Friday, December 12, 2008
Below is a Financial Post article regarding the decision of the Bank’s to not pass on the full 75 bps rate cut. Specifically:
“In normal times, financial institutions do better when the central bank lowers the cost of funds, happily passing on cheaper loan rates to consumers to encourage them to borrow more. But when the official rate starts getting closer to zero, the dynamics start to change, as the prime rate that banks charge customers is pushed nearer to their own cost of funds.”
Simply put, we’re in unchartered territory. The BOC rate is at a 50 year low. There’s little data available to see what Bank’s have done in the past under these circumstances. So while many economists suggest a further 50 bps rate cut is going to happen January 20th, there are absolutely no guarantees the Banks will follow. We’re getting to the point where further BOC rate cuts may not have much of an impact in terms of economic stimulus.
Bay Street changes rules of rates game
Eoin Callan and Gary Marr, Financial Post Published: Tuesday, December 09, 2008
Canadian bank executives say the cost of funding in international markets remains extraordinarily high.
Bay Street's profit margins are starting to come under pressure as official interest rates creep closer to zero, prompting retail banks to change the rules of the game so customers pay more.
While the Bank of Canada on Tuesday cut interest rates to the lowest level since the 1950s, the country's five big banks indicated they would no longer march in lock step with the central bank. Instead, Bay Street is keeping the cost of borrowing for consumers more elevated in a bid to protect corporate earnings, passing on only part of the rate cut to customers.
While the decision of Bay Street to pocket part of the Bank of Canada rate cut is seen as good for shareholders and bad for customers, there is less certainty about how it will impact wider demand, partly because there are few historical precedents.
"We just don't have much experience with this," said an official at the Federal Reserve who has studied how financial institutions behave when central banks cut rates close to zero.
The central banker said data were limited but suggests retail banks remain willing to lend even when official rates fall near zero, as they tend to find ways to protect profit margins on loans.
In normal times, financial institutions do better when the central bank lowers the cost of funds, happily passing on cheaper loan rates to consumers to encourage them to borrow more. But when the official rate starts getting closer to zero, the dynamics start to change, as the prime rate that banks charge customers is pushed nearer to their own cost of funds.
This was key to Tuesday's decision by RBC, TD, Scotiabank, BMO and CIBC to cut their prime rate by 50 basis points instead of the full Bank of Canada cut of 75 basis points, according to people in the industry.
Joan Dal Bianco, vice-president of real estate-secured lending with TD Bank, said it would have left the bank without a profit if the full rate cut had been passed on to customers with variable products tied to prime.
"We are still trying to earn something on this stuff. This has been quite the roller-coaster ride and it has not been too hot on the mortgage front. We just can't take on the whole 75-point cut," Ms. Dal Bianco said.
Nancy Hughes-Anthony, head of the Canadian Bankers Association, acknowledged the decision to break step with the Bank of Canada created a public-relations challenge for Bay Street.
But she said: "The banks are still borrowing in a very volatile marketplace. The Bank of Canada rate is only one component of their cost of funding, and while the cost of borrowing in international markets has come down a bit, it is still higher than before the crisis."
John Aiken, an analyst at Dundee Securities, said banks were "starting to see margin compression" as the central bank cut rates to 1.5% from 2.25%, while banks reduced their prime lending rate to 3.5% from 4%.
"The new loans that are being put in the books are arguably at a less profitable rate," he said.
Vince Gaetano, a vice-president with Monster Mortgage, said he expects pressure will start to mount on the banks in the coming weeks to reduce prime further.
"That's what happened the last time they tried to resist rate cuts," he said.
This willingness to pass on rate cuts is critical to determining the ability of the Bank of Canada to stimulate the economy in the midst of a downturn.
The central bank's own research shows "it is the real rate of interest that is most relevant" to the purchasing decisions of households, and that it can "influence demand only to the extent that adjustments to the [official] interest rate feed through to the real interest rate.
Tuesday, December 9, 2008
As discussed in previous articles, when thinking of building you must first consider the rules of the game. All local governments use the BC Building Code but each has it's own set of Zoning and Building Bylaw regulations. A quick count of the jurisdictions from Osoyoos to Vernon would be:
1 - Building Code
12 - Building Bylaws and
over 30 Zoning Bylaws (many Regional Districts have multiple zoning areas which can have different restrictions per zone use and different definitions)
I came across an article in Fine Homebuilding to expresses the grief many designers and builders face in the valley. Although it's American based it touches on a number of areas that I believe need to be cleaned up to smooth the building process and foster sustainable development here in the valley.
Why I hate zoning regulations
I hate American zoning regulations because they make it illegal for me to work next door to where I live. They also limit what I can design as an architect, how it looks and where it can go. And the problem is hardly limited to suburban Washington, D.C., where I work. All over the country, the patchwork of regulations that has resulted from decades of amendments and overlays is doing more harm than good. Zoning regulations that began in response to health and safety issues during the Industrial Revolution have become a catchall for every sort of specialized concern from traffic management to aesthetic conformity.
