In the absence of sufficient NOAH (Naturally Occurring Affordable Housing: see TDP VP Neil Lovitt’s excellent blog from earlier this year) in the region, programs that encourage affordable units in new developments are an important part of the solution moving forward. 

There’s a knife edge on which balances the costs of development with what is affordable to those who need non-market housing.  It is highlighted by reaction to a recent announcement of a sizable federal loan on a new apartment building that will be approximately one-quarter designated affordable units.  They’ll be priced in relation to the median income for the area, which has generated a fair bit of blow back (to be fair: the perception of how widespread negative reviews of policy are is almost certain to be skewed, since those who really disagree are far more likely to speak out against it, while those who agree or are neutral have less incentive to chime in on the discussion).  The issue they raise is that the local (Halifax) median income referenced is close to $90,000 (as in, one large Costco order close to), so the affordable units could be priced as high as $2,238, though most are actually going to be less than that since the agreement includes provision for a further discount to the 30%‑of‑median‑income standard.  The underlying questions in the flak are really: is median income a reasonable metric on which to base affordability measures?  And what median should be used?  And is there any relationship between the maximum “affordable unit” price tag and unit size?  One-bedroom versus four at $2,200 is a pretty substantial difference.

There’s a geographic driver of housing prices, and it costs more to commute less, generally.  Maclean’s magazine published an analysis in 2014 that showed a minute of driving time could save you thousands in housing costs.  Inspired, we devoted a TDP Trends to the topic; with some variation, in general, the farther you get from the downtown core, the less expensive houses are.

Source: Turner Drake & Partners Ltd. (2015)

This is relevant to a discussion of housing that is affordable, attainable, and available because cars are expensive to own and operate.  Pushing affordable housing to the far reaches of the city, where transit options are limited/nil (and don’t forget that commute times via bus are going to be longer), is short-sighted at best, and counter-productive at worst.  But median incomes are likely higher where housing prices are higher, whether that’s localized within a city, or the city median is used in lieu of the provincial one. 

Is there a conclusion?  Not in terms of a solution.  But an acknowledgement of the complexity of the issue, and the fact that a broad stroke approach to the metrics may provide little in the way of assisting those who need support to find and keep suitable housing that fits both the budget and the family structure.  That, and the fact that  “affordable housing” as defined, is only of use if it is also attainable and available. 

Turner Drake refines high-level, surface-scratching analyses like the foregoing, into fine-grained, location specific consulting assignments, including market and non-market housing supply and demand analyses throughout Atlantic Canada, and Housing Needs Assessments from coast to coast.  To see how we can provide solutions to your real estate problems, you can reach Alexandra Baird Allen at (902) 429-1811 or abairdallen@turnerdrake.com. 

James Dunnett is a Consultant in our Brokerage Division and has extensive experience in handling complex leasing and sales transactions. If you need help managing your leasing requirements, or are interested in purchasing or selling a commercial property, James will be happy to assist you through every step of the transaction. Contact him at (902) 429-1811 or jdunnett@turnerdrake.com.

Lee Weatherby is the Vice President of our Counselling Division. If you'd like more information about our counselling services, including advice on expropriation matters, feel free to contact Lee at (902) 429-1811 or lweatherby@turnerdrake.com. 

From the tip of the Tuskets to the briny Bras d’Or, Nova Scotia hosts a buffet of islands along the coast and in our many inland lakes.  They provide visitors with a glimpse of wild beauty and an air of mystery; offering fantasies of self-isolation in a rustic cabin, or (in rarer cases) a self-sustaining luxury compound in the sea.

There is no denying the unique appeal of an island property: every trip is a journey and the setting is ripe for peaceful contemplation and an escape (geographically) from it all.  But not all islands are created equal, and one person’s paradise is another’s bare rock suited more to the gloomy vibes of a horror film à la The Lighthouse (filmed, incidentally, in the almost-an-island Cape Forchu near Yarmouth, NS).

