Turner Drake Blog

Recently, you may have come across some news coverage of a project we’ve started; from now until early 2023 we will be working on a Housing Needs Assessment for the entirety of Nova Scotia. It’s a bit unusual for us to be fielding media requests about the beginning of a project, usually the interest comes at the end when we actually have some results to talk about… if the interest comes at all. Yet, we shouldn’t be too surprised. Housing challenges continue to grow across Canada, and in many ways Nova Scotia has been particularly impacted. This is an issue we’ve been engaged in for some years now, building up our experience from Truro, NS to Terrace, BC. We are very excited at the opportunity this project creates for us to set a new standard for conducting these types of analyses, all right here in our home province.

I would be remiss to not prominently mention the collaborating firms we have on our team. While Turner Drake is getting the name recognition due to our role as project manager, the reality is this is very much a combined effort. In fact, the budget for this project is more directed to public engagement than data analysis – my excel file doesn’t care if I load in data for 1 municipality or 49, but talking to people can’t scale like that. We have an enormous geography to cover, and a diversity of stakeholders in each community to engage with. So, we are thrilled to have Upland Planning & Design Studio as well as Colab undertaking that process with us. Back closer to our focus, we are excited to be collaborating with MountainMath on the analytics and data dissemination.

Beyond the team itself, the scope of work we have gives us even more to look forward to. The RFP issued by the Province for this study was thorough enough to ensure the right questions will be answered, but was also flexible enough that we were able to put our own spin on things to ultimately propose a Needs Assessment as we think they should be done. We can’t get into everything, but here are a few highlights:

• We are excited to finally undertake this work with the benefit of data from the 2021 Census as it is released over the course of this year. While data sets related to the housing market and inventory are updated at least annually, this is not the case for many important socio-economic indicators that tell us about the people who are trying to access and maintain that housing. The 2021 Census will give us a contemporary view into these factors, something that has been an increasing challenge with this work over the last number of years. Until this point, we’ve had to rely on the 2016 Census, which predates virtually every important trend affecting our housing situation today.

• We are also eager to introduce a much more detailed understanding of Short Term Rental activity (i.e. AirBNB) across the province. This is a fraught topic; the use of our housing stock for short-term rental purposes has very clear negative and positive impacts, and these are highly variable between communities, and even across different neighbourhoods in the same community. Up to this point a lack of detailed data has prevented us from clearly understanding where the problems are, and how severe they may be. We’re looking forward to pulling back the curtain on this facet of the housing market!

• Finally, this project is an opportunity for us to up the ante in terms of making our work useful and accessible. While government is our client, housing issues are top of mind for many across the province and we want our efforts to benefit anyone working toward housing solutions. It is incredibly difficult to write a static report that presents such a breadth of information (both thematic and geographic) in a way that is useful to more than a few end users. That is why we are exploring how to better share our results so more people across the province can adapt it to their needs, interests, and locations. A more dynamic, web-based, and customizable approach to disseminating housing-related data and insights is one of the outcomes I am most excited for.

While this project will provide our client with key information they need to design and target public policy responses, the unfortunate reality is that our work will take time, and across the board we are playing a game of catchup where time is the most precious commodity. Housing affordability has rapidly eroded over the course of the pandemic, and was being degraded more slowly for years before that. Take a look at trends just in the owner-occupied market (which has lagged the rental market in terms of demand pressure):

In 2010, the Building Owners and Managers Association (BOMA) released their first Standard Method of Measurement specifically designed for Retail Space.  Prior to this, BOMA did not address the measurement of retail space, except where it existed within office buildings, and so measurement of retail space was done solely as a sub-set of the Office Standard.  With a Standard dedicated specifically to retail space, BOMA was able address a much wider variety of retail space as well as incorporate industry-specific scenarios.

In 2020, BOMA released an updated version of the Retail Standard.  The updated version was more comprehensive and provided greater clarity over its previous original version.  It also introduced the following advancements:

·        Two levels of measurement:

o   Partial Measurement

o   Overall Measurement

·        “Inter-Building Area”

·        The concept of the “Retail Experience”

Two Levels of Measurement

Partial Measurement

When a building contains multiple leased units, partial measurement may be employed in order to calculate the Gross Leasable Area (GLA) for a single unit.  This allows landlords to calculate a certified GLA for any individual unit, without the need to measure the entire building.  Leasable Exclusions benefitting the measured space can be measured in order to complete Inter-Building area calculations. This helps landlords determine the common area and maintenance fees for the occupant.

