Buyers Stepping Back, Insurance Already Chilling Market

[cornholio]

Not understanding talk about the government stepping in. Condos are depreciating assets. The land bellow them may appreciate and it may even appreciate faster then the depreciation of the structure if it's well located. But overall once built the structure its self begins to depreciate and maintenance costs begin to increase. Especially if the structure is poorly built and or complex. I mean if you have a concrete box that is well designed you will likely be in a much better place 20 years later in comparison to a value engineered mix of concrete and wood and who knows what else slapped together in a complex way.

My point is the government should not be stepping in. It should allow prices to correct. Yes that 500k condo is not actually worth 500k, it's worth 200k with increasing maintenance costs. Suddenly at 200k and the fees to maintain it there's no problem. Prices simply went well into bubble territory and were never sustainable. Some of these places were never worth what people paid for them in the housing frenzy.

Good news is prices will fall. People will begin to pay more attention to design and how it will age. And construction companies will adjust to build for less and with better designs that can last and be easily maintained and serviced in the future.

[whatnext]

Originally Posted by s211

Next step sounds like an ICBC for condos. Good gawd, I hope not.

Who regulates insurance, the Feds or the province? Just make it illegal to have policies that set the deductible above a certain limit.

[Changing City]

Originally Posted by whatnext

Who regulates insurance, the Feds or the province? Just make it illegal to have policies that set the deductible above a certain limit.

There are an increasing number of stratas that can't get insurance at all. I think that's why the ICBC clone is being suggested.

This may not be accurate, but as I understand it the individual strata's construction or claim history has a part to play in the recent increases. Another part is how much Insurance Companies are having to pay for re-insurance. They rely on covering the risks of a bad year by getting coverage themselves, and in the past year the re-insurance rates have increased significantly. Those are related to the collective costs of all property insurance claims, so that's where the floods, fires and other natural disasters (increasingly linked to climate change) play into rising costs for a strata in Burnaby with no claims and not located in a higher risk location (next to the river, or in a floodplain for example).

[misher]

Originally Posted by Changing City

There are an increasing number of stratas that can't get insurance at all. I think that's why the ICBC clone is being suggested.

This may not be accurate, but as I understand it the individual strata's construction or claim history has a part to play in the recent increases. Another part is how much Insurance Companies are having to pay for re-insurance. They rely on covering the risks of a bad year by getting coverage themselves, and in the past year the re-insurance rates have increased significantly. Those are related to the collective costs of all property insurance claims, so that's where the floods, fires and other natural disasters (increasingly linked to climate change) play into rising costs for a strata in Burnaby with no claims and not located in a higher risk location (next to the river, or in a floodplain for example).

At a minimum the government would need to revise the strata act that requires insurance.
I would also say they should revise the strata act to allow stratas to mitigate claims and losses, give them the ability to require owners put in braided lines. Also they need to revise the building code to require a drain in the bathroom floor of all bathrooms like most intelligent nations. This would likely stop 50% of leaks. Also would be nice if the dryer was beside the wall to prevent laundry duct leaks and the dishwasher was another inch off the floor so leaks are obvious. One stupid building code regulation is that they regulate the side of waste stacks so that if the developer wants to put a bigger one in they are stopped (true story). So you get blockages in the vertical stacks because they are smaller than needed.


At a maximum it would need to set up an insurer to takeover the industry if insurers withdraw from the market.

I realize there are certain people on this forum who just want homeowners to suffer, but realistically this is what government exists for. This is an issue affecting all of our population as if a homeowner can’t get insurance there’s no way they are going to risk a tenant or purchase a condo for rental.

[Changing City]

Originally Posted by misher

At a minimum the government would need to revise the strata act that requires insurance.

That's not going to solve the problem, as the market would grind to a halt. Most lenders won’t give you a mortgage without proof of home insurance. They're also not loaning to potential purchasers of buildings that aren't insured. That was one of the first stories that hit the press.

[WarrenC12]

Originally Posted by cornholio

Not understanding talk about the government stepping in. Condos are depreciating assets. The land bellow them may appreciate and it may even appreciate faster then the depreciation of the structure if it's well located. But overall once built the structure its self begins to depreciate and maintenance costs begin to increase. Especially if the structure is poorly built and or complex. I mean if you have a concrete box that is well designed you will likely be in a much better place 20 years later in comparison to a value engineered mix of concrete and wood and who knows what else slapped together in a complex way.

