 Welcome back to State Tech. Thanks for being with us. This is View from the North and we're going to talk about building homes in Canada with our old friend, Dr. Ken Rogers, who joins us from Kelowna, British Columbia to talk about that. He's had a fair experience in his life of building homes and I think we can learn a lot from the way they do it in Canada. So what are the challenges? I mean, is Canada just fine about building homes? What challenges are you facing and how are you solving them? There's an endless number of challenges in Canada, not unlike the U.S., and most of the challenges are government-caused or government-created, such as the red tape to get approval of most things. It takes far too long and it's an uncertain process. Generally, the industry has so much government interference that it misses. The best thing that the industry has is the entrepreneurship. If there's very few industries where such a huge portion of those that make things happen, the real estate developers, there's very few industries that have as many really good entrepreneurs. The real secret to making housing work in my mind is to have the right carrots and sticks with regard to those entrepreneur developers. If you simply use government to steer it rather than interfere with it, you'll get phenomenal results. I can think of the greatest example in Canada, a program that was so good they had to stop it. Back in the early 1970s, when the baby boomers, the peak of the baby boomers were all looking for, you know, they were all young and they're just coming out of college and they're all looking for apartments. It was phenomenal shortage of rental accommodation. The federal government created a program called MIRB, M-U-R-B, multiple urban residential buildings. Basically, the program was designed to create rental accommodations in a big, big scale. It had a very simple feature and it recognized, almost by accident rather than design, I think, that the difficulty in building any housing is not, can you get nice mortgage money? There's an absolute abundance of mortgage money in the US and Canada. It is the difference between the total cost and the mortgage and also in terms of the timing. If you're a developer and you're trying to build a building of any scale, you need between a third, like 33% and 40%, you know, but a good rule of thumb would be 3 eighths, you know, but nearly 40% of the cost of the building you have to have in cash capital till well after the building's completed, you know, let's say three or four months after the last part of the building's completed and then the equity that you've put up would come down to whatever the mortgage was example. If it was a 75% mortgage, your equity would be down to 25%. If it was a 90% mortgage, your equity would come down to 10%, but that's after the fact. So, you need a lot of capital to develop anything of scale and the key is how do you get that capital? Well, what this program in Canada did back in the 70s was they simply allowed an income tax deduction to the people who put up that capital. So, for example, my brother and I had a company that we simply syndicated or we obtained capital from investors, like your lawyer, dentist, medical doctor type of professionals that have lots of cash flow and their biggest complaint is how much tax they pay. They don't pay nearly the kind of tax that the billionaire type people pay, but to them, they're getting really beat up. They don't have the opportunity to devise any method to reduce the tax. They just think they're being raped by the government and so they're really mentally very interested in any way of reducing the tax temporarily or long term. Well, what this program did was it said, if you're a dentist, for example, and I say to you, if you provide me $10,000, you will get the ability to claim a deduction against your taxable income and that deduction will give you that saving and when you cash in down the road, when we sell this building, then you just have it as a capital gain. So, you ended up where this was a great saving. If it was a rental property and you stayed in, that is, you just stayed with an ownership in the property. This tax deduction was really a long term saving in tax and basically, your tax savings over say five year period, counting capital cost allowance or depreciation, which you could take against your income, you really would have a good percentage of the money you put up was simply the taxes you saved. But certainly, when you got around to selling it, it might have been, your cost base was pretty small. So, they ended up where this program was so successful that after about five, four or five years, the total market was just so flooded with rental accommodation that they had to shut off the program. I mean, it was phenomenally successful. It's just, you know, turn the entrepreneurs on, give them a chance and that was really the program that happened to fit the most difficult part of developing anything. And would you have to hear the years that this program was in place? It was about 1974 to 1979. You know, like quite a while ago and it's never been revised since, but you know, it was just a phenomenally successful program. But it emphasizes the point of, you know, where's the toughest piece of the, what's the biggest problem as to why there's not more development and it just takes so