Although Partial Measurement allows a single space to be certified, any adjacent spaces may still need to be accessed in order to determine the thickness of demising walls, and confirm wall priority between spaces.

Overall Measurement

As the name suggests, this is a complete measurement of the retail property.  The Overall Measurement of a retail space is recommended by BOMA over the Partial Measurement since it provides a complete picture of the building (it is also less invasive to tenants since units only need to be visited once).  When landlords have access to more information (available through Overall Measurement) they are able to make better-informed decisions regarding the efficient use of space in their building.

Inter-Building Area

In the original BOMA Retail Standard, the GLA of a tenant space was effectively defined as the space physically occupied by a particular tenant—parking lots, major vertical penetrations, and the various common areas were not allocated to the occupants of a retail building.  The latest Standard changes this by providing landlords with the option to allocate this space (called “Inter-Building Area”) to the various occupants who benefit from it.

A simple example of Inter-Building Area can be found with a shopping mall with available on-site parking.  The standard allows us to take this parking area and proportionately allocate it amongst the occupants of the mall.

Example: Imagine a building with a total GLA of 30,0000 ft² and an associated parking lot of 10,000 ft².  We can calculate how much can be allocated to a tenant based on the percentage of total GLA that they occupy. If Occupant #1 has a GLA of 5,000 ft², their proportionate share of the building is 5,000 ft² / 30,000 ft² = 16.67%.  The tenant will then be allocated 16.67% of the parking lot, in this case 16.67% X 10,000 ft² = 1,667 ft².

The “Retail Experience”

When you walk into a nice restaurant, there are several factors which contribute to your overall experience—the nice carpet, fancy lighting, music, an outdoor patio or rooftop terrace, etc.  All these factors contribute to the “Retail Experience”, a concept that is introduced in the 2020 BOMA Retail Standard.

This concept allows landlords to define (and capture) unenclosed areas of a retail property which contribute to the overall shopping environment.  These factors are most notable in strip malls and restaurants since they often include permanent outdoor areas.  Covid-19 restrictions led to a surge in patio dining, however in the past, landlords had no way of capturing these areas within a tenant’s retail space. If these features are permanent, and under the exclusive use of a particular tenant, landlords now have the ability to capitalise on these features by including them in the certified GLA of the tenant space.

Are you unsure if you are efficiently utilising every square foot in you building? Our Lasercad® division would be happy to certify your space to the latest measurement standard, ensuring that you know exactly what you’re working with!

We’re all well aware of the trajectory of housing prices since the start of the pandemic: The Canadian Real Estate Association (CREA) reported a 17.7% increase in average housing prices nationally between December 2020 and 2021.  Reported increases in Atlantic Canada range from 9.3% in St. John’s NL, to 41.9% in Yarmouth NS.  We’ve arranged the following table of reported Atlantic Canadian areas in descending order by rate of increase, and included the dollar value that increase translates to.

Source: CREA.  * MLS® HPI benchmark prices; all other areas are average prices.  We don’t know why Charlottetown is not reported. 

Another thing we’re all aware of is current rock bottom interest rates, which were lowered from already low levels at the outset of the pandemic in an effort to keep the economy from coming to a crashing halt.  As someone who first bought a house when interest rates seemed low to those who held a mortgage in the 1980s, but high to those who weren’t yet born in the 1980s, I wanted to take a look at the cost of buying a home with a mortgage over the course of the past few decades, and how that relates to income. 

The following charts show average income for “economic families[i] and persons not in an economic family[ii]”.   The available data goes as far forward as 2019 and it was provided in constant 2019 dollars.  I wanted to look also at current dollar income, so I adjusted it using the relevant consumer price index (CPI).  Over the past four decades, average incomes have approximately quadrupled in Canada (+290%) and the Atlantic provinces (NL +318%; PE +291%; NS +284%; NB +295%; maybe a little more since 2019?)

Source: Statistics Canada.  Table 11-10-0191-01  Income statistics by economic family type and income source; and Table 18-10-0005-01  Consumer Price Index, annual average, not seasonally adjusted.

Source: Statistics Canada.  Table 11-10-0191-01  Income statistics by economic family type and income source.

Historic lending rates are provided on a weekly basis.  From the start of 1980 to the start of 2022, lending rates have declined substantially, by 8.46 percentage points (pp) for posted mortgage rates and 13.5 pp for the bank rate.  Mortgage rates peaked at 21.75% for a 10-week period in 1981 and reached their lowest between 2015 and 2017, at 4.64%.