On occasion we are tasked with placing a monetary value on islands in Atlantic Canada, and though it feels crude to reduce these special places to dollar signs, our valuation crew is beholden to the oath of Market Values and Highest and Best Use.  So, what factors into such an assignment? Before I jump into my canoe or take to the sky for the inspection, here are some considerations rolling around my head:

Location

The classic axiom of real estate applies most strikingly to island properties.  An island located many kilometres out to sea will attract a much smaller pool of potential purchasers than an island within a leisurely boat ride of the mainland.  For every additional hour spent travelling to an island, the cost of fuel, and risk of weather increases the difficulty in visitation and greatly increases the cost to move construction materials.  For this reason, inland islands (on mainland lakes, or the Bras d’Or Lake) are generally more accessible and desirable than their oceanic counterparts. 

Amenities

What better accessory for your yacht than a private island? Islands located near marina facilities, yacht clubs, and other services are immediately attractive to folks who enjoy Nova Scotia’s sailing culture.  This trend is best revealed in the market for islands between Lunenburg and Chester on Nova Scotia’s South Shore.  Here you will find the most expensive islands in the province, adorned with multi-million-dollar estates including the recently purchased “Kaulbach Island”.  With a price tag of $4,000,000 this property includes multiple high-end buildings, deep anchorage, and a farm to keep you stockpiled in the event of any cataclysm (yacht not included).

Waterfrontage

Sandy beach or granite cliff?  Both offer beauty but it is the former which is sought most by island purchasers.   Valuing an island property often involves two key unitised elements: the “Basic Land Value” captures the uplands which tend to vary in quality based on vegetative cover, topography, etc. and are expressed as a value per acre; and the “Waterfront Benefit” which varies based on coastline material (sand, stone, boulders, etc.), accessibility, topography, and aesthetic appeal; and is expressed as a dollar amount per linear foot of water frontage.  Breaking down value into both the Basic Land Value and the Waterfront Benefit is one of the ways we can leverage past sales of islands (which are inherently unique) to provide an estimate for islands yet to be sold.

Ecological Interest

As with many assignments involving wild places, the cold calculus of valuation has a redeeming quality when it can be leveraged to protect the land for future generations.  In Nova Scotia, organisations such as the Nova Scotia Nature Trust, Nature Conservancy of Canada, Ducks Unlimited, and the Provincial government have created a market for islands which explicitly recognises their ecological significance.  Islands which might otherwise be used to dry fishing gear can be justified with a Highest and Best Use “for conservation use” when there is demonstrable demand for islands hosting birds, mammals, and plant life unique to these coastal oases. 

It’s a small step, but by establishing conservation as a legitimate Highest and Best Use (backed by market data) we are opening a door to recognising the intangible values and relationships we have with land.  It is this humble appraiser’s hope that one day the valuation process will broaden even further, allowing for the legitimate weighing of non-market values and against the rigid confines of what is merely “financially feasible” or “legally permissible”.  Perhaps we can one day pit the spiritual value of land against its extractive value.

James Stephens is a consultant in our Valuation Division and is heavily involved in the valuation of lands for the provincial governments, private land owners, and land trusts including the Nova Scotia Nature Trust, Nature Conservancy of Canada, Annapolis Valley Farmland Trust, and the Island Nature Trust. For more information about our range of Valuation® services, valuations for land donations, feel free to contact James at (902) 429-1811 or jstephens@turnerdrake.com. 

Again, the pandemic has had an understandable dampening effect as travel has become restricted and classes moved online, but this is a temporary blip. With sanity restored to the White House, however, it will be interesting to see how quickly, and to what extent, this trend recovers in Canada.  

In fact, the pandemic has decelerated the net impact of these demand drivers, evidenced in CMHC’s 2020 Rental Market Survey which found apartment vacancy in Halifax rising significantly from its previous record low… though it remains too low.

SUPPLY RESPONSE

All of this new population needs shelter, demand requires supply. Adequate housing supply, in and of itself, does not solve all housing challenges. However, making sure we are expanding our housing inventory in pace with our population growth is a fundamental piece of the puzzle solving some issues, and making many others a lot easier to deal with. Supply and demand interact like tectonic forces in housing markets, any of the other actions we might take are done in their context. Let’s take a look at the Halifax area, which is generally where most of the province’s population growth is landing. How have we been doing? 

