After nearly four decades in the business, developer Eric Carlson says he’s never seen his industry so bogged down in red tape as he has in the last several years. Increasing regulation is getting in the way of housing supply, says Carlson, Founder and Chief Executive Officer of Anthem Properties.
“The approval process is brutal today. That's the biggest change. And it really accelerated in the last seven years, eight years,” says Carlson. “The planners go to school, and they used to be taught how to get stuff done. And now they're taught how to protect the cities from developers. It’s much more intrusive, I think. They’re good people, it's just how they're taught. “You’ve got pro-growth, you’ve got anti-growth, and you've got a strong belief that the political framework can fix things, like rising prices through regulation. And it can't. It just bogs things down and the belief that regulation can solve problems is much more prevalent today than it was when I started in the business, when there was much more of a [attitude of], ‘well, we need developers to do this, so we'll work with them.’”
Without regulatory interference, developers could fast-track projects with a higher degree of certainty, and more confidence that the presale buyers will be there to support construction costs, says Carlson. The private industry, he says, can deliver housing supply at a rate that isn’t achievable through any publicly funded means, although government can play a role in delivery of social housing.
“In my company, I work about 70 hours a week. I've been in the business for 40 years and most of my VPs work at least 50 hours a week, maybe 60, in a bad week,” he says. “And when we work, we don't just sort of show up at the office and drink coffee like we're working and we're solving problems. We're making things happen, because we have to pay for everything ourselves. We really have come to understand finance and being on time and on budget and how important that is. And I think... that process is going to create more products more quickly, more easily than, say, BC Housing.”
Over four decades, Carlson has seen sweeping changes in Vancouver real estate, including urban planning trends, policy changes, growing costs and wildly shifting market cycles. He got a business degree in urban land economics from UBC in 1982 and graduated only to discover that there were no jobs in the industry. With a prime rate of 23%, the market was dead. So, he worked as a chartered accountant for a couple of years before landing his job with successful shopping mall developer Schroeder Properties. At its peak, the company owned more than 25 shopping malls, and it was the perfect mentorship for young developers. Carlson worked alongside Ian Gillespie, who’d go on to found Westbank, and Brent Sawchyn, who’d go on to found PC Urban.
“We sort of were bonded by our motivation to end up being self-employed in the real estate business,” he says. “I was there for five years, learned a ton, and then I left and started my own company.”
In 1991, Carlson launched Anthem Properties, which is now one of BC’s largest developers and part of investment company Anthem Capital. Anthem has 31,500 homes finished or underway in its portfolio, in BC, Alberta, Ontario, and California. Like most big developers, the company partners with institutional investors, such as its partnership with Crestpoint Real Estate Investments, to develop a rental highrise at Thurlow and Burnaby streets in the West End, set for a public hearing this fall. Anthem brings in-house construction, in-house sales, and in-house marketing to the partnership. The assembled site, which has changed ownership over the years, had started off as a condo proposal before Strand and Intracorp submitted a rezoning application for a rental tower. Under the Crestpoint-Anthem ownership, the project has become a 32-storey, 300-unit rental tower with 20% reserved for below-market units.
“[Rental buildings] create income, and that’s steady cash flow, whereas with condos you spend years and years building a condo tower, you invest money, and more money. Years go by, then you get the money back. It's lumpy, whereas once an apartment is up and running, it's just a machine that keeps going. Same thing with any income property.
Anthem's first purpose built rental building in North Vancouver, dubbed 'Origin'.
“And from a strategic point of view, I think it's good for a company to have both types of cash flow in their strategy to sort of even it out. So, it's not like feast or famine.”
About 60% of its portfolio is development, while almost 40% is income property holdings, says Carlson. Of those income properties, about one third are food-anchored retail, one third are multi-family rental, and one-third are industrial-warehouse distribution.
Early on, Carlson knew he wanted to work in real estate, to grow a business. Raised in a post-war bungalow on Vancouver’s North Shore, in a two-bedroom house with three kids to one bedroom, he was part of a happy middle-income family that ate fried spam and meatloaf and knew all the neighbours.
“I knew I wanted to be self-employed, and I knew that from the time that I understood money, as a little kid... I’ve always had an intuitive, emotional love for property, for space. I think that’s because my dad, being an architect, always talked about buildings everywhere we went. And my grandfather was a carpenter and built stuff and had a big workshop in his basement.”
Working for Schroeder, he saw a trailer park property get rezoned and redeveloped into a shopping mall in just a little over a year. Today, he says, that would take around six years. Carlson believes that the drawn-out timelines to build, exacerbated by permitting processes and building codes, as well as the ever-shifting landscape of government policies, have created a “bogged down” situation that thwarts supply.
The federal increase on capital gains, for example, will turn off investors who are needed for the presale model to succeed. As well, the federal ban on foreign buyers, he says, didn’t result in reduced prices. There are many provincial policies also aimed at curbing speculation and investment demand, such as a 20% foreign buyers’ tax, a tax on homes valued at more than $3M, and the speculation and vacancy tax, on homes left empty for six months of the year. There’s an upcoming provincial flipping tax on homes sold in under 730 days. And amid the challenge of demand-side policies, all levels of government look to developers to provide below-market housing, with increasing community amenity contributions and other levies, he says.
Simply put, if they can’t cover costs fast enough, the numbers don’t work, and then the projects don’t go forward, says Carlson.
Envoy is a six-level rental building from Anthem currently leasing in Sacramento, California.
“And the interest rates are a double whammy because not only are they higher than they used to be, if you're owning land for twice as long as you used to – to get through the approval process – that's twice as much capital. That's capital tied up for twice as long. And if it's debt, you have got to pay interest on it. And so, the interest costs are higher because the rates are higher, but they're higher because you have the debt outstanding for a longer period of time to produce the same housing unit, or the same piece of property, or whatever.
“And so, the price we pay by managing demand is that we also inadvertently manage supply.
“But this dynamic didn't exist in 2015. In 2015, we bought stuff. We got it rezoned.”
The good news is that building quality and design have improved, and developers understand that it’s best to engage with the community, says Carlson. As for affordability, he says there’s no reason that Vancouver prices need to be so high, especially when he’s building homes in California for $600,000 US and homes in Alberta for half the price of BC houses.
“There’s a supply constraint with the [Agricultural Land Reserve], the mountains, the border, and the ocean. We all know that. But it could be better than it is. And I think we're bogged down because we've gotten in our own way. We let our idealism about what a city should look like make it more expensive. We then tried to fix it with rules that made it even more expensive again.
“And now we bogged the whole thing down and everyone's pointing fingers at everybody else. We just need to unpack it all and sort of go back to basics and start from a reset point,” he says.
We did it in the post-war years that kicked off the baby boom, he says.
“We built millions of homes over a very short period of time because we were cooperating with each other.”
