Vancouver’s new housing affordability initiative may have the effect of increasing the value of single detached homes, while providing a moderating influence on prices for condos and townhomes, according to Tsur Somerville, director, Centre for Urban Economics and Real Estate, Sauder School of Business at the University of B.C.

“If this is successful, I’d expect higher single family prices than they’d be otherwise,” said Somerville Monday of the plan, which will see the city become more involved in the housing development business.

Somerville said there are already pressures to convert single family homes into denser types of housing, and that those pressures should increase under the plan.

The city’s housing initiative, he said, proposes reducing development costs and red tape to augment denser housing projects, which would result in “more applications to rezone existing single family sites along major arterials.

“You’ll redevelop more single family [land] into condos, which increases [single family] land prices and reduces the supply of single-family homes. There’d be fewer single-family homes, so they’d be worth more.”

However, Somerville believes the policy might also have a moderating effect on overall prices for townhomes and condos in Vancouver, because the supply of high-density housing would increase as average rents drop. “If rents fall, the rental value is lower for an investor, so they’ll pay lower prices. And if we build more condos and townhomes, there will be more supply and prices will moderate.”

However, the chief economist for the B.C. Real Estate Association believes the new housing policy won’t have much of an effect on overall home values in Vancouver.

“It will help increase the stock of affordable housing for lower income households,” said Cameron Muir, noting that high-density housing tends to be less expensive. “But [for overall price levels in the city] I would expect that it would be negligible

A first-time homebuyer could need to earn as much as $500 more a month and would have to pay an extra $209 toward their mortgage each month under new mortgage rules that the federal government announced Thursday.

The changes, which apply to government-backed insured mortgages, will mostly affect first-time home buyers looking to get into the condo market, mortgage brokers told The Sun Thursday afternoon. These changes mean up to five per cent of Canadians who might be considering buying a new home will likely no longer qualify.

Vancouver-area mortgage broker Dave Foran said typical first-time homebuyers are singles or young couples in their 20s, who are in stable jobs with decent incomes, and are looking for homes priced in the $350,000 to $400,000 range.

For the fourth time in as many years, Finance Minister Jim Flaherty moved to tighten the mortgage and lending landscape, including reducing the maximum amortization period for government-backed insured mortgages to 25 years from 30.

Although at least one bank, TD Canada Trust, praised the restrictions, the development industry is concerned. The changes will hit affordability and are overly dramatic, said Neil Chrystal, president and CEO of Polygon Homes and board member of the Urban Development Institute, which represents the province’s development industry.

“The reality is that in Vancouver, sales have already been moderating in the last six months. For detached homes in Vancouver, the average price is down 12 per cent and sales volumes are down 25 per cent,” Chrystal said. “I think that’s proof that the market is self-correcting.”

The amortization period is the length of time it would take to pay off the entire loan for the mortgage. Shortening this period means both higher monthly payments and a higher income needed to qualify for the mortgage.

A $400,000 high-ratio mortgage with a 3.19-per-cent interest rate would require an extra $6,000 per year in income, or $500 a month, to qualify for the new shortened amortization period of 25 years, according to an example provided to The Sun by Vancouver-area mortgage broker Dave Foran. The monthly payment would jump from $1,973.09 to $2,182.19.

(A high-ratio mortgage exceeds 80 per cent of the home’s value — or the home is bought with less than a 20-per-cent down payment — and must be insured by Canada Mortgage and Housing Corp.)

The government also lowered the maximum amount people can borrow when refinancing a mortgage to take advantage of accumulated equity in their home, to 80 per cent from 85 per cent. Flaherty said he is making the changes, which build upon earlier restrictions, to “help to ensure households do not become overextended.”

Bank of Canada governor Mark Carney has been warning for several years that some Canadians are getting in over their heads with debt and that they could face problems once interest rates — which sit at historic lows — start rising or if there is a another economic crisis like the one in 2008.

Richmond mortgage broker Chris Pughe said the reduction in the amortization period will increase monthly payments to the same degree as a 0.9-percentage-point rise in interest rates. On a $290,000 mortgage at 3.3-per-cent interest, with a 30-year amortization, the monthly payment would be $1,270.08. The same mortgage with a 25-year amortization would require monthly payments of $1,420.89, Pughe said. The extra $150.81 per month would require additional monthly income of about $380 to qualify.