But this is about insurance, not construction quality or whatever you are alluding to. And it's impacting all kind of buildings, brand new concrete to old wood.

[s211]

Originally Posted by cornholio

Not understanding talk about the government stepping in.

I think it's fear of a kneejerk reaction where we'll see people demand the government do something, and an NDP solution would typically require staffing up in one form or another. Wasn't it a kneejerk that brought ICBC into existence?

[DKaz]

Originally Posted by Vancouverisfalling

1)People just starting to understand the seriousness of these changes

2)Some buildings simply cannot get Insurance without expensive repairs and maintenance, causing Strata Fees to Spike

3)Mortgage Lenders will not approve purchases of Condos which do not qualify for Insurance

4)Condo prices will be impacted and the market is already feeling the chill

https://www.msn.com/en-ca/video/news...rns/vi-BBXz0Nc

Makes me glad that my condo decided to do a depreciation report back in 2008. Strata fees jumped up 50% but they repaired everything on schedule to meet the depreciation report.

[WarrenC12]

Originally Posted by DKaz

Makes me glad that my condo decided to do a depreciation report back in 2008. Strata fees jumped up 50% but they repaired everything on schedule to meet the depreciation report.

When's the last time your insurance was renewed? I'm willing to bet you will still be impacting by these rate shocks.

[rofina]

Originally Posted by cornholio

Not understanding talk about the government stepping in. Condos are depreciating assets. The land bellow them may appreciate and it may even appreciate faster then the depreciation of the structure if it's well located. But overall once built the structure its self begins to depreciate and maintenance costs begin to increase. Especially if the structure is poorly built and or complex. I mean if you have a concrete box that is well designed you will likely be in a much better place 20 years later in comparison to a value engineered mix of concrete and wood and who knows what else slapped together in a complex way.

My point is the government should not be stepping in. It should allow prices to correct. Yes that 500k condo is not actually worth 500k, it's worth 200k with increasing maintenance costs. Suddenly at 200k and the fees to maintain it there's no problem. Prices simply went well into bubble territory and were never sustainable. Some of these places were never worth what people paid for them in the housing frenzy.

Good news is prices will fall. People will begin to pay more attention to design and how it will age. And construction companies will adjust to build for less and with better designs that can last and be easily maintained and serviced in the future.

Not realistic.

You want a 500k condo to fall well below replacement value, even if land was free.

Absolute best case scenario, with free land, you're paying $250 a sq/ft to build in Vancouver, if its low rise wood. That's $150,000 for 600sq/ft.

But of course you don't only sell condos, there is common corridors, roofs, etc, etc. Add another 1/3 for common areas. That's now $200,000 break even on a 600sq/ft condo.

That means its been built at 0% profit, on free land, with no marketing, legal, financing, holding, any soft costs at all. And at absolute best labor rates available in the market possible.

Best case, your scenario only works if we create a Provincially or Federally run Developer that's able to guarantee everything with the Government behind to secure best rates, and cheapest materials in bulk.

While operating at no profit.

That seems like a near insurmountable challenge.

And at the end of it all - replacement cost will be still at market rates. So it doesn't even do anything alleviate the insurance concerns.

[CanSpice]

I was at a CHOA forum on insurance last night, and the basic gist is there's nothing anybody can do to get premiums to level off other than wait. We're in what's called a "hard market", where insurance payouts go up, insurers exit the market, premiums go up, deductibles go up. This has been caused by an increase in the number of catastrophic loss events (Fort Mac, flooding in Calgary, wildfires in California and Australia, hurricanes in the Gulf and the Atlantic seaboard, etc) over the past few years. Individual stratas can't do anything other than keep up with maintenance and maybe take some proactive measures that will reduce the risk of a claim, things like repiping or having a depreciation report and an action plan to act on the findings of the depreciation report. Then again, the moderator told a story of a strata that had a depreciation report, an action plan, and replaced the pipes in the building and still got hit with a 28% increase in premiums.

The provincial government will not step in with some kind of ICBC solution, mostly because the dollar amounts are so high. Insurers are required by law to have sufficient capital in Canada to address claims, and in the property market there's way too much that needs to be insured that the provincial government can't keep that capital on hand without having an extreme negative impact on the rest of government. Borrowing rates would go up, for example, which has negative impact on debts and deficits.