Sprawl wastes land and energy
I don’t like what zoning regulations are doing to our land and to our environment. As more and more Americans have pursued the dream of house, yard and car, our communities have spread out, consuming more and more land and requiring more and more roads. No single word regarding land use terrifies the general populace more than “density” (although “traffic” comes in a close second). If density is bad, the argument goes, then more density is worse. Although the argument fails to explain the fear of density, it seems to stem from our midcentury abandonment of the American city.
The opposite of density, however, is sprawl: a smaller number of houses consuming more land, demanding more roads and producing more traffic traveling over greater distances. Perhaps if commuters understood that the hour they spend in the car going to and from work every day is the equivalent of spending six workweeks in their cars every year, they would rethink the joys of sprawl.
By simply using zoning regulations to increase density (decreasing lot size per house), we could shorten commuting distances, create less pollution and consume less land and less energy. While virtually every land planner knows this to be true, the political nature of the zoning process makes it tough to accomplish. Too often, zoning decisions result from input by remarkably vocal and frequently unsophisticated developers, politicians and landowners. Consequently, sprawl goes unchecked, and every year, more land is given over to a landscape littered with houses and roads.
Zoning segregates society
I don’t like what our zoning regulations do to society. In equalizing lot size in any given residential zone, zoning regulations determine the size of the house to be built, its cost and the owners’ income, segregating our society in the process. Our system essentially requires aging couples to leave the community in which they have raised their children in order to downsize their housing as their retirement approaches.
I don’t like what zoning does to our days and to our families. I don’t like the fact that we must leave our homes to go to work. With the number of two-worker families on the rise, the result is less parental involvement in children’s lives and communities empty of adults during the day.
By separating living and working through zoning regulations, we go entirely against the current trend of telecommuting and home offices. Even zoning laws permitting home offices severely limit the number of employees allowed in the office. Again, it’s all about traffic. But does a small office of four people generate more traffic than an active family driving to soccer practices and Girl Scout meetings, or even several teenagers with driving privileges? Furthermore, employees who are commuting to home offices likely are cross-town or reverse commuting, therefore reducing the burden on busy in-and-out commuter routes.
Many jurisdictions now are struggling to find a way to deal with home-office issues, and the answer is not to develop Byzantine restrictions on trips per day or number of deliveries allowed. The solution is to allow more and restrict less. We are not talking about tanneries here, and the general population (including many of my clients) is going to work at home anyway. It’s a movement. It’s not going away, and patchwork zoning regulations will have no effect. While we’re at it, why can’t we create communities that include single people, childless couples or retirees by allowing for a diversity of house sizes through the creation of smaller lots or accessory buildings on existing lots?
Many regulations are poorly written
Poorly conceived or written regulations often have unintended results. In one local jurisdiction, an attempt to limit accessorybuilding sites ended up prohibiting swimming pools. By increasing setbacks for buildings over a certain length, the zoning regulation inadvertently snared swimming pools in the category of accessory buildings. With a single inept move, thousands of single-family lots in an affluent community effectively were prevented from having a swimming pool. When this problem was brought to the attention of the local zoning officials, they replied that it would take county and council approval to revise the unintentional flaw.
In another imprecise zoning regulation, measuring building height to a midpoint between the eave and the ridge would perversely allow a 70-ft. tall pyramid in a zone with 35-ft. height limits.
As communities seek more and more involvement in their planning and design issues, zoning laws are being overlaid with attempts to limit the bulk, the height or even the design of the new structures that are being built. Ironically, many of these new zoning regulations are written in a way that would have prevented the construction of many of the much-admired historic houses that already exist in the same community.
I’d like to see current zoning regulations completely replaced with very general restrictions that are flexible enough to allow for a variety of solutions to any program and site. Limit the bulk by relating building area to lot size (as most commercial zones do), not by arcane formulas for number of stories, measuring points and so on. Limit height with a simple overall dimension, not with averages. Simply put (and it should be simple), let the lot size determine the house size, and let the house size determine the program (whether there can be an apartment or a home office in the building, for instance).
So what's the answer?
It’s perfectly appropriate for communities to want to control growth and protect the environment, but the current trend of tightening controls through band-aid legislation is the wrong way to go. Instead, we need to overhaul the entire system. We need to examine what kinds of communities we really want, which means acknowledging who we really are.
We are a people of great ethnic, economic, age and cultural diversity. We need to build new communities that acknowledge this fact, and we need to transform the old ones as well. We need neighborhoods that create a real sense of community by encouraging walking or biking over driving, by allowing for a mix of living and working situations, by integrating diverse incomes and age groups, and by allowing for a richer range of architectural expression.
Every year, millions of Americans travel to Colonial Williamsburg in Virginia and to other similar places, wishing for a taste of what life was like in colonial times. The lively mixed-use streetscape where the blacksmith’s shop sits next to an upscale house, the variety of building types (shops, houses, barns and sheds), and the engaging mix of formal and informal architecture appeal to us. And yet the most that we seem to learn from the place is what colors colonists painted their houses. We didn’t start out boring; it took a while to get there. Zoning regulations had a lot to do with it.