She also said the changes would affect nearly every first-time buyer in the Lower Mainland.

Vancouver mortgage broker Jeff Trounsell said about 65 per cent of his clients need mortgage insurance.

“A change in the amortization period down by five years is going to affect most people’s buying power by $10,000, $20,000 or $30,000,” Trounsell said. “In today’s housing market, that can be the difference between a really nice place and an average place. Most first-time homebuyers are trying to get into something they really like by pushing their limits. More veteran homebuyers don’t try to push the envelope as much.”

Foran said he doesn’t expect the changes to have a large impact on the overall housing market, because they only affect buyers with less than a 20-per-cent down payment.

“No doubt it will have an impact on the first-time buyers who are scrambling for down payments and possibly paying off some credit card or line of credit debt,” Foran said. “Overall, I see this as another good step by the government to take the necessary steps to assure Canadians that we will not end up like other parts of the world. It’s just tightening the screws a little. It makes good sense at this time.”

Vancouver realtor Michael Tudorie called the changes “prudent.”

“The buyers I’ve seen this year have been very qualified and would still be approved under these new guidelines,” Tudorie said. “Hopefully the news will push those on the sidelines and we’ll be busy the next two weeks.”

Trounsell said he was busy going through all of his pre-approvals to see which of his clients might be affected by the changes. One buyer he is working with is a young professional with great credit and no personal debts who wants to buy a home with a basement suite that brings in about $800 a month in rental income.

If he is able to buy before the new rules kick in, he can afford a $700,000 home with a $643,860 mortgage, including insurance, and will have payments of $2,773.58 a month. After July 9, the maximum mortgage he’d be allowed to carry will decrease to about $566,100 with insurance, dropping his top possible purchase price to $625,000, Trounsell said.

The government also fixed the maximum gross debt service ratio at 39 per cent and total debt service ratio at 44 per cent. These ratios compare a borrower’s total monthly housing payments, or their total monthly debt payments to their monthly income, which shows the ability of the borrower to pay the interest.

The government also limited government-backed mortgages to homes with a purchase price of less than $1 million.

The changes do not affect conventional mortgages (those purchased with a down payment of more than 20 per cent), but both Pughe and Trounsell said banks sometimes tighten their lending rules for all mortgages in response to changes to government-backed mortgages.

“You can still get a 40-year mortgage with one lender, if it’s low ratio,” Pughe said, adding that it is too soon to tell which lenders will follow suit with the government changes for their conventional mortgages.

Although the changes will make it tougher to qualify for a mortgage, they will save consumers a lot of money in interest in the long run. “As just one example, the reductions to the maximum amortization period since 2008 would save a typical Canadian family with a $350,000 mortgage about $150,000 in borrowing costs over the life of that mortgage,” Flaherty said in a news release.

The changes come into effect on July 9, just more than two weeks away. When previous rule changes were introduced, about two months notice was given.

There's renewed post-recession interest in B.C.'s recreational property market and it's largely from young families attracted by lower prices.

"The local market has softened and prices have come down because of that," lower prices have stimulated interest with modest increases in sales in all regions except the North Okanagan, which was off last year's pace following a slow start to the season.

"The baby boom demographic has been investing their recreational dollars in Arizona and California rather than B.C. But younger families are confident in buying here because prices have softened. They really want to improve the quality of family life."

The annual report released Monday looked at trends in 33 markets in all 10 provinces.

Buyers are still cautious, but  market conditions including lower interest rates have placed them in the driver's seat with activity also prompted by pent-up demand that's been building since 2008 - when many people shifted to the sidelines.

Inventory levels are adequate, allowing buyers to take their time before buying.

Many of the buyers are seeking properties off the water, with renovations of older cottages common.

According to the report, prices are not only down from 2009, but also generally down from 2011.

In the North Okanagan, the starting price for a three-bedroom winterized recreational property on a standard waterfront lot was $900,000 in 2012, down from $1.2 million in 2009 and $995,000 in 2011.

In the South Okanagan, an equivalent property sold for $800,000 in 2009 and again in 2011, but $610,000 in 2012.

However, that property at Cultus Lake rose from $450,000 in 2009 to between $800,000 and $1 million in 2011, before dropping to $650,000 in 2012.