Not good.

Typically, it would be excessive to examine this data over a 30-year period, but here it is necessary to show just how unprecedented the current growth disparity between people and shelter is in Halifax. For the entire time series Halifax only rarely approached – and never exceeded – an even level of housing construction for each household added to the city. Each time that it did, the industry responded with stronger building rates. This is important as demand is also increasing from shrinking household sizes within the existing population in addition to this incremental demand from growth. In 2016 Halifax blew past that previous ceiling, adding more households than houses for the first time in at least three decades, and more importantly, sustained these historic levels of under-building for 5 years and counting! The first rule of getting out of a hole is to stop digging.

CREDIT

As debt becomes cheaper to carry and more easily accessed, it inflates the value of assets. Falling yields on risk-free vehicles like government bonds drive investors to seek higher returns, and the same low rates that motivate this behavior mean the system is flushed with credit on which to acquire these assets. For decades, interest rates have been in secular decline, and this was accelerated significantly in 2009 when the Great Financial Crisis ushered in the era of emergency near-zero rates which have seemingly evolved into permanently low rates. Or perhaps the emergency is now permanent, it is sometimes hard to say.

Real estate is an illiquid asset, which means transactions in the market are heavily influenced by the marginal buyer; those who are willing and able to outbid all others for the property, and thereby set the bar for valuation. We observe the impacts of this monetary policy context clearly in the commercial real estate sector as cap rates have compressed, amplifying the market value of properties independent of changes in the income they generate. A similar effect is felt in the residential sector, where increasing mortgage credit acts as an accelerant in any market with a whiff of demand, launching prices higher, even as the incomes that support them lag.

The chart below shows the results of a simple model that applies typical mortgage parameters to annual house price, income, and interest rate data to plot the changing relationships between income, purchase price, and mortgage carrying cost. In the data since 2000, incomes have increased by about 70%, new house prices by 200%, and average interest rates have dropped by 50%. 

The resulting price to income ratio skyrockets by nearly 190 percentage points as a result. However, the countervailing force of loosening credit means the actual carrying cost of that price, which is what households actually pay (because we don’t buy homes, we buy mortgages), is only up 5 percentage points over the same period and generally fluctuates up and down within a tight 15 point range.

This is the critical mistake made by those who talk about housing prices as being “detached” from incomes. House prices are attached to incomes, firmly, by the sinews of credit. As it has eased, that connection has lengthened, but the relationship is just as firm. In fact, it is more accurate to describe this relationship in the inverse; it is largely because interest rates have fallen that prices have gone up! If interest rates were to reverse their long-standing trend, we would see how quickly this detachment narrative disappears.  

DISAPPEARING NOAH

Naturally Occurring Affordable Housing, in housing policy parlance, is a somewhat new and misleading term that basically refers to unsubsidized housing that exists within the private market at a relatively affordable price. Think classic shoebox 3-story walkup apartment buildings (though it can come in any form). Without non-market interventions such as capital grants or operating subsidies, this housing is affordable mostly because it is less desirable relative to other options in the market, and this is principally a function of when it was built.  Buildings go down in relative value over time, or depreciate in valuation parlance, because they go out of style, they get rundown and tired, they lack design features and amenities that more recent buildings have, they are more likely to suffer pest nuisances… if competition is the mechanism by which markets work, these buildings are losing the competition.

This part of the housing inventory is critical for those employed in entry-level positions or lower-income industries. However, as NOAH is still firmly within the housing market, it is subject to market forces. In times of growing demand, the lower end of the market is generally where renovations and recapitalizations become feasible first. In and of itself, this is a good thing. We want our building stock to receive reinvestment and cycle back up through the market instead of declining into uninhabitability. However, that idyllic impression of market function is running into some cold realities.

At any given time there is a continuous stream of building stock aging down and being recycled back up through the market, but a disproportionately large section of the apartment inventory is now coming due. Units constructed during the boom of the 70s are turning over, and there are far fewer units next in queue replace them at the bottom. Particularly cruel examples notwithstanding, this dynamic is largely responsible for the increasing prevalence of “renoviction” stories that we’ve seen in the media over the past couple years. Our total supply of NOAH is dwindling.