Source: Statistics Canada. Table 10-10-0145-01  Financial market statistics, as at Wednesday, Bank of Canada.

And the final piece of the puzzle is housing prices.  Part of our Compuval™ suite of databases is our residential database, which captures details of housing sales transactions in Halifax Regional Municipality, dating back to the mid-1970s.  So, with apologies to all the other areas, for this portion, we are looking only at the housing prices for HRM.  The average price for a house in 1981 was $60,738; in 2021, it was $486,861, an increase of just over 700%, well above the quadrupling of incomes over the period.

Source: Turner Drake & Partners Ltd. Compuval™ Residential Database; Statistics Canada. Table 10-10-0145-01  Financial market statistics, as at Wednesday, Bank of Canada.

We also used the CPI to adjust average housing prices to 2021 levels: the increase over the forty years was 187%, even accounting for inflation. 

Source: Turner Drake & Partners Ltd. Compuval™ Residential Database; Statistics Canada. Table 10-10-0145-01  Financial market statistics, as at Wednesday, Bank of Canada.

No matter which way you look at, adjusted or otherwise, housing prices have increased over the past 40 years (what??!), and quite sharply over the past 2 years.  But interest rates have declined, so where does that put mortgage payments?  The following two tables show mortgage payments on the average priced home annually since 1981.  The mortgage rates are necessarily approximate because mortgage rates vary throughout the year – these are the annual averages of the reported weekly rates – and because there are other factors at play that might mean someone pays a different rate from that posted (negotiation, general discounts off the posted rate, etc.), but the purpose here is to show the trend over time.  I’ve also ignored down payments, so these payments are based on the full average price of houses, purely for simplicity.  The first table shows the five-year fixed rate, while the second shows the variable rate; payments are shown on average house prices in current dollars, and also adjusted to 2021 dollars using the CPI. 

Source: Turner Drake & Partners Ltd. Compuval™ Residential Database; Statistics Canada. Table 10-10-0145-01  Financial market statistics, as at Wednesday, Bank of Canada (for fixed mortgage rates); Super Brokers Mortgage Rate History https://www.superbrokers.ca/tools/mortgage-rate-history (for variable rates).

Source: Turner Drake & Partners Ltd. Compuval™ Residential Database; Statistics Canada. Table 10-10-0145-01  Financial market statistics, as at Wednesday, Bank of Canada (for fixed mortgage rates); Super Brokers Mortgage Rate History https://www.superbrokers.ca/tools/mortgage-rate-history (for variable rates).

The analysis shows that interest rates and mortgage payments followed a similar pattern until approximately the year 2000 for fixed rate mortgages, and 2009 for variable rate mortgages, at which points the two diverge, with interest rates continuing their downward trajectory while mortgage payments climbed with relative consistency to the present day (side note: over the study period, there were just three years where the annual average for variable rates was higher than that of fixed rates: 1981, 1989, and 1990). 

“Affordability” for housing is relatively refined in its definition (you can read a bit about it in our blog from June of last year), and this next table isn’t intended to comment on affordability in that regard, but rather to show the pattern of change in average incomes, annual mortgage payments, and consumer prices (CPI), all indexed to a common starting point (1980).  It is noteworthy how closely together the three moved between 1980 and 1990, at which point annual mortgage payments dropped relative to income and CPI; the latter two continued apace for about the next eight years, till incomes started to outpace consumer prices.  Even in 2020, the index for annual mortgage payments fell below that of income, but in 2021, these two came back together, suggesting that mortgage costs (index value in 2021 = 411.7) relative to income (index value in 2021 = 414.4) is now approximately equivalent to where it was in 1980 (both 100), or 1990 (index values 181.7 and 184.8, respectively).  

Source: Turner Drake & Partners Ltd. Compuval™ Residential Database; Statistics Canada. Table 10-10-0145-01  Financial market statistics, as at Wednesday, Bank of Canada (for fixed mortgage rates); Statistics Canada. Table 18-10-0005-01  Consumer Price Index, annual average, not seasonally adjusted; and Statistics Canada.  Table 11-10-0191-01  Income statistics by economic family type and income source.

One more exercise in modelling prices, payments, and interest rates: what would someone pay, including interest, if they bought an average house in 1981, versus in 2021?  In order to estimate this, I used a 25-year amortization period with 5-year terms.  For the first 5-year term, I used the average house price and fixed mortgage rate in the year of purchase, and then used an amortization schedule to determine the balance owing at the end of the term.  I repeated the process for each of the 5-year terms, using the end balance for the previous term as the mortgage amount, reducing the amortization period by five years, and using the prevailing interest rate of the first year of each term.  This is reasonable for the 1981 purchase, but the 2021 purchase is trickier because future interest rates are unknown.  Therefore, I simply modelled it looking backwards at interest rates in five-year increments, on the assumption that maybe rates will work their way back up.  Is it perfect?  No.  Is it reasonable?  Probably.  Is it interesting to speculate?  I think so.

