The mourning after

"The awakening of the cranes" by John Bollwitt

Here we are, the day after learning of our city’s $875-million condo speculation catastrophe.  I had a tough sleep last night, and it wasn’t because I made the mistake of going to The Roxy to drown my sorrows.  (OK, maybe it was part of it.)  The Olympic Village predicament has far-reaching effects on our city. However this ends up, it will amount to significant monetary losses which in turn impacts all the services, programs and infrastructure we use and enjoy.

The political consequences are the least of our concerns. The political blame game is not irrelevant but it is a distraction from more important questions. How does Vancouver deal with this? What’s the best solution? How do we ensure the response does not repeat the mistakes of the past?

To that last point, I hope our leaders can understand the corrupting influence of real-estate hype. When I look at how the Millennium Water/Olympic Village deal is structured — culminating with the city’s disastrous commitment to provide a completion guarantee — it has all the indicators of decision-making driven by real-estate hype. Many city managers and elected officials, like much of the real-estate obsessed public, got caught up in the exuberance of our own self-appreciation. We bought condos to no end because we believed we couldn’t lose. Real estate only goes up, the world wants to live here, it’s a gamble NOT to buy…

I love Vancouver and I hate that we’re having such a hard time growing up. I’ve always believed Vancouver is on the edge of incredible potential. But the city is so young, seemingly stuck in perpetual adolescence. Will we ever think past the latest fad? I hope one day we come to understand who we are, and leave the culture of condo hype behind us.

Photo credit: John Bollwitt

17 Responses to “The mourning after”

  1. condohype Says:

    FYI, this post is adapted from a comment I made on Frances Bula’s State of Vancouver blog. Lots of action there on this topic.

  2. Tony Danza Says:

    How does Vancouver deal with this? What’s the best solution?

    Jingle mail?

  3. Milo Says:

    Dealmakers seem to have pick up the cue from Wall Street, if there is going to be a boondoggle, make sure that it is a huge one so that the taxpayers will pick up the tap.
    Furthermore, make sure that it is so messy that no one can put a finger on what went wrong.

  4. condohype Says:

    As a society, we have a tendency to privatize the profits and socialize the losses. Typically, when things go well, the credit is ascribed to the leadership of a few. Things go wrong and it’s everybody’s fault.

  5. Larry Yatkowsky Says:

    Now to get the provincial and federal boys to come up with the personal municipal tax rebate.

  6. jesse Says:

    A bailout for Vancouver is extremely unpalatable. Most constituents don’t live in Vancouver. I disagree, ch, that blame is socialized. In this case the entity on the hook is small enough that, politically, they can be left in the field to bleed.

  7. condohype Says:

    Jesse, you can bet the masterminds of the deal will blame the global credit crisis. I can hear the public inquiry testimony now: “But your worship, no city manager could have reasonably anticipated the breakdown of the world economy!”

  8. anon Says:

    From what I read, jingle mail won’t be happening in Canada the way it did the US… it’s illegal, and the bank WILL come after you and take you for everything you’re worth.

    I think the only solution is bankruptcy?

  9. Bradley Says:

    @anon So, does that mean the City of Vancouver will need to file for bankruptcy? Has a municipality ever done that before?

    I am a condo owner, never bought into the hype, still glad I have a place of my own. But now I wonder what my taxes will look like in the coming years. Our latest tax assessment is based on the lower of the last two years (and, yes, 2008 was significantly higher than 2007, so we’re kind of back where we started…but where will we end up?). That is good in terms of how much I need to pay in the immediate future, but I guess I’ll need to start saving to help pay for others’ mistakes…

  10. jesse Says:

    ch, I don’t care who the city blames. When no other cities made such a similar mistake — we’ll see about Richmond; the jury’s still out — it’s politically difficult to bail them out. Looking at the coverage they’re receiving, with all the cloak and dagger maneuvers we’ve all become so fond of from council and their trusty civil servants, any bailout would just raise more questions than it puts to rest.

    If you look at the total shortfall — say $500MM — compared to the City’s budget, yes it’s a lot of money. But it will be financed away and we can expect wage freezes and service cuts along with property tax hikes to cover the debt repayments. The City can handle the burden but it will mean some severe belt tightening (of which you hint in your next post I see). I’d bet you can throw Robertson’s social housing initiative out the window. Perhaps ironically, Vision is going to be slashing and burning more than the NPA ever would have in “normal” times. Socialism indeed.