On Vancouver Island, prices rose slightly from $789,000 in 2009 to $825,000 in 2011 before going down again to $795,000 in 2012.

On Saltspring Island, prices dropped sharply from $890,000 in 2009 to $669,000 in 2011 and $597,000 this year.

In Whistler, the starting price for a mountain chalet also dropped, from $799,000 in 2010 to $700,000 in 2012.

Regionally, Ash said that prices have dropped in the Gulf Islands partly because Americans are buying there in lesser numbers, while the Shuswap and areas closer to the Alberta border have stabilized because of a moderate increase in interest from Albertans.

In Whistler, there's less interest from both European and U.S. buyers, with many of the sellers also Americans trying to unload their vacation properties.

For the North Okanagan, the report noted that despite significant price reductions (down 30 per cent from peak levels in 2007-08), activity has been slow.

"Weather's played a part, with plenty of rain dampening purchaser enthusiasm this spring," the report concluded. "The market has lost a fair share of recreational/investor buyers to the southern U.S., taking a bite out of the boomer/retiree purchasing pool.

"The bulk of those making their moves now are Albertans - most with young families."

Meanwhile, Rudy Nielsen, president of NIHO Land and Cattle Co. in New Westminster, which specializes in recreational land purchases, development and sales, agreed that sales are up this year with lower overall prices.

"It's increased from last year, but it's still not where it was," said Nielsen. "Everything can be negotiated."

He said while most buyers are B.C.-based, there's also renewed interest in some properties from European buyers. "And for the first time, we're seeing Chinese money in oceanfront properties."

He said many Metro Vancouver residents have sold their homes at a profit over the past two years and used some of the money to buy a vacation home in the Interior.

Nationally, the report found that Canadian recreational property markets were reinvigorated in 2012, with softer values, more selection and an upswing in sales.

It said sales were ahead of last year's levels in 70 per cent of communities examined, with lower prices recorded in 49 per cent of markets.

Vancouver will launch a subsidized public bike system for commuters next year for people who don't want to use buses, taxis or their own vehicles.

The program, which will cost Vancouver taxpayers about $1.9 million a year, is being modelled after similar public bike rental programs taking hold in major cities around the world, including Paris, Montreal, London, Washington and Toronto.

On Wednesday Vancouver council was told the city had narrowed down a list of potential operators to a single company, Alta Bicycle Share of Portland, Oregon, which plans to install 1,500 bikes at 125 self-service stations throughout the downtown and along the Broadway corridor. The company will use special gear-driven hard rubber-tired bicycles built by BIXI Public Bicycles System Co. of Quebec. The companies will also have to provide various-sized helmets to meet provincial helmet laws.

The program, which is expected to be launched by the spring of 2013, would allow people to buy daily, weekly, monthly or yearly memberships from Alta. They would then be able to pick up a bike at any of the locations and would be billed based on how long they use it.

Jerry Dobrovolny, Vancouver's director of transportation, said the concept is aimed at commuters who would use the bikes for a few blocks and then return them to any of the stations in the area. "This is to provide another transit option within the city," he said, adding it's aimed at both commuters and tourists.

"The learnings we've had from other cities is that it has transformed some car trips into some cycling, walking and transit trips. We know that it provides opportunity for people who are already in the downtown to get around."

He said Vancouver has opted to use a system operated by a third party such as Alta, similar to models used in Toronto, Paris, Minneapolis and New York. It looked at city-owned programs like those used in Washington, D.C. and Barcelona, Spain, and concluded there were too many financial risks.

Under the proposed model, each of Alta's stations would hold up to 20 bikes at a time and largely be located in public metered parking areas. Dobrovolny said the city is still in negotiations and isn't disclosing the entire subsidy it would have to offer Alta to make the program work, But he said a portion of costs would be in the form of foregone parking meter revenues.

There are no public bike systems in the world that are not subsidized, he said, but operate on the theory that they provide a larger society benefit that compensates for the subsidy.

In Toronto, where the program has been in place since last year, membership rates run from $95 annually or $40 a month down to $5 for a single day. Subscribers then pay $1.50 for the first hour and $4 for up to 90 minutes' use. Dobrovolny said rates for Vancouver have yet to be worked out but that they may be comparable.