The results: an average house purchased in 1981 cost $60,738; when fully paid off 25 years later, the total cost of principal and interest was $196,564 (note that the starting principal and total principal are off by $91, likely due to rounding).  The average house purchased in 2021 cost $486,681.  The full cost including principal and interest 25 years hence is modelled to be $858,865.  

Alex Baird Allen is the Manager of Turner Drake's Economic Intelligence Unit. In her role, Alex frequently undertakes market surveys, site selection studies, trade area analyses, supply & demand analyses, and demographic reports for a wide range of property types throughout Atlantic Canada. If you'd like more information on market research or our semi-annual Market Survey (recently updated and published with December 2021 results), you can reach Alex at 902-429-1811 Ext.323 (HRM), 1-800-567-3033 (toll free), or email ABairdAllen@turnerdrake.com

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[i] “An economic family refers to a group of two or more persons who live in the same dwelling and are related to each other by blood, marriage, common-law, adoption or a foster relationship.” – Statistics Canada.

[ii] “A person not in an economic family is a person living either alone or with others to whom he or she is unrelated, such as roommates or a lodger.” – also Statistics Canada.

 

Accurate Space Requirements:

Carefully study your real estate needs. When budgeting, it’s important to consider not just the purchase price (or if leasing—the base rent), but also any additional costs associated with the property. It is easy to overlook or underestimate extras such as: renovations, due diligence costs, legal fees, production downtime during the transition, recurring operational expenses for the property and (in the case of a lease) possible leasehold improvements. The lender wants to see evidence of solid planning. Determining whether you want to buy or lease and how you’ll accommodate projected growth is important in determining  your square footage needs.

The Subject Property:

If you don’t already have a property in mind, a lender may agree to a preliminary meeting to give you a ballpark idea of how much financing it could provide. However, such a meeting is generally advisable only if you already have a good relationship with the loans officer. You can leave a poor impression if it looks like you’re not a serious buyer and are wasting the lender’s time. Lenders decide how much to lend based not only on your finances, but also on the type of building, and its condition, age, resale potential, ability to generate a cash flow (which will support the debt service and marketability). Without a specific property, it’s hard for a lender to be precise on how much financing it can offer.

Business Plan:

Do you have a property in mind? You should. Prepare the documents you’ll need to show the lender. These will include a solid business plan, up-to-date financial statements, and details of the property you’re interested in. You should plan to make a good first impression and be well prepared.

How do your books look?

Start by making sure your company’s finances are in order and organised. One of the most important requirements for getting financing is having a profitable and growing company. A business with no profitability hurts your chances at obtaining a loan. Lenders like to see a proven record of profits year over year.

Meet the lender to clarify the terms and conditions:

It’s best to meet the lender before bidding on the property you have in mind, especially if it’s your first venture into commercial real estate. The lender will also advise you on its conditions for granting financing. Those may include obtaining environmental and building condition assessments, an appraisal, and a title search. It helps to use approved experts for this kind of due diligence, and each lender has its own list of such experts. If you use someone else, the lender may require a second opinion and the transaction could be delayed.

Don't rush the conditional period:

Your purchase offer should give the lender enough time to review the terms of the deal. It’s common for offers to provide 4 weeks of “conditional acceptance” while lenders often need six to eight weeks and possibly more (especially if due diligence issues arise). The last thing you will want to do is ask for an extension, especially on a “hot” property or “remove conditions” without having the full approval from the lender. 

During the first week of November, the reminders were everywhere: “Change your clocks, check your batteries”. The end of Daylight Savings is a great time to check your smoke and carbon monoxide detectors to ensure they are in good working order. Although the majority of properties are equipped with this equipment, many are overlooked. Functioning smoke and carbon monoxide detectors are critical to fire safety and reduce the risk of fire related death by nearly 50%. Another key aspect of fire safety is having up-to-date Fire Emergency and Fire Exit plans. When was the last time you reviewed yours? 