much capital? Well, it's not the mortgage capital, it's the equity capital. That's the main problem. The construction capital. Yes, but construction takes a long period of time. You know, when my brother and I started developing things, once we had a building permit, we could have a side-by-side duplex built in 60 days and occupied by somebody. Now, that's a thing. Yeah, that's the thing. I mean, we certainly have that in Hawaii where we can't get a building permit for months and years. It's happening on Maui, which is really a place we have to rebuild. And it's because government doesn't provide building permits so quickly. So how does this kind of relief that you're talking about and the deductions for the, you know, cost of construction essentially, the capital? How would that help the problem of government, the Department of Planning and Permitting dragging its heels for years? It does not solve that problem. You really have three levels of government, all of which play some role that helps screw up the availability of affordable housing. Well, I can offer a thought on that and that is that if I'm the entrepreneur, the developer, and I have to raise the money and there's no real big tax incentive, at least not in that part of the timeline. Then what happens is it discourages me because I have to pay interest on the money I raise. And while I'm waiting for the Department of Planning and Permitting, the interest clock is ticking on me. So my numbers by calculus, you know, in finding a profit at the end of the road is made much more difficult because of the delay. Am I right about that? Yes. But I tend to think that your negativeism towards municipal planning is a bit overdone. I perhaps Canada is a little nicer in many ways. But most of the real estate development I did was in provinces of Alberta and British Columbia and Canada and in Alberta. It's really the most free enterprise oriented province in Canada. It's the one with the highest standard of living because of that. I mean, a few extra zillion tons of oil and gas don't hurt. But nevertheless, there, you know, the municipal governments are very anxious to move things quickly. You know, and they try really hard to have exactly what you need. And there are very few delays. And once you filed what you need to have filed, you know, like nowadays, you know, filing is not a simple thing. And most of the problems that I saw in municipal government when I was a senior planner was that people came in and with a half half-hearted application or a half the required information wasn't there. And when you got to keep going back and forth to somebody to get an application, you know, they're complaining that the municipalities dragging their heels. Well, that's really isn't necessarily the case. Well, I mean, let me offer a thought. I mean, you were a senior planner a long time ago. I'm sorry to say that here on the show, Ken. Why? And they didn't have computers or even cell phones at that time. And so, what about now? I mean, theoretically, you could build a website which would call for all of that information and sort of force the applicant to put it in before he can go to the next step and therefore make the process much more structured and presumably quick. What about that? Well, most of the cities in Western Canada, I have fairly computerized automated systems. I'm not sure that I'm not sure that we do. And I don't know about the mainland. Well, I mean, that surprises me. I have always thought of, you know, most of the US as being more sophisticated than the rest of the world. And certainly, you know, lots of Canadians with complain that the US causes a brain drain by stealing our talent. You know, and yet a lot of it moves the other way. I certainly, I agree with your concept that automation and technology can improve the municipal planning process. I mean, some of the cornerstone pieces of municipal planning that are a problem is if you have an application for simply a permit is one thing. But if the permit requires different zoning or you're looking for an exception, you know, I want to build, you know, six inches higher than, you know, the bylaw says, then the process is just ridiculously airable. Like every municipality will have, you know, a planning commission made up of a bunch of citizens as well as some of the professional planners, you know, and they'll have meetings maybe every two weeks, maybe once a month, depending on the size of the place. So there's a delay. Well, then they have their meeting and they just hum and ha about what's missing or shall we allow this for extra six inches? Well, let's call for a public hearing. Well, then you got another month's delay before the announcement's even out for public hearing. Then you have the public hearing and the public hearing and everybody comes and has, well, not in my backyard. I don't want any tall buildings. This will block the view or maybe, you know, some flying sparrow will bang into the building. I mean, just, you know, the process of having municipal hearings, the not in my backyard opportunity, you know, really spoils a lot of the timing, you know, but so what you really need is start at the municipal level and recognize that the bylaws and standards are usually, you know, a couple of years behind what can be done. For example, in Western Canada, you know, we've proven very clearly