INCOME INEQUALITY

The second reality affecting the ability of NOAH to adequately serve lower income households is the fact that those households are falling further behind. The majority of households in rental housing are in the bottom 40% of the income distribution. The chart below shows how incomes (adjusted for inflation) have changed over time.

This of course does not reflect the added issue of declining income mobility, highlighted in recent research from Statistics Canada. Still, even this incomplete picture is concerning: over four decades real family incomes in this lower 40% have, at best, increased by less than $4,000 or about 0.26% per year. Unfortunately, the operating expenses of the buildings they occupy (property taxes, utilities, construction materials, insurance premiums, contractor and trade labour, etc.) are growing at a much higher rate. Compounded over decades this means rent in stable, older buildings – even if run on a break-even financial model – will increasingly outpace the ability of many renter households to afford them.

This is mostly a renter’s issue, but it affects those in owner-occupied housing as well. Though interest rates have maintained affordability in the carrying costs of mortgages, other costs associated with home ownership, such as down payments, have become increasing barriers to entry. Ultimately, the spectrum of the population that the housing market serves is getting narrower, and a big part of that issue (especially the “crisis” part) is due to stagnant household finances and stagnant social supports as inequality in our society grows.

SUPPLY OF NON-MARKET HOUSING

The third reality is the availability of housing options for those who are finding themselves outside of the limits of the market. Canada as a whole has not engaged much in the production of social housing, especially since the late 80s and early 90s as the federal government unwound their previous decades of involvement. Yet, even by these low standards Nova Scotia has the dubious distinction of being the second worst province in terms of adding to its stock of non-market housing since 1990:  

A brief pause here to look over the rim of my glasses at New Brunswick which has apparently built all of thirteen (!) units in the last three decades. This data is from CMHC’s inaugural Social and Affordable Housing Survey, so hopefully in future updates more units will be identified.  

Barely more than 7% of Nova Scotia’s non-market inventory has been built since the 90s, and I would wager the proportion for more recent decades is closer 0%. Over this same timeframe, all housing completions tracked by CMHC totaled nearly 98,000 units, meaning only 0.93% (910 units) of what we’ve built has gone towards increasing our non-market inventory.

Now, this is at least somewhat understandable. Up until recently Nova Scotia has been able to coast along without too much trouble thanks to stagnant population growth and the ability of NOAH to take considerable pressure off the waitlists for non-market options. Well, those days are over. If there was one thing the Province could do without having to wait for their Affordable Housing Commission to tell them, actually increasing the inventory of social housing would be it!

IMPORTED DEMAND

Finally, we get to the Boogeymen. For those who subscribe to the “detachment” perspective described earlier, the thought process is straight forward enough; if local fundamentals are not viewed as an explanation for housing costs, logic dictates that something else must be afoot. There is a fairly large goodie bag of these something-elses, but they are always fundamentally about pathways for external demand to enter and distort local market conditions: money laundering crime lords, capital from unstable regions flying to the local real estate of safer countries, foreign and local speculators turning houses into tax-advantaged capital gains, Wall St. and Bay St. financializing local housing in order to transfer wealth from residents to shareholders, wealthy tourists displacing locals via AirBNB conversions.

Like any good story, there is always an element of truth at the core. And like any good Boogeyman, a lack of information prevents us from ruling them out entirely. The issue with these explanations is not whether they are completely fabricated; most are true to some degree and documented to have occurred somewhere at some time. The issue really is whether they are happening locally, and if so, are they to a degree that would have a material effect. In our view, there are enough conventional and locally-based explanations for our housing conditions in this region. Occam’s Razor and all that…

Having said that, we fully agree with at least one of the proposed mechanisms by which outside demand has been imported into our local markets: the proliferation of short-term rentals. The number of housing units in our communities now dedicated exclusively to providing short-term accommodations on a commercial basis has exploded since the global advent of AirBNB and its imitators just a few years ago. While there are some interesting and ultimately beneficial facets to this trend, what demands the most attention currently is the resulting reduction in housing supply available for traditional forms of tenancy. 