According to the National Fire Code of Canada, the fire safety plan of a building must be reviewed at least every 12 months, but in reality, your fire plan should be reviewed whenever there are changes to the floor plan. As noted in our April blog post, changing trends in remote work have created opportunities to alter workspaces, renovate offices, or even convert buildings to adapt to today’s commercial real estate environment. It is important to review your Fire Emergency and Fire Exit plans whenever these changes take place to ensure they are an accurate representation of your space’s current configuration and use. An outdated fire safety plan may be of little help in the event of a fire. 

Having a fresh look at your Fire Safety Plan can also identify opportunities to make changes to your fire safety equipment—especially if your property is undergoing renovations. Regular reviews of your fire safety plans also helps to ensure adherence to evolving building codes and fire safety regulations.

Don’t have a Fire Emergency or Fire Exit plan? Our Lasercad® division can assist in creating or updating these by measuring the space and laying out a clear exit path, as well as identifying the locations of safety equipment for your tenants.

HST Self-Supply on new apartment buildings has been around for a long time. We were first introduced to the world of HST (or GST as it was then known) back in 1990 at a seminar put on by one of the leading accounting companies to help the appraisal profession adjust to the new rules.  GST was officially launched in January 1991 and the world of Self-Supply was unleashed. For the first 35 years or so it lay relatively dormant with scarcely a call to our offices from new apartment builders, who are the most affected by the new rules. Rarely were we consulted on Self-Supply valuations.  Everyone was seemingly happy in apartment land. But the last 5 years has erupted with calls coming in on a regular basis from clients old and new, anxious to escape the inevitable battle with CRA’s auditors and appraisers. (For those looking for a tutorial, see our blog post of August 24^th, 2016, “HST Self-Supply Rules: Is CRA on the Warpath”.  And feel the pain).

Undoubtedly the biggest practical problem for apartment builders is the uncertainty it leaves after the building has been completed. HST on new buildings is based on “Fair Market Value”, not on the cost of construction.  The latter is easily calculated because ITC’s (Input Tax Credits) will have been filed with CRA throughout the construction process. The former – “Fair Market Value” - cannot be calculated until the building is completed and it is, like any market value figure, just an opinion.  But CRA’s opinion increasingly is at odds with the builder’s opinion. To make matters worse, CRA’s review will come along well after the building has been finished, and therefore well after the mortgage financing has been committed, and occasionally even after the building has been sold.  In jurisdictions with regulatory rent controls, rents too will have been committed. In short, the final HST tax bill comes in well after all the dust has (literally) settled. Too bad that it can’t be agreed in advance, or based on something more predictable than “Fair Market Value”.

 "Just levelling the playing field..."

The reasoning behind the Self-Supply rules is succinctly laid out in an official CRA publication (GST/HST Memoranda series 19.2.3, paragraph 5) which begins “Purpose of self-supply rules: level playing field”. In essence, it is an attempt to put the builder who wants to keep the building on the same footing as an investor who wants to buy it. The selling price will (fingers crossed) include a profit component for the builder and that’s what CRA wants a piece of.  It’s difficult to argue with the principle, but what it overlooks is that HST is just another construction cost to be recovered through the eventual selling price. If HST is charged on the elusive profit component, it simply adds to the cost of the building and hence adds to the selling price. The builder pays tax on the profit and recovers it from the purchaser as part of the selling price. The playing field is level. But if no tax is charged on the elusive profit component, the cost of the building is marginally lower and, assuming a balanced market, the selling price will be marginally lower.  The playing field remains level, just slightly smaller. CRA’s concern is that the tax on the builder’s profit will simply end up in the builder’s pocket, but a competitive market will address that. Viewed from that angle, the pain, anguish and sleepless nights endured by the builder waiting to settle the tax bill with CRA is more to do with the size of the playing field than its degree of tilt. All of that pain and anguish could be removed if the tax on profit were a predictable formula, agreed in advance, rather than an elusive opinion coming after the show is over.

HST on Apartment Rents

So, what if the profit – or rather the tax thereon – is occasionally underestimated? Eventually it is the end user who pays the HST on goods and services anyway. That’s how value-added taxes work. For apartment buildings that means the tenant ultimately bears the cost of the builder’s HST, even though residential rental property is, for the most part, officially exempt from HST. Rents must be sufficient to recover all of the costs or else buildings don’t get built. So that troublesome tax on the builder’s profit ultimately shuffles through to the tenants.  Is it a bad thing to give tenants a break these days?  And for more on THAT debate, check out our recent June 21^st blog, “Affordable, Attainable, Available”. 

Boy howdy, let me tell you how tempting it is today to write another blog post about housing, what with a new majority provincial government, and the shameful campaign of homelessness evictions launched by HRM. It's a topic we will be sure to revisit soon, but the honest truth is a while ago I started writing this piece about a different issue in pressing need of attention, and there just is not the time to pivot. 