One thing that the CHOA moderator said the government is looking at is requiring depreciation reports instead of allowing stratas to vote to waive them year after year, and also requiring stratas collect sufficient cash to act on the findings of the depreciation report. This is apparently what's done in other provinces, but other provinces are also being affected by the huge increase in premiums so I don't know that this is actually going to affect anything.

The basic gist I got was suck it up, find a way to pay the premiums, and wait for the premiums to get high enough that other insurers will re-enter the market because now they can start making money again.

[rofina]

Originally Posted by CanSpice

I was at a CHOA forum on insurance last night, and the basic gist is there's nothing anybody can do to get premiums to level off other than wait. We're in what's called a "hard market", where insurance payouts go up, insurers exit the market, premiums go up, deductibles go up. This has been caused by an increase in the number of catastrophic loss events (Fort Mac, flooding in Calgary, wildfires in California and Australia, hurricanes in the Gulf and the Atlantic seaboard, etc) over the past few years. Individual stratas can't do anything other than keep up with maintenance and maybe take some proactive measures that will reduce the risk of a claim, things like repiping or having a depreciation report and an action plan to act on the findings of the depreciation report. Then again, the moderator told a story of a strata that had a depreciation report, an action plan, and replaced the pipes in the building and still got hit with a 28% increase in premiums.

The provincial government will not step in with some kind of ICBC solution, mostly because the dollar amounts are so high. Insurers are required by law to have sufficient capital in Canada to address claims, and in the property market there's way too much that needs to be insured that the provincial government can't keep that capital on hand without having an extreme negative impact on the rest of government. Borrowing rates would go up, for example, which has negative impact on debts and deficits.

One thing that the CHOA moderator said the government is looking at is requiring depreciation reports instead of allowing stratas to vote to waive them year after year, and also requiring stratas collect sufficient cash to act on the findings of the depreciation report. This is apparently what's done in other provinces, but other provinces are also being affected by the huge increase in premiums so I don't know that this is actually going to affect anything.

The basic gist I got was suck it up, find a way to pay the premiums, and wait for the premiums to get high enough that other insurers will re-enter the market because now they can start making money again.

That sounds like a potential solution, but it poses its own problems.

You now need to convince nearly every strata in BC to double maintenance fees.

I have sat on 2 strata councils in Vancouver, and both have been on what are ultimately well run properties.

I got to see the depreciation reports for both, neat perspective because one complex was 300 something units, and my current building is 50 something units.

In my current building, a properly funded CRF that actually addresses the 20 year maintenance horizon outlined in the depreciation report, would require 1 bedrooms having fees of about $520/month - in a building that offers no expensive amenities, swimming pools, saunas, etc. Its also only 4 years old.

That's a hard sell all around.

[misher]

Originally Posted by rofina

That sounds like a potential solution, but it poses its own problems.

You now need to convince nearly every strata in BC to double maintenance fees.

I have sat on 2 strata councils in Vancouver, and both have been on what are ultimately well run properties.

I got to see the depreciation reports for both, neat perspective because one complex was 300 something units, and my current building is 50 something units.

In my current building, a properly funded CRF that actually addresses the 20 year maintenance horizon outlined in the depreciation report, would require 1 bedrooms having fees of about $520/month - in a building that offers no expensive amenities, swimming pools, saunas, etc. Its also only 4 years old.

That's a hard sell all around.

Depreciation reports are very high estimates based on bad scenarios. Most components last way beyond the given 25 year estimated lifespan. And the costs the engineers predict are usually much higher than what it costs me to fix them. Even with a depreciation report my buildings generally do not raise fees and they are still well run with healthy contingencies. Most however choose to defer the report, 6-8k goes pretty far especially when you have 50 units or less. Get a good treatment system in early and you will never need to repipe more than small sections. I believe replacing thing according to the depreciation reports timeline is often over-reactive, if it ain't broke don't fix it. Often leaks can be patched and the remainder will still last a decade or two. As for the elevator, as long as the company can get components they seem to last forever and I've come to realize that certain companies make a dramatic difference in your reliability. Ever since I discovered this one company I haven't had a single breakdown and the company before I had them monthly. You pay a bit more but then they don't charge for emergency callouts so I guess they make sure they never have to make one.