Cities that have installed public bike systems have seen an increase in cycling and a decline in automobile use, he said. "We've seen mode shift changes in other cities, both in the form of spur-of-the-moment decisions as well as transformational change in converting car trips to other modes."

The proposed program received an enthusiastic thumbs up from Vision Vancouver Mayor Gregor Robertson, an avid cyclist who said the city needs to offer more public transportation alternatives that will help take cars off streets.

"Obviously there are many good reasons for a public bike system being created. That's why we're seeing hundreds of cities pursue this idea," he said.

The idea has long been championed by bike-friendly politicians, including Robertson and former Non-Partisan Association Coun. Peter Ladner.

But commercial bike rental companies that have built a thriving industry renting bikes to tourists who ride them around Stanley Park say they're worried the public bike system will put them out of business.

"We want to make sure the subsidized public bicycle system doesn't dramatically undercut the private rental industry," said Geoff Sharein, the product manager at Spokes Bicycle Rentals.

He told council that in other cities where a public system had been put in place, the operators had installed stations directly in front of existing rental companies, causing business to decline by as much as 25 per cent.

He suggested the city insist on memberships and rental rates that discourage tourists from using the bikes, especially since they aren't designed for touring. That would also protect the business of the 12 commercial rental bike companies near Stanley Park, he said.

Sharein's concerns touched a nerve with city councillors, who said that while a public bicycle system makes sense, it shouldn't come at the expense of existing small companies.

"I am really pleased they brought their concerns forward. I think there is plenty of room for both of these types of businesses, which are quite distinct," said Coun. Heather Deal. "We need to set up the system in such a way that it is a disincentive to use short-term rentals for a day of sightseeing."

Deal said she's not troubled by the idea of the city subsidizing a public bike system.

"We spend tens of millions of dollars a year on roads. We spend millions of dollars a year on infrastructure which supports a transit system. This is just another part of what we do as a city to support all the modes of transportation need to use."

Dobrovolny said he expects to bring a contract back to council to sign in the fall, with a soft launch of the system in the spring before a full rollout in the summer.

Housing starts in Metro Vancouver were down sharply in May from the same month last year, but have been on the rise since Jan. 1, according to Canada Mortgage and Housing Corp.

Despite the May numbers, developers remain optimistic and believe 2012 is shaping up as a good year.

“Based on the developers I’ve talked to, no one has delayed or deferred projects scheduled to come in Q3 [the third quarter] or Q4,” said Scott Brown, senior vice-president, residential markets, Colliers International. “Not only that, but we’re preparing for a strong fall season of launches.”

The CMHC survey released Friday showed the total number of Metro Vancouver starts in May stood at 1,692, down 15 per cent from the 1,991 starts in May 2011.

On the multi-family side, it was even steeper: an 18-per-cent drop from 1,660 in May 2011 to 1,365 in May 2012.

However, for the first five months of the year there were 7,655 starts, up seven per cent from 7,128 in the same period in 2011. Multi-family starts rose nine per cent in the first five months over the same period last year to 6,352 from 5,833.

For the city of Vancouver, things looked better with starts rising from 439 in May 2011 to 541 this May. Housing starts in the city for the first five months of the year reached 2,276, compared to 1,547 for the first five months in 2011.

Brown suggested the numbers in the latest CMHC survey didn’t reflect the strong pre-sales at projects like Telus Garden in downtown Vancouver – where 428 condos sold out in a week in late March – and other projects in which construction hasn’t started, but will shortly.

Brown, whose company is doing the marketing for Century Group’s planned 50-storey mixed-use hotel and residential project in Surrey called 3 Civic Plaza, said if Colliers felt the market wasn’t strong it wouldn’t have recommended the project’s launch this week.

“We are very optimistic about the project. If you have a good asset, the market is strong, especially if it’s on transit.”

Brown also believes newer product is doing well despite slowing sales in the resale market.

“Resales are still cheaper, but there’s a lot of really well-priced new product for people who would typically go to resale.”

CMHC senior market analyst Robyn Adamache said May’s drop in starts is not particularly noteworthy, because multi-family starts can be quite volatile on a month-to-month basis. Adamache prefers to see longer-term results before calling it a trend.

