How new provincial housing rules are boosting and hurting development in Central Okanagan

The Bennett bridge stretches a mere kilometre across Okanagan Lake between Kelowna and West Bank First Nations lands.

One the one hand, it connects the two bustling and booming communities. But it’s also a dividing line between new provincial government rules on short-term rentals and flipping properties that help developers on the west side of the lake and harm those in Kelowna.

“We are six minutes from downtown Kelowna,” Jody Curnow, sales manager for the Shelter Bay development south of the bridge on Westbank First Nation land, told

The new provincial short-term rental rules take effect May 31. They require owners to be principal residents of the units they rent out, which will eliminate more than half of the licenced units in Kelowna and has put a chill on investors in new projects.

“Downtown Kelowna has just lost hundreds and hundreds of short-term rentals,” Curnow said. “That definitely opens the door for our buyers here if they want to take advantage of that.”

The new rules had a dramatically different impact on downtown Kelowna, including Kerkhoff Develop-Build that built One Water Street, the tallest building in the city.

“We’ve been dramatically impacted by the government regulation with regards to short-term rental policies and now it’s the new tax on investors who purchase pre-sales who are now getting taxed if they sell within two years of buying it,” Kerkhoff owner Leonard Kerkhoff told in explaining why he’s paused his One Varsity 35-storey project across from the new UBCO tower that is currently under construction in downtown Kelowna.

The new tax is sometimes referred to as a flipping tax and charges 20% on properties that sell within a year of purchase, dropping to 10% the next year.

“No investors are going to buy pre-sales based on those conditions,” Kerkhoff said.

“I have no idea how the government thinks this is going to solve the housing problem. It’s appalling how those rules have now prohibited us from basically moving that project forward. We’re thinking about what to do.”

One Varsity proposed 342 homes, designed to appeal to students, staff and faculty of the university. But pre-sales are vital in order to secure funding for highrises and, given the provincial rules, they just didn’t materialize.

That’s not the problem Westrich Bay is facing on Westbank First Nation land just north of the bridge. It’s applying to rezone its proposed tower to 12 storeys from six in order to add another 60 units to the 136 in the original plan.

“We have a wait list of over 100 people ready to buy right now,” Westrich sales manager Cole Killeen told

“As soon as we get the approval – and they’re on top of me because we were supposed to have the approval already – we’ll not be going to market. We’re just going to call this list. Then, if anything is left over, we’ll start a marketing campaign.”

The current units start at $400,000 in the condo tower and range up to $3.25 million for waterfront villas.

Westrich is catering to quite a different clientele than One Varsity.

Many condo buyers are in the 25- to 35-year age range and plan to live in their homes, although about 30% of buyers there are investors interested in short-term rentals. The townhomes may have 10% investors and the villas only about 5%.

That could change as people buying them as homes may see the financial benefits of renting them out and change their plans. Some intend to use their units six months a year and winter in the south.

The short-term rental option is not listed as a benefit on Westrich’s website but is pointed out to prospective buyers in their disclosure papers.

“We just didn’t want to have a huge influx of investors, especially on the waterfront with our $2- to $3-million villas,” Killeen said.

“It’s a blessing and a curse at the same time. People are like: ‘I want this nice beautiful vacation home and I don’t want a bunch of 25-year-olds next door renting it out and just packing it.’”

The short-term rental option hasn’t been the big reason sales have continued strong, even through last year’s real estate downturn.

“That’s an added bonus,” Killeen said. “I think our biggest advantage, right off the bat, is we are a true waterfront community. Shelter Bay or Movala (a Stober Group waterfront development in Kelowna), they have a road or a row of houses or a park in front of them. Here, you walk out the basement and you’re on the beach. That’s the biggest advantage there is, being a true waterfront community.

“The second advantage is the marina. Our property came with a foreshore licence so we’re already fully approved for our marina. It’s really a nice premium product. The location is superior. We’re directly across from downtown Kelowna. You’re not really seeing the homelessness or much of that interaction across the lake. It’s just a little bit of a safer and quieter community but you’re still close enough that you can enjoy everything downtown.”

Excavation has started for the waterfront villa foundations and some of the rental units further inland are being framed to the fourth floor.

While the whole site is called Westrich Bay, the condos are in the front section called the Waterfront. Behind, the owner is building 600-700 market rental housing units.

Shelter Bay is a different concept with 108 townhomes planned of which 19 are already occupied. Of the 43 on the market in the first phase 26 have been sold.

“We’re building basically what we’re selling,” Curnow said. “We’re pre-building a few units to be able to give buyers the opportunity to move in fairly quickly if they like. Some people don’t want to wait the year it takes for a pre-sale.”

There, too, short-term rental options don’t figure on Shelter Bay’s website.

“We just started touching on that with the change in legislation,” Curnow said. “Our vacation home owners, the majority of them don’t necessarily need to rent it out but they like the idea that they can if they want to.”

She’s not bothered by the fact that West Kelowna is applying to be exempted from the provincial principal residency rules for short-term rentals, noting it’s the spillover from the shut-down of rentals in Kelowna that’s appealing to buyers.

While the Shelter Bay homes are across Campbell Drive from a number of existing houses, they still have their own private beach. They range from 1,900 to 2,567 square feet with two-car garages and rooftop patios, with prices from $1.2 million to 1.6 million.

In both cases, buyers are mostly a mix of people relocating from the Lower Mainland and Alberta, with some from as far away as Saskatchewan and Ontario. There are also local residents downsizing.

And buying expensive homes on land leased long-term from Westbank First Nation isn’t stifling demand.

“Once they get over the hurdle that it’s leased land they realize it’s iron clad,” Killeen said.

“There’s a reason why TD and RBC allow financing on it. If institutions that big are going to lend money, you know it’s secure and once people get over that, they get the tax benefits, the location benefits, the marina benefits. There’s quite a bit that comes with it.”

Kerkhoff says he will push ahead to get a development permit from the City of Kelowna for One Varsity later this year but it’s unclear when a new marketing approach will be launched.

The Mission Group has applied for a development permit for its own 40-storey tower next to the UBCO site but says marketing for it and another 34-storey tower on the corner of Water Street and Lawrence Avenue won’t be launched until at least next year.

Mark Holland, a representative of the Urban Development Institute, told Kelowna city council earlier this week that Worman Homes opted to renovate an existing building at 3110 Lakeshore Drive instead of moving ahead on a new 64,000 square foot building, and the Stober Group has put a 150- to 175-unit condo project on the Original Joe’s site in the Pandosy are on hold.

It’s not clear if short-term rental rules played a role in those decisions since high interest rates and inflation make it difficult to secure financing for condo projects.

“It’s a challenging time,” Kerkhoff said.