One building choose a new roof coating systems ontop of the old roof to extend the estimated lifespan instead of getting a depreciation report. I am going to be watching to see how well it works and if it lasts to the end of the 25 year warranty.

PS: I would strongly suggest against hiring any elevator company that starts with a S or a F unless you enjoy being trapped in elevators.

[rofina]

Originally Posted by misher

Depreciation reports are very high estimates based on bad scenarios. Most components last way beyond the given 25 year estimated lifespan. And the costs the engineers predict are usually much higher than what it costs me to fix them. Even with a depreciation report my buildings generally do not raise fees and they are still well run with healthy contingencies. Most however choose to defer the report, 6-8k goes pretty far especially when you have 50 units or less. Get a good treatment system in early and you will never need to repipe more than small sections. I believe replacing thing according to the depreciation reports timeline is often over-reactive, if it ain't broke don't fix it. Often leaks can be patched and the remainder will still last a decade or two. As for the elevator, as long as the company can get components they seem to last forever and I've come to realize that certain companies make a dramatic difference in your reliability. Ever since I discovered this one company I haven't had a single breakdown and the company before I had them monthly. You pay a bit more but then they don't charge for emergency callouts so I guess they make sure they never have to make one.

One building choose a new roof coating systems ontop of the old roof to extend the estimated lifespan instead of getting a depreciation report. I am going to be watching to see how well it works and if it lasts to the end of the 25 year warranty.

PS: I would strongly suggest against hiring any elevator company that starts with a S or a F unless you enjoy being trapped in elevators.

This is fair, and good points.

The report addresses major items at end of life, for instance new balconies, new roof, boilers, etc. To have money for all that and other items along the way would cause some pretty hefty raises.

Luckily, the owners seems to be largely receptive to increases well above inflation so that we can ensure the building is well run and without significant special levy's.

The same can not be said for every strata, that's for sure.

One specific bit I would like to know is the differences between wood and concrete.

I used to be a huge fan of concrete construction, for many reasons, one of which was durability. Personally, I have since changed my tune.

The amount of spalling, rod rot, and cracking I have seen in concrete high rises go unaddressed is alarming. Not to mention the costs to repair high rise once damaged are prohibitively higher.

I wonder if this favors the smaller 5/6 floor wood frame builds around town.

[misher]

Originally Posted by rofina

This is fair, and good points.

The report addresses major items at end of life, for instance new balconies, new roof, boilers, etc. To have money for all that and other items along the way would cause some pretty hefty raises.

Luckily, the owners seems to be largely receptive to increases well above inflation so that we can ensure the building is well run and without significant special levy's.

The same can not be said for every strata, that's for sure.

One specific bit I would like to know is the differences between wood and concrete.

I used to be a huge fan of concrete construction, for many reasons, one of which was durability. Personally, I have since changed my tune.

The amount of spalling, rod rot, and cracking I have seen in concrete high rises go unaddressed is alarming. Not to mention the costs to repair high rise once damaged are prohibitively higher.

I wonder if this favors the smaller 5/6 floor wood frame builds around town.

Concrete seems to depend a lot on the developer. Have had a very good experience with most of mine that are 10-50 years old. But some have had membrane issues, usually in or near planters (and as I've repeatedly stated having plants/trees on buildings is insane). A lot of older concrete highrises are very reliable simply because the city didn't require nature to be integrated back then and designs were simple and boxy. Very little spalling or rod rot. Some cracks but minor. Some water penetrating to the rebar, have cut the concrete away and cut the rusted rebar away then patched (not recommended unless you know what your doing). Have had issues with water penetrating the parkade in older buildings but we can usually just inject it every few years and install drain tile. It looks bad but it gets you to the estimated end lifetime, most of my solutions are looking to get the building past 20-30 years because once a building is 50+ its time to redevelop it. A lot of buildings fail to do regular caulking and sealing, many buildings honestly need it every 5-8 years. Whats great about Vancouver real estate is that most people realize that the building is going to be re-developed so most are a lot happier with ugly patches than a special levy.