that you can use, you know, wood construction and build a 12-story building. You know, like the Japanese would say, well, of course you could build that with bamboo. We've had temples for centuries that are that big, you know, but we just started with building codes that if you used it, you know, two by four wall or a two by six wall, gee, if you went more than three floors high, it probably fall down or it's not strong enough for, you know, it might burn or something. Well, you know, it now, you know, the most typical construction of a multiple housing, you know, in the Kelowna area is a six-story of wood frame in top of whatever parking garage there is, like if the parking, if the ceiling of the highest level of parking is concrete, so if you had two levels of parking and a concrete slab above it, you could have six more floors of apartments you could have, you know, but really you can go, they've now proven you can easily do it to 12 stories and they got a couple of experimental buildings at that height. Well, that, but it shows that the bylaws though may say, well, gee, we, you know, we can only have 40 feet high because they designed that for, you know, when you could only go four floors, you know, but then they're measuring from the grass around the building rather than from the top of the parking structure, you know, so your municipal bylaws are a big item that need to be changed to take advantage of what the technology is has enabled us to develop. But, you know, that's what I was mentioning before the show began. It seems to me that in the U.S. in Hawaii, we have a terrible housing shortage and it's not limited to housing in general, you know, for middle-class housing, it's for people who can't afford, you know, lower-class housing and who are homeless, they can't afford housing. And so we really have a crying need to build housing, but you have these same problems. You have the problems of governmental restraint, call it, over-regulation perhaps, and financing as well for the entrepreneur where he doesn't really, he or she, they don't really have incentives to move ahead. So they don't. It's a rough business being a developer. You can quote me on that. So let me say, though, that why not have a building such as what you're talking about, you know, a couple of floors of parking with concrete slabs and on top of that, maybe a structure that's less steel, more wood, and you get that approved. Okay. And the next guy who wants to walk into the Department of Planning and Permitting or the bank, he says, hey, I got a plan for you and this plan has been approved right down, you know, to the last detail. So all you have to do is put this plan into the Department of Planning and Permitting and you get an immediate approval because it's the same plan. And I give it to the banker the same way and he doesn't have to go or she, they don't have to go through a lot of humbug to make the long because they know exactly what this plan is about. And the whole thing is cookie cutter. What I'm suggesting is if you have a crying need for more housing, then do cookie cutter, do uniformity to modular? What is that being done in Canada? And can it be? Should it be? If you don't need housing, you don't care much about that. But if you do need housing, you care a lot about that. Well, I was laughing because real estate development, you can always have many cookie cutter features and repeatable features, but but nothing is totally possible as a cookie cutter. The simplest example is every building sits on a piece of ground. And that ground is different. You know, what you need for footings and stability, you know, is day and night different. I mean, some places like Manhattan, the majority of it is solid rock very close to the surface. You know, where, where I live in Kelowna, you know, there used to be a mega sized lake, which is now reduced to a small portion of what it used to be. It's now a huge lake, but it's nothing like it used to be. Well, in front of my, you know, four story apartment building that I live in, the ground underneath it is about 60 feet of sand. You know, well, that's very different building on that than building on thing and and and how high are you building? And what is the weight of the building you're going to build? Because if, if anything happens to a building, the first person they're going to blame, you know, is the municipal engineering and planning department is somehow you allowed this to be built when it shouldn't. And think flour, you know, and, and, and every building is a little different in terms of, of, of what, what's the fire proofing? You know, if you, if you watch a fire in a building, you know, it just zooms up the paint. You know, like everybody has nice, you know, semi-gloss paint. And, and you know, you want to see how fast a fire can go. And it goes up a stairway. If that stairwell has semi-gloss paint on it just takes a few seconds to go up another floor. I mean, you couldn't, you couldn't walk as fast as it'll move. Um, and so your municipal authority, you know, particularly the engineering review, you know, like I think of, of planning as very different than engineering. The engineering side of real estate development is very, very important in terms of the municipality checking things. I mean, you watch the earthquakes in Turkey. And in the very first thing they