That other issue, of course, is the long emergency of climate change. A long emergency that is rapidly becoming shorter according to the recently released 6^th Assessment Report of the Intergovernmental Panel on Climate Change. The outlook is grim, with some irreversible effects of climate change now baked into our future, and an ever-diminishing window of opportunity to take action and head off the worst. This is ‘code red for humanity’ as put by UN Secretary General, Antonio Guterres.

A few months ago, I turned 35. Old man, I know. But even from here, just past the threshold of maturity, let me tell you that aging is a hell of a trip. With a few decades and milestones under my belt, I can now regularly perceive the arc of time, but still hold clearly in my mind the memories of early childhood when nothing existed beyond the “now”. I can vividly remember, for example, sitting in the school library in Grade 4 and learning about the Montreal Protocol and how it reversed the depletion of the ozone layer (something very topical to a pasty redhead with British genes). I remember learning how something called the Kyoto Protocol was going to help prevent a different environmental crisis called Global Warming. It felt like an imperceptible eon away at the time, what a different world we would be facing if that had panned out.

My daughter turned 5 this spring and at the moment her “now” is a lot more focused on Covid than climate, but that will probably change soon. That long arc of time leading to climate-driven environmental and social crises has converged with the now. As the IPCC report lays out, our window of opportunity to shape future impacts and head off the worst is running out. Not in imperceptible eons, not in generations, but in a decade (singular), in near-term political cycles. In all likeliness, I will know whether or not my daughter is inheriting a disastrous +2°C world before I know whether or not she’s passed her driver’s test.

But even that sentiment downplays the issue. In fact, we are already living with the impacts of climate change and it’s easy to find the real estate angle. Earlier this week our social media accounts shared this article from the CBC examining the lack of climate risk information in the typical real estate transaction process. The topic is presented against the background of raging wildfires in the BC interior, which have destroyed numerous homes and disrupted even more communities. This is already leading to some early musings that the housing markets of Vancouver Island could see a groundswell of demand pressure over the long term as people are increasingly motivated to move upwind of areas where “50-year fires” are now happening multiple times in a decade, threatening life and shelter, and choking out the rest.

So far, the smoke is dissipating before it reaches this side of the continent, so our concerns are not so focused on forest fires (though, not to be ignored). Sea level rise and flooding are the risks du jour. We’ve visited this topic a number of times already, in research articles from 2006, 2007, 2013, 2016, and most recently 2019. It’s a subject that we care about and have integrated into our valuation practice, adding a climate risk section to our standard reports just a few years ago. But as one small firm in this big industry it is difficult for us to push that envelope.

Well, reality is on its way to force the issue. Back in the fall of last year the National Bureau of Economic Research published a working paper from a couple good eggs at the Wharton School examining the capitalization of climate risk in real estate prices. More specifically, their analysis of home sales in coastal areas of Florida noted that properties more exposed to the risks of Sea Level Rise started to see lagging sales volumes in the early 2010s, with price appreciation starting its underperformance a few years later. Their conclusion is this is a demand-side trend, buyers are now thinking about climate change in the timespan of their own mortgage term! Here’s the money chart:

This trend is just starting, and with the IPCC telling us that a +1.5°C world is now unavoidable, it will only grow in impact in the years to come. Not eons, not generations, years. We’ll continue to look for ways to integrate climate risk assessment into our work, and we recommend that anyone considering a real estate acquisition these days do the same. Even if you don’t expect to own the property long enough for sea level rise and other climate impacts to physically threaten your asset, the next buyer sure could be, and property values look to be a leading indicator now, not a trailing one. In other words, without due care, your mortgage could be underwater long before the property itself is.

June 28, 2021 marked the twenty-eight year anniversary of my employment at Turner Drake.  Time really does fly when you’re having fun.

Originally hired, trained and educated as a commercial appraiser, I’ve spent the majority of my career in our Property Tax Division. True to our in-house training program of the time, I was hired freshly graduated from University; started as a trainee valuer; moved into a Manager’s role six years later, and then, commencing in 2006, became divisional Vice-President, where I lead a team of six. That team assists hundreds of owners every year in mitigating their tax burdens. 

Twenty-eight years in property tax translates into tens of thousands of appeals filed and, over the course of addressing those appeals, some recurring themes have emerged. I’ll discuss them below…and in the process, try to do a little bit of property tax myth-busting.