In response, we have invested in access to world-leading data services covering this new sector of the real estate market. Currently we have market data coverage for all of Nova Scotia at the individual listing level, updated monthly. We have a few interesting extra-curriculars in the works for this resource, but alas, these are busy days and client needs come first (seems like a certain provincial government should be beating down our door on this one, but I digress). In the meantime, here is why Short-Term Rentals have our attention:   

This chart shows the growth of housing units (CMHC tracked housing completions) against growth in what we estimate to be commercially operated STR units (i.e. entire-home AirBNB listings that spend the majority of the year available on the platform rather than housing a long term resident). Starting with only a couple hundred in 2016, commercial STRs have grown rapidly, peaking at nearly 1,700 units in 2019. This negates about 18% of the 9,300 housing units completed in the municipality over the same timeframe. In a time when we need all the supply we can get, this is an unnecessary headwind. At the same time, these overall numbers are not earth-shattering; it’s hard to imagine that conditions would be that much different if the industry had been able to pump out 11,000 units instead of 9,300 over those three years.  

However, those are the overall numbers. The short-term rental market is not dispersed evenly throughout the housing market, it is having vastly different impacts within Halifax. Some locations have no loss of housing availability, others are under significant pressure. To illustrate, though STR units peaked at 18% of completions for HRM overall, if we narrow our analysis to just the Peninsula, that figure jumps to about 30%. You can imagine how that may escalate further looking at some of the high-demand neighbourhoods.

More on that in the future.

Whew, you made it to the end, but when it comes to housing issues there are no shortcuts! This is an immensely important challenge and we’re trying to do our part. We are proud to support the work of Nova Scotia’s Affordable Housing Commission through our involvement in their Data and Financial Modelling Working Group. Of course, Turner Drake is also engaged in numerous consulting assignments, including non-market housing feasibility studies, and Housing Needs Assessments from coast to coast. To see how your community can benefit from the unique expertise of our Planning and Economic Intelligence team, call Vice President Neil Lovitt at (902) 429-1811 or nlovitt@turnerdrake.com.

The Asking Price is a critical element when listing a commercial property. If it is too low you may under sell your property. If it is too high it will scare away prospective purchasers and the listing will go stale: it may then be necessary to withdraw the property from the market and re-introduce it at a later date, or alternatively reduce the price substantially to reignite interest. But while property sells at Market Value, owners often measure its worth in terms of Intrinsic Value. This can give rise to a difficult conversation between real estate broker and property owner.

Market Value is generally defined as "the most probable price which a property should bring in a competitive and open market as of the specified date under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus”. More specifically, market value is based upon a property’s Highest and Best Use. The Highest and Best Use of a property is the probable and legal use of land, or an improved property, that is physically possible (what can be physically built on the site?), legally permissible (what uses are permitted under the current zoning?), financially feasible (will the purchaser achieve an acceptable return within a reasonable investment horizon?) and maximally productive (what use generates the highest return?). Simply put Market Value is the highest price attainable assuming the property is expertly marketed to the widest pool of prospective, knowledgeable purchasers.

Intrinsic value is the owner’s perception of the inherent value of their property to them. This value can be based on the actual amount of money they have invested in the asset, any sweat equity by the owner, emotional attachment, or just their perception of current market conditions. Sometimes the property owner may be constrained by the debt burdening the property, or the net cash they need to realise on sale after paying capital gains tax and transaction costs.