say, somebody didn't approve it properly. They let this shoddy, whatever. Well, you know, the let me go back to that. Let me go back to that. So, okay, you're going to need soils work. You're going to need engineers to talk about footings. You're going to need engineers to talk about, you know, fire resistant materials, I suppose, and plumbing and electrical. You're going to need specialty engineers for that. But for the actual design of the, you know, the, the division of the space, the organization of these apartments, the integration of the apartments on the floor and in the building. If you had a cookie cutter there, you would save some money, right? Maybe not all of the money, but some of the money every developer now does that. You know, like in the city I live in is small, you know, in the sense of like about 250,000 people metro. But we have apartment buildings where if you were on the street going by, you'd say, goodness, there's 20 of those buildings that each of which have 50 suites, and they're all the same. It's like the same, they changed the color of the paint maybe on the outside or they changed a little bit. But you know, you can tell they're a cookie cutter building. And in particular, even though you may find the building, you know, on a lot that's a little different than another. So they had to cut off a sweeter too. So most of it's still cookie cutter. I mean, that that's really a lot, you know, is there any side to that? There's no downside to that. No, well, well, I can remember though, when, when I first started in the development business, my brother and I built a duplex side by side duplex that we just did it as a cookie cutter chung chung chung chung chung and we're popping these things out. And, and this was about oh, two years after I had been senior planner at the city of Calgary. And I, I'm before them asking for approval of a of an adjustment in a subdivision where we had a a bunch of lots, let's call it 10 lots in a row. And I wanted to resubdivide them into 15 lots, because we had purposely designed this as a narrow building so that we could get through the minimum size subdivision lot for to you for a duplex. And, and they said, yes, but we won't allow you to build any more of these duplexes in Calgary. And I, why not? There's a phenomenal demand. And he just says, just because there's too many of them. And, and, you know, that's not the way to encourage the development of housing, is it? Well, I don't think they were worried that I would go away and pout that I'd come back with a different thing. So, you know, which we did. However, I think, generally, you're, you're too negative about, you know, planning department people. The process is what they need updating that like the political side almost needs to tell them or the planners themselves need to update all of their methodology so that they can what's permitted to be done without going through these public hearings is what really will cut the time that anything will go through. You know, for example, in, in British Columbia, they were trying to have a provincial wide law that said that any single property could have a minimum of four suites or six suites that they're not quite decided yet what they do in that regard. So it hasn't finished their final approval. But some of the cities already have major neighborhoods that have this zoning already in place. So, but they were just going to make it, you know, province wide. Period. You know, if you have a single family home, you have an absolute right to put a suite in it. Period. You know, I want to ask you about single family homes, you know, we've been talking about six stories, eight stories, maybe 12 stories, but we're not a single family home, because that's really a great demand and it's a it's a it's a product that will satisfy the middle class usually. Why can't we have standard foreign plans, uniform, uniform design and build a whole. But you've talked about Calgary, but you know, uniform systems and and design points, where you could build a whole bunch of these and not have delays in permitting, not have delays in and with lenders, or for that matter, construction, you can get people out there to build them cookie cutter style, right up and down the block. You know, Hawaii doesn't have enough of that, in my opinion. But is that appealing? Is that useful? Is that a lesson we could learn from Canada? I don't think there's much that that American entrepreneurs can learn from Canadian entrepreneurs, because because any good entrepreneur is aware of what's going on somewhere else. You know, for example, the Urban Development Institute has seminars in Canada and the US and and developers from both countries go back and forth. And when you use cookie cutter styled single family homes, I could remember on a tour on an urban development tour just south of San Francisco, going for miles and miles and miles. And all of the houses were exactly the same looking from the outside, they might have had three floor plans. But from the outside, you could hardly tell the difference. And so, you know, they're there, you got cities like Las Vegas, where the cost of a single family home is really inexpensive. And they're just cookie cutter with every bit of technology that you could possibly bring the bear they're using to keep those costs down. And they're just wonderfully