Thou Shalt Not Covet Thy Neighbour’s Assessment

If you own property in Nova Scotia, it’s tempting (and, with the information available online free-of-charge, relatively easy) to compare your assessment to competing properties. For some owners I’ve encountered, logging on to assessment sites and feverishly clicking on surrounding properties has become sport…in some cases, bordering on an obsession.

While comparable assessments are undeniably a useful benchmark, as well as a helpful tool to identify an over-assessment (we do it too!); and while some assessors will even consider assessments on similar properties as grounds for reducing an assessment at the (relatively informal) initial appeal review stage, the fact that your assessment compares unfavourably to others will carry no weight before Nova Scotia’s administrative Tribunals, Boards, and Courts.

Nova Scotia’s Assessment Act requires uniformity of assessment…but legislated uniformity is achieved across entire classes of property in a Municipality (and there are only two such classes of property: residential and commercial). Sadly, ensuring that your property’s assessment is consistent with similar properties does not ensure uniformity.  This is one of the most common misconceptions that we encounter in dealing with property appellants.

And don’t even get me started on New Brunswick, where there is no uniformity or equity provisions in the assessment legislation- none! Comparable assessments have zero evidentiary value. Sad, but true. There are reform moves afoot to address the issue, but given the current glacial pace, I may be another twenty-eight years in before they come to fruition.

The Best Opportunity to Reduce Your Assessment (and Taxes) is NOT on Appeal

In every Province in which we operate, assessing authorities are willing to discuss assessments prior to those values being inserted onto the official assessment rolls. In our experience, such preliminary consultations often produce better results- at lower cost- that waiting to file formal appeals. A number of provinces- Nova Scotia among them- fully embrace the opportunity to discuss proposed values and to make changes, where required, at the “pre-roll” (referred to also as the “advance notification”) stage.

Of course, it’s not always possible to do so, as values may not be available with sufficient lead time in advance of the filing of the roll. But where the opportunity presents itself, my advice is always to be proactive, and to address a problem before it becomes one.  A stitch in time really does save nine.  

(Nova Scotia owners, take note: the opportunity to pre-negotiate your 2022 assessment- the first assessment year when the COVID-19 pandemic will be technically relevant for assessment purposes- will open in mid-to-late September.  Carpe diem).

Not Every Property is Overassessed

There. I’ve said it. 

It’s the truth- not every property offers the opportunity for tax relief. My colleagues and I take many, many calls where we have to break that unwelcome news to owners…sometimes in spite of a double- digit increase, or an assessment that exceeds its neighbours by a considerable margin, or a revenue stream that has tanked due to the COVID-19 pandemic. In fact, for every appeal we file, there is probably a second property that was reviewed and its value accepted. 

Assessors- They’re Just Like Us.

They worry about mixing vaccines. They wonder about going gluten-free. They drive their kids to countless sport practices and extracurricular activities. They think about work while they’re walking the dog.  They fret about how they look on Zoom calls. And, for the most part, they’re well educated and professional, and open to reasoned argument. That’s not to say that we don’t take the gloves off from time to time. But professional relationships built on mutual respect with assessors from across the country have allowed for the settlement of hundreds of appeals every year without the need for Board and Court appearances.   

Giselle Kakamousias is the Vice-President of Turner Drake’s Property Tax Division. Her experience negotiating and appealing property assessments is extensive: it is a wise property owner who follows her advice. If you’d like more of it, she can be reached at (902) 429-1811 ext. 333 or gkakamousias@turnerdrake.com.  

Affordable housing has been a hot topic in recent years, and is even more so now as rental vacancy rates are extremely tight and housing prices have experienced record rates of increase in Atlantic Canada.  A recent news article caught my attention, with its reference to a price point – “attainable” – I haven’t heard as much about, and it inspired me to take a look at what the difference is, and how each lines up with Atlantic Canadian markets.  Then, because alliterations sound better in threes, I needed a third A: the obvious choice in this context is to look at availability.

First, the definitions, a slipperier thing to pin down than one might imagine.  Canada Mortgage and Housing Corporation (CMHC) defines affordable housing as housing that costs less than 30% of a household’s before-tax (gross) income, absent any requirement for the housing to be provided or made possible through a government program, and without restriction on tenure or type. 

With that definition, affordability is very much relative: in theory, a $4.3-million home would be “affordable”, provided your household income is $300,000 – about 1.7% of Atlantic Canadian households.  

…housing which is deemed affordable to those with a median household income or below as rated by the national government or a local government by a recognized housing affordability index.