Engineers are great if you don't care about money. I never use them myself because I know how to solve issues to keep things going while engineers usually want to replace them. Then again having one wall be a different color than another or patching the roof in several places or having a big lump of caulking in a section isn't something most people can put up with. Pretty much every leak can be solved if you use enough sealant ^^

Have also applied 5+ layers of paint back when labour was cheap on some concrete buildings, that helps a lot. As the Simpsons has proven with enough layer of paint your house can survive anything.

[WarrenC12]

One thing the government could do is to mandate higher portions to contingency reserve. Currently it is 10%, previously I believe it was 5%. Perhaps 20-25% is a more reasonable amount, and give existing stratas some time to catch up.

Right now CRF balances seem low when "real" maintenance bills come up.

[misher]

Originally Posted by WarrenC12

One thing the government could do is to mandate higher portions to contingency reserve. Currently it is 10%, previously I believe it was 5%. Perhaps 20-25% is a more reasonable amount, and give existing stratas some time to catch up.

Right now CRF balances seem low when "real" maintenance bills come up.

Its 25% that the act tries to maintain.

If the amount in the CRF is less than 25% of the total annual budgeted contribution to the operating fund for the fiscal year that just ended, then the minimum contribution to the CRF must be at least 10% of the total contribution to the operating fund for the current year until the 25% minimum is reached.

But anything less than 100% on smaller buildings whose budget is less than $60k (the cost to replace a hydraulic cylinder) is bad. Bigger buildings can get away with 50%.

[WarrenC12]

Originally Posted by misher

Its 25% that the act tries to maintain.



But anything less than 100% on smaller buildings whose budget is less than $60k (the cost to replace a hydraulic cylinder) is bad. Bigger buildings can get away with 50%.

Sorry I meant 20-25% of total annual budgeted should go to CRF.

[misher]

Originally Posted by WarrenC12

Sorry I meant 20-25% of total annual budgeted should go to CRF.

Under the proper system where you use the CRF for expenses incurred less than once a year yes. But most stratas don't bother to have a SGM for every capital expense/upgrade. Its honestly insane to designate the CRF as the account for capital expenses then require a SGM to spend it every time, no volunteer or Owner wants to go to all these meetings. Strata Council's should be allowed to spend 5-10% of the CRF a year without Owner approval.

We've been doing around 5-10% a year and we just don't touch the CRF unless we hit a real emergency.

The Strata Act is this "ideal" document that government came up with assuming everyone is going to volunteer, be good neighbours, and care about their building. Sort of like communism.

A lot of illegal rentals occur simply because no ones ever met the owner of many units so they assume the tenant is the owner.

[SpongeG]

I don't understand how a petition will do anything but good luck

New West condo owners launch petition in response to insurance crisis

By Theresa McManus, New Westminster Record | February 19, 2020


Residents of the Anchor Pointe strata, including (from left) Peggy McNeil, John McNeil, Bruce Campbell, Wesley Hartford, Asifa Lalji and Isaac Bull, are facing a 300% increase to their insurance premiums this year. Lalji,in plaid, has spearheaded an online petition that's been signed by nearly 1,500 people | Photo: Jennifer Gauthier

Soaring insurance premiums are causing panic among some condo owners.

Asifa Lalji, who owns a condo in Anchor Pointe at the Quay, said her strata had been anticipating increases to their insurance rates, but it turned out to be far worse than anyone imagined.

“We thought we were going to get a 40% increase in our insurance for our building, which would then translate to an increase in our maintenance fees,” she said. “Then January rolled around, when our insurance for the building actually came due, and we found out instead of a 40% increase that we had budgeted for, we actually ended up with a 300% increase.”

Lalji said other stratas in the area are facing similar increases, which could result in increased maintenance fees and/or special levies – something many residents may not be able to afford. She said the increases are particularly challenging for seniors and people with disabilities.

“Having a hit like that – where does the money come from? You dip into your savings, you dip into your home equity lines. There is no fiscally responsible way to cover these costs,” she said. “What do you do when all of a sudden you have like a $150 or $200 increase to your living expenses every month?”

Bruce Campbell, Anchor Point’s strata president, said a 40% hike in insurance premiums would have seen in his monthly strata fees rise to about $480 a month, but it’s now more than $600.

“People are obviously in a panic and a crisis mode at this point in time,” he said of the 300% increase. “They just don’t know what is going to happen, what the rates are going to be next year.”

...

https://biv.com/article/2020/02/new-...surance-crisis