“It’s just one month of data. I think we’re on track for a year that’s fairly similar to last year, about 18,500 starts.”

Adamache noted that housing starts are not considered starts until the foundation of the building is poured, “so pre-sales are not counted.”

Adamache also said that nearly three-quarters of all multiple-family starts during the first five months of the year were in Burnaby, Coquitlam, Richmond, Surrey and Vancouver

When Raj Bhangu put a secondary suite into his Kitsilano house, he spent the extra $20,000 to do it legally and get the right permits. But he was surprised to find that even though he had home insurance, it would have been null and void had the unthinkable happened — a flood, fire, earthquake or any other unforeseen catastrophe.

That’s because insurance companies will not pay out if homeowners don’t inform them when they put in a secondary suite, something Bhangu found out when his insurance came up for renewal several months after his first tenants moved in.

Almost one quarter of B.C. residents rent out a secondary suite in their home to help with the mortgage — and that’s likely a conservative estimate — but most are unaware they are not covered if their insurance company doesn’t know about it, according to Square One Insurance.

Many people are reluctant to tell their insurer they have a secondary suite because they may not have followed all the rules, said Square One CEO Daniel Mirkovic. It is a widespread misconception that insurance companies pass on information about illegal suites to municipal governments, he said.

“For insurance purposes, it really doesn’t matter whether it’s a permitted or a legal suite,” he said. “In most cases, coverage is available. It might cost you a little bit more, but in the long term it’s well worth it.”

Insurers are only concerned about properly assessing the risk and making sure the customer is being charged at the correct rate, Mirkovic said.

An insurance company would only communicate such information to a government authority under a court order or with the homeowner’s explicit permission, given in writing, Mirkovic said.

Failing to tell the insurance company about a secondary suite is “the absolute worst thing that could happen because they’ll say that you didn’t disclose all of the necessary and pertinent information on the home which would have affected their decision as to whether they would insure the risk or not,” Mirkovic said.

In Kitsilano, Bhangu said many of his neighbours who rent out basement suites don’t know what the rules are.

“If you have an illegal suite, you’re not necessarily going to go and tell your insurance company that ... so they just avoid it altogether,” said Bhangu, noting that his insurance went up by about $100 a year when he informed the company of the suite.

Many people tend to think of insurance as something they pay every month and don’t necessarily think to ask the pertinent questions, he added.

“It’s a recurring thing that you hope you’re covered [for the] worst-case scenario.”

Other changes to homes that may affect insurance rates are going from a one- to two-family residence and conversions of garages to coach houses, according to Square One.

Another thing most landlords don’t know is that they can purchase insurance to cover a loss of rental income stemming from damage that requires repairs, Mirkovic said.

Former mayor Sam Sullivan opened the Vancouver Urban Forum Wednesday morning in front of a large screen tallying the loss of green space in the region - at a rate of eight square feet every second.

Although that figure is an improvement on last year, when 10 square feet were lost per second, the experts warned that Metro Vancouver residents must continue to embrace density to prevent urban sprawl.

Sullivan's "sprawl meter" has been running online for a year now, but he reset it Wednesday morning to show forum attendees just how much land is built on, even in the course of a single day. He developed the meter with Patrick Condon, senior researcher at the Design Centre for Sustainability at the University of B.C.

"I wanted to really quantify what's going on in the region," Sullivan said. "I think people need something simple and clear."

It might seem too simple, though, to suggest one number can illustrate the effect of sprawl in multiple communities across southwest B.C.

Condon said he arrived at the figure by taking the annual number of housing starts for single family homes and row houses between Hope and Squamish from the Canada Mortgage and Housing Corp. He then divided that by the average number of units permitted per acre, converted the figure into square feet and then divided that number by the total seconds in a work week over the course of one year.

The centre's results were reviewed by the Sightline Institute, a non-profit sustainability think-tank based in Seattle, which arrived at a similar figure.

Despite the compounded use of averages, Condon said Wednesday the sprawl meter is "plenty accurate."

He added this year's slight decline in the rate of green space loss is due to two main factors.

"It is slowing down some," Condon said. "I think part of that is we're running out of land and part of it is that the market is trending towards denser development."

Throughout the forum, speakers stressed the need for new approaches to urban density in order to slow sprawl and preserve natural spaces.