After listing a property for sale, you receive an offer from a prospective buyer. Then, before you’re able to present the offer to your seller-client, a second and third offer arrive with all of the buyers and their agents impatiently waiting for answers.

While handling multiple offers requires more diplomacy than handling a single offer, from a business standpoint there is really little room for complaint here. You have an attractive listing, which has a good chance of selling quickly, and your marketing efforts are paying off, which should please the seller.

However, there is plenty of room for problems if you don’t handle the intense demand for your listing with diligence and fairness to all – your seller-client and the prospective purchasers.

Verbal Offers Are Not Competing Offers

All offers must be presented in writing. If a seller’s agent is presented with a verbal offer, the seller must be told what was offered and the buyer’s agent must be instructed to put the offer in writing in order to be considered.

Disclosure to the Buyer

In Nova Scotia, the decision to disclose the existence of competing offers to buyers is entirely up to the seller.

Should the seller receive competing offers, the seller’s agent should:

• inform the seller immediately;
• recommend the seller review each offer prior to making a decision;
• disclose the presence of competing offers to the buyers’ agents if the seller agreed to do so, however the content of the offers must remain confidential;
• attempt to have all offers presented to the seller in the same time frame. The seller can delay the presentation by providing written consent; and
• advise the seller of their options, such as:
• accept one offer, reject all others;
• counter one offer and set others aside pending the result;
• reject all offers;
• accept more than one offer with any offers after the first as back-up offers. Any back-up offers must remove the seller’s obligation from the first contract when moving on to the next through a condition included in the counter offer, such as “seller’s acceptance of this back-up offer is subject to the seller ceasing to be obligated in any way by [date] under the previously accepted purchase contract. This condition is for the sole benefit of the seller.”

Representing Buyers

The buyer’s agent has a duty to disclose competing offers and any terms that are known to them, but ultimately buyers might not be made aware of competing offer situations; that decision rests with the seller. If the seller does disclose that the buyer is in a competing offer situation, the buyer’s agent should:

• immediately inform the buyer;
• advise the buyer of the seller’s options;
• ask to personally attend the offer presentations; and
• advise the buyer of their options, such as:
• increase the offer prior to presentation;
• leave the offer as it is;
• withdraw the offer; or
• reconsider the fixtures, chattels, terms and conditions of the offer prior to presentation and have these changes reflected in writing.

Tips for Buyers

Once the buyer is made aware that they are in a competing offer situation, they may want to increase the offer price and/or reconsider a term or condition in effort to compel the seller. Financing and inspections are both examples of conditions that buyers could remove in effort to improve their offer. Doing so however, increases the level of risk for the buyer.

Price:

What can the buyer realistically offer on the property? Is the property appropriately valued? Buyers should understand the long-term risks of increasing their offer price and what impact it could have on their financials. Further, buyers should understand that increasing their purchase price above the asking price does not guarantee that their offer will be successful.

Property Inspection:

Buyers may be tempted to remove the inspection condition in an effort to present a more appealing offer to the seller, but there could be major risks involved in doing so. Property defects and major repairs are an expensive reality in many older buildings and foregoing the inspection will prevent the buyer from having a clear understanding of the current state of the property. Buyers are recommended to use extreme caution when deciding to remove an inspection clause for this purpose.

Financing Pre-approval:

If you don’t know exactly what you can afford, you may be looking out of your price range and wasting your time. You may also be looking below what you would have qualified for and not getting the right investment property for you.

If you start off by getting a pre-approval on the other hand, you can sort by price, identify the right neighbourhoods, and find your desired property much faster.

Offer & Acceptance:

There is no contract until all parties agree to its written terms, sign their names to express that agreement and communicate acceptance to the offering party. Until then, you have nothing more than a stack of offers – not a stack of contracts – any one of which could appeal to your seller-client. Do not advise a buyer or a buyer’s agent that the seller has accepted the buyer’s offer until the seller has signed the offer. A seller who orally expressed a willingness to accept an offer has not yet accepted the offer and has no legal obligation to do so. Thus, no contract has been formed.

The Back-up Offer:

When one offer is accepted, your client may be willing to negotiate another as a “back-up”. Of course, this would require agreement by the second buyer and would require special language indicating that the back-up contract has no legal standing unless and until the primary contract is terminated.

Only One Winner:

Unfortunately, in the case of multiple offers for one property, there will be those that lose. Someone will walk away disappointed for not having been able to buy their ideal property, but if everything is handled in an equitable manner, the seller should NOT be the losing party, but should walk away with a deal that is in their best interest.