How do you bridge the divide between Market and Intrinsic Values? It starts with the acceptance by both parties, broker and property owner, that they have a common goal… to sell the property on the most advantageous terms to the owner. Before we undertake to market a property for sale, we sit down with the owner (vendor) to go over the marketing plan for their property, the pricing strategy, and the listing agreement, to ensure the vendor understands the selling process and each party’s obligations under the contractual arrangement. Since an appropriate asking price is critical, we research the property, its zoning and planning considerations, and sale prices of comparable properties, to develop an asking price based on the Market Value. Because Intrinsic Value frequently differs from Market Value the vendor may have price expectations that cannot be realised on sale and it may be better to withhold the property from the market until prices increase…. realising of course that there is always the risk that prices may fall too, as is the case currently in some market sectors. However if the owner is serious about selling, it is imperative that the asking price be reflective of Market Value plus a negotiating buffer (every purchaser likes to feel like they have negotiated a good deal for themselves). Otherwise, the overpriced property will sit on the market and become stigmatised: potential purchasers will wonder why it has been on the market for longer than is typical, if there is something wrong with the property, or will want to try to use the long marketing exposure as negotiating leverage. On the other hand if a property is reasonably priced and is properly exposed to the market, a vendor will have much better chance of consummating a sale at a price, and within a time frame, that optimises their sales transaction.

Reduce Stress: Live Longer

Selling your property, even commercial real estate, is rarely anybody’s idea of fun… so we have compiled a list of the difficult questions you meant to ask your real estate broker but were too embarrassed, simply forgot… or did not know you should ask. Questions such as “I don’t want my staff to know I am selling: what can I do to keep it quiet?” or “I am already talking to a prospective purchaser: do I still have to pay you a commission if I sell to them?” and even “Why do I need a real estate broker anyway?”. Better still we have provided our answers in the way we do best… frank, forthright and brutally honest! Call or email me, I will happily send them to you.

As Senior Manager of our Brokerage Division, Ashley Urquhart assists both landlords and tenants meet their space requirements, and vendors and purchasers optimise their property portfolios. For more real estate brokerage advice, you can reach her at aurquhart@turnerdrake.com or (902) 429-1811.

Given the ongoing COVID-19 pandemic, and the attempt to abide by physical distancing protocols, employers worldwide have been forced to encourage remote, work-from-home policies.  According to StatsCan, 32.6% of companies reported 10% or more of their workforce were teleworking in the month of May, compared with just 16.6% in February.  Furthermore, 22.5% of companies expect 10% or more of their staff to continue working from home post-pandemic.

It’s a typical noon hour on the fourth floor of your apartment building, and you’re finishing up a conference call while lunch simmers on the stove. The kids are racing around the apartment while the laundry machine chugs through the spin cycle. There’s a knock on the door - another amazon delivery… Sound familiar?! Working from home has allowed significant flexibility in a world of fast-paced multitaskers however; it also raises concerns surrounding at-home fire emergencies.

Building owners, managers and insurance companies are quickly growing concerned as the slightest distraction can have severe (and sometimes fatal) consequences.  A recent article by Greg Meckbach of the Canadian Underwriter noted that the number of fatal at-home fires in Ontario has risen by 65% compared to this time last year. Local sources including the Halifax Fire Investigation Summary also highlight this issue, shedding light on the growing frequency of fires in predominately multi-residential apartment buildings across the Halifax Regional Municipality.

It is crucial that building owners ensure the safety of their residents by establishing a formal fire emergency and evacuation plan.  To the surprise of many, this is also a requirement set forth by most municipalities and within the National Fire Code of Canada (see our March blog post for specific details/requirements).

Sadly, the majority of buildings do not have adequate fire plans or procedures in-place. These protocols are an added level of insurance that are typically overlooked until it’s too late. Now more than ever, apartment owners and managers should be establishing or reviewing existing fire protocols for their buildings. We also suggest reviewing your current fire insurance policy to ensure you are equipped with adequate coverage. On the face of it, these suggestions may seem like an added expense however; they could be invaluable in the event a fire arrives at your doorstep.  

In my dual roles of Manager of Turner Drake’s Lasercad® Division and consultant in our Valuation division, I have experience in both the preparation of Fire Escape floorplans, and the completion of Fire Insurance reports.  I have worked with a number of building owners and managers to implement Fire Safety Plans in apartment buildings throughout Atlantic Canada. If you have any questions regarding our Fire Safety Plans or how to go about reviewing your current Fire Insurance coverage for your property, feel free to contact me at 902-429-1811 or mjones@turnerdrake.com