    I know — how about a speculator tax to cover the bill? Maybe we should be asking Bob Rennie if that includes those who don’t own real estate. After all, according to Bob, we’re all speculators now, even the negative ones like you and me. 🙄

  11. Michael Geller Says:

    Good discussion. I suspect that Vancouver taxpayers will not directly feel the impact of any city losses for some time. That is because much of the development is being funded through the property endowment fund. In other words, the fund will be reduced, which could impact our longer term credit rating and borrowing rates, but the money will not be coming from the operating budget.

    Please also note that some of the $875 million is being used to finance the social housing which the city will own in the fund. (As an aside, I’m told about half of the fund’s assets relate to social housing). This happens to be ridiculously expensive social housing, but that’s another story that may need to be studied.

    Some of the money is financing rental housing, that could be sold to offset some potential losses and the 63,000 square feet of retail development which does have value and could be sold off.

    None of the above is to justify what is happening. I can’t justify it. But please consider this an attempt to explain why our taxes will not go up immediately, and why the losses will not be $875 million.

  12. jesse Says:

    Hi Michael, perhaps it’s semantics, but the fallout means less funding for future capital projects and that does have a real impact on the City’s residents and economically it is a cost. Whether that means the private sector picks up the tab — at the expense of the users of the facilities — or the City’s services are reduced, it will eventually have a fungible impact on residents. It may not translate to higher taxes but why, then, does the City spend any money if not to produce value financed through future tax revenues.

    As I said, what will be the answer: higher taxes, reduced spending or both?

  13. patriotz Says:

    So, does that mean the City of Vancouver will need to file for bankruptcy? Has a municipality ever done that before?

    Yes, municipalities are corporations and can go bankrupt. I think many single-industry towns did during the 1930’s.

    But let’s be realistic here. We’re looking at a loss of about $1000 per capita. The financing costs for that would be about $40/year per capita. That’s not going to cost the city its AAA rating, never mind bankruptcy. But yes the costs will have to be borne both on the taxation and service side.

    And don’t hold your breath waiting for a bailout from senior governments. The CoV is contractually obligated to follow though and they know it. And there’s no political capital to be made by taxing the province or the country to bail out a city that everyone thinks is a spoiled brat.

  14. anon Says:

    Vancouver hopefully won’t have to, but MANY municipalities down south are filing for bankruptcy, with more to come. It seems they had about 85%+ of their revenue tied up in real estate investments, OFF THE BOOKS.

  15. Tony Danza Says:

    But let’s be realistic here. We’re looking at a loss of about $1000 per capita.

    Patriotz, I agree with you vis a vis the Millenium quagmire but what is the cost per capita when you take in to account all of the blown budgets associated with other olympic developments? Don’t forget that Translink has its hand out for some kwan, and the COV won’t be collecting those fat development fees quite like they used to. Things look dire indeed for the COV and its taxpayers.

  16. patriotz Says:

    MANY municipalities down south are filing for bankruptcy,

    In many US states property taxes are a fixed % of assessment. When property values go down taxes go down.

    That’s not the way it works in BC. Property taxes are what the city decides to spend regardless of whether property values go up or down.

    During the 80’s bust the CoV kept its AAA rating and I don’t think it will be any different this time. The city’s revenue base is very stable and its costs are also stable. This is in contrast to senior governments whose revenue (income tax) and spending (social services) are both highly cyclical. This is why municipalities are required to run balanced budgets but senior governments aren’t.

    I should note that during the 1930’s the CoV didn’t go under either, and back then when the City seized properties for back taxes it didn’t even try to sell them because the market was so dire – for example Champlain Heights. We are not going to get anywhere close to that. RE in Vancouver may well take a 50% hit but even then it’s going to be among the most valuable in North America and that means the city is not even close to the limit of property taxes it can extract.

  17. Skye Says:

    I love Vancouver and I hate that we’re having such a hard time growing up. I’ve always believed Vancouver is on the edge of incredible potential. But the city is so young, seemingly stuck in perpetual adolescence. Will we ever think past the latest fad? I hope one day we come to understand who we are, and leave the culture of condo hype behind us.

    You said it. I love my home city and I want to see it grow up, but it is still so damn provincial with a huge inferiority complex that it instantly swoons when some huckster comes into town and tells us how great we are.

    I’m getting fed up, and thinking about moving to a city that I can grow into instead of a city I feel like I’ve grown out of.

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