Canada's 'housing bubble' deemed close to bursting

[lio45]

Originally Posted by theman23

IIRC, rents are up 20% YOY in Vancouver.

Don't think anyone expects that (or any of the inflated price of goods and services we're seeing this year) to ever go down.

Exactly my point.

Van real estate can be up to ~20% higher YOY (even a bit more, since expenses aren't up 20%; certainly not municipal taxes!) and that gain is 0% bubbly.

[casper]

Originally Posted by lio45

FYI, that's called LVT, and there are good arguments in favor of it.

https://en.wikipedia.org/wiki/Land_value_tax

(It would be really bad for me personally, I'm sitting on a lot of under-utilized real estate, but I don't deny it would be better for the greater good. It would likely push me to develop.)

It is a bad idea because it changes the dynamics of what property is for most Canadians.

For most Canadian you buy property because you need a house to live in. Once you buy it, its value is irrelevant until you sell. From a community stability perspective you want people to stay in the same home as long as possible.

Such a tax would change homes from homes to investments. The shift in mentality would be significant and have many unintended consequences.

For seniors (empty nesters) you want them to stay in their home as long as possible only moving into assisted living or care home when absolutely needed. This would force them out sooner putting more pressure on those facilities.

[Truenorth00]

Originally Posted by WarrenC12

I agree we'll probably see another 100bps but perhaps not much more. The debt levels of Canadians are such that they will be cripplied at 5%, we won't see 15-20 like before. Spending will completely dry up.

I agree. But keep in mind that mortgage qualification is already 6%. Making that 7% is going to kill a huge part of the housing market.

Also, I don't buy that inflation will be down sharply in 6 months. Even with a recession. There has to be enough people who cycle through mortgage renewals and wealth destruction from lower housing prices to actually take money out of the economy. That's easily a multi-year process.

Originally Posted by WarrenC12

I'm curious how bad unemployment will get, given the current massive labour shortage.

Sure there's a labour shortage. But a massive chunk of our GDP is tied up in the FIRE sectors related to housing. They aren't easily going to accepta transition to barista. Also, I think you'll find the labour shortage can evaporate quickly. Let's say there's a restaurant with 10 employees today who need 3 more. If demand collapses, they could easily go from needing three more to laying off three servers. There's also a lot of gig employment that is both going to see reduced demand and increased supply. So I think we'll be in the 8-10% range by the end of next year. And then a slow descent from there.

[someone123]

Originally Posted by Truenorth00

I feel like there's a lot of copium going around.

There is copium about interest rates and then it extends all the way through impressions of the real estate market, finances, and what could happen here. We see people still denying that affordability is down, or that external or illegal capital flows might have played a role in escalating pricing beyond what is seems some local markets should support.

[someone123]

Originally Posted by lio45

Van real estate can be up to ~20% higher YOY (even a bit more, since expenses aren't up 20%; certainly not municipal taxes!) and that gain is 0% bubbly.

As far as what's actually happening, I think the gains YoY are this point are minor or negative, but it depends on the sub-market. The outer suburbs went off the rails during covid and are falling the most now. Downtown condos are not as affected. Not sure about the high-end or recreational properties that tend to be more volatile. As theman23 says, rents are up. The childless university grad Zoomers have set their sites too high wanting a whole bedroom in a slumlord property when they're only 25. They will need to double up like people did in the 70's.

[Truenorth00]

Originally Posted by casper

It is a bad idea because it changes the dynamics of what property is for most Canadians.

For most Canadian you buy property because you need a house to live in. Once you buy it, its value is irrelevant until you sell. From a community stability perspective you want people to stay in the same home as long as possible.

Such a tax would change homes from homes to investments. The shift in mentality would be significant and have many unintended consequences.

Do we live in the same country? Homes have stopped being places to live and become primarily wealth creation vehicles for at least two decades now. An LVT would recognize this reality.

Originally Posted by casper

For seniors (empty nesters) you want them to stay in their home as long as possible only moving into assisted living or care home when absolutely needed. This would force them out sooner putting more pressure on those facilities.

Wrong. Some Boomer couple staying in their four bedroom house as empty nesters is absolutely terrible. It's bad for housing affordability for families. It's bad for the environment and it makes it hard (and expensive) to support that ageing couple with health and social services. They should be downsizing in their 60s at the latest. But most absolutely refuse to do so. Hence our housing crisis and falling birth rate. Every empty bedroom in a seniors home is one that could be housing a future grandkid if they moved.

Your defence is the same BS John Tory was ranting about, to the young housing advocate who complained about rising development fees. See link I posted above. The tyranny of gerontocracy is destroying our country's future.

My only complaint against an LVT is that it does little to prompt developers to build, other than in very desirable locations that attract high LVT. Which they might develop anyway. Also an LVT without zoning reform doesn't really change the supply of developable land.

[lio45]

Originally Posted by casper

From a community stability perspective you want people to stay in the same home as long as possible.

Not at all! Retired seniors hugging a way-too-large-for-them-nowadays SFH in a prime urban location (i.e. close to all the jobs) is a disaster from a community perspective. (In other words, what Truenorth00 said.)

[