well done. Now, you know, one of the one of the examples I'm thinking of as you're talking is military housing. And we have plenty of military housing here in Hawaii. And they're all pretty much the same. There might be variations in the floor plans, but nobody much cares about the external design of the home. And I think we could probably learn from, you know, the military and how to do it fast and quick, using the best technology, yet using uniform construction methodologies. I don't know why we don't learn from them. Maybe there's a source of expertise we could gather from them. And no, you don't have a military as big as us. But we do have military lessons we could learn, I think. Well, if you were a large scale developer, or a small scale developer, and I'm the military, what's the difference between you and I? Like I can do what I want. You can't. What are the constraints that you have? That's, you know, the difficulty with the process. Well, I think the military, the military have a design and they, nobody's going to tell them that their engineering is, you know, they're not double checking their engineering. They're confident their engineer has designed it well, you know, where where municipality knows for sure that some engineer has certified that the soil is such and such, the structure will work, the electrical works, the plumbing works, different engineer has certified everything, the architect certified it. But if something goes wrong with the building, the municipality is to blame. And they're held to blame whether they should be or shouldn't be. So they got to go through the process of checking every single piece of that. There's a bit of a significant time just, you know, you'd say if you come in with a, you know, with a three story building or a 12 story building, you know, you've got how much time does it take for competent municipal engineer to go through all that stuff and review it? Oh, yeah, you know, we have one issue. It's called corruption we have where you can go as the architect or the engineer or the developer onto the planning department and you can get your plans done almost immediately versus a person who is not connected, not plugged in, not politically powerful. And you'd have to wait online with the rest of them. And I wonder if Canada has that. I wonder if Canada has a way to address that. For example, just as a loose example, but in Singapore, you don't have a lot of corruption at the management level, at the governmental level. Why? It's because they pay extraordinary salaries to the individual who are making these decisions so much so that there's no point in having those guys take money on the side. I'm afraid we haven't figured out how to deal with that yet. I wonder if there's a way to deal with that that we can learn from Canada. Well, we certainly have a lot less than the news kind of says occurs in the US, but for example, and Canadians really make a big stink about it instantly. For example, in the province of Ontario, surrounding the metropolitan area of Toronto, they established a few years ago a green zone. It's called a major area where there would not be developed. This would have lots of parks and lots of this and lots of that. And it was a monstrous area. Well, that was developed when the metro area had about 3 million people. Well, now it has about 6.5 million. And they were pushing the boundaries and there were freeways that went across this, but the cities and towns on the far side of the remote suburbs across the green belt, people were still commuting into Metro Toronto. And so there was a lot of pressure by developers to see if they could trade a piece of land that they had for something that was in the green belt, but what they had was next to the green belt in a different spot. And there's big scandal right now in Ontario about even the Premier of the province was involved in some of these land swap arrangements with developers, and they've been trying to trace the money and making a big stink. But so far, there's no Spiro Agnews that they found. I don't know if you're familiar with that. Certainly I am. I know you are, but perhaps your audience is not as enlightened. However, we really make a big stink in Canada about corruption and most of our civil services is pretty well paid, so that I don't know whether that is different in the US. However, certainly professional engineers that work for the municipal governments don't jump out of those jobs very quickly, like consulting firms don't seem to pay any more than they do. There's a whole list of other issues and delays and problems, and I think we could probably spend another show on this. For example, we could talk about the unions and what effect they have. But right now, I think we're out of time, and so we're going to have to say farewell and adieu in Eastern Canada. But thank you very much for sharing. I feel we've only scratched the surface here, and there's a lot more you could offer us and our developers to try to meet the need here in Hawaii, especially in Maui. Oh, I think the developers could handle it, just give them a chance. Stick a carrot in front of them and they'll go for it. Okay, all right. It's a carrot to stick, mostly the carrot. Thank you very much, Ken. It's reduced the impediments. They'll do the job. Anyhow, Aloha from Canada. Aloha from Hawaii. Thanks very much.