Dan Zack is a planner for Redwood City, an affluent California community that long resisted moving away from single-family neighbourhoods before embracing significantly higher density. He said his city is a good example of how to overcome suburban NIMBYISM.

"The population continues to grow," Zack told the forum. "And we have to build up if we are going to keep people out of the forests and the wetlands."

Zack said he made a case to Red-wood residents that living in a com-pact community would reduce their household costs and their tax burden and improve their quality of life.

"People want to spend less of their weekend mowing the lawn and less of their weekday on the highway."

Pedestrian-friendly street design, smaller lots, and "unbundling" parking spaces from new units were key to Redwood's success. Another key factor, Zack said, was to avoid radical departures in design. "We don't need to press on people's artistic sensitivities. Find out what they want, give them what they want, and you'll get support."

The latest Metro Vancouver real estate numbers are "very clear signs" of a slowdown in the market, according to a local analyst.

"We're getting this consistently now," said Tsur Somerville, director, centre for urban economics and real estate, Sauder School of Business at the University of B.C., after a monthly report by the Real Estate Board of Greater Vancouver showed a continued rise in listings as sales drop.

"We're in a market that's much slower than what we're used to and I think that will transfer into much more sluggish prices, at best."

According to the board's report, released Monday, May sales were the lowest total for the month since 2001 and 21.1-per-cent lower than the 10-year average for May sales. Local home sales in April were also the lowest total for that month since 2001.

Somerville noted that it's the eighth consecutive month in which sales dropped compared to the same month a year before.

Despite the trend, the report said the Metro Vancouver market remains stable with little in the way of price increases, and that sales have been constant through the spring months, with similar numbers in March and April.

Cameron Muir, chief economist for the B.C. Real Estate Association, maintained that the market remains balanced.

"Overall, the market remains in balanced territory, which means no particular advantage for either the buyer or seller," said Muir. "We won't see much upward or downward pressure on the pricing side."

According to the REBGV report, sales reached 2,853 in May, 15.5-per-cent lower than the 3,377 sales in May 2011.

However, new listings reached 6,927 in May, more than 14 per cent higher than April and a 16.8-per-cent increase compared to a year ago, when 5,931 homes were listed for sale.

The number of new listings last month was 15.3 per cent above the 10-year average for May listings.

At 17,835, the REBGV said, the total number of listed homes increased 7.9 per cent in May compared to April and 21 per cent above this time last year.

"Home sellers have outpaced buyers in recent months, however, there continues to be an overall balance between supply and demand in our marketplace," real estate board president Eugen Klein said in a statement.

"Our sales-to-active-listing ratio sits at 16 per cent, which is indicative of balanced market conditions," he added. "As a result of this stability, home prices at the regional level have seen little fluctuation over the last six months."

According to Muir a balanced market is typically between 15 and 20 per cent.

According to the report, the bench-mark price - the price of a typical home - for all residential properties in Metro Vancouver is now $625,100, up 3.3 per cent compared to May 2011 and up 2.4 per cent over the last three months.

Sales of detached homes in May reached 1,180, a drop of 24.8 per cent from May 2011. The benchmark price for detached homes increased 5.1 per cent from a year ago, to $967,500.

Muir said home sales have been moderating since the beginning of the year, with prices flat relative to last year.

Sales could bounce back in June, he added, but "there is little if any upward pressure on housing prices."

Somerville said he can't pinpoint a specific reason for the sales slowdown, but that factors could include a lack of faith in the economy, a slowdown in offshore investment or buyers refusing to pay high prices.

In the Fraser Valley, it was a different story - both listings and sales rose.

"It's a healthy, competitive market," Fraser Valley Real Estate Board president Scott Olson said in a statement. "The average number of days to sell a detached home or a townhome is still only a month and a half and for con-dos a little over two months, which is why we're seeing benchmark prices in most communities holding steady."

According to the board, there were 1,616 sales in May, an increase of 13 per cent compared to April and similar to the 1,608 sales in May 2011.

As well, the board received 3,305 new listings, an increase of eight per cent from May 2011, increasing the inventory of active listings in the Fraser Valley to 10,826, also up eight per cent from May 2011.

In the Valley, the benchmark price for a single family detached home increased 3.6 per cent, from $528,900 in May 2011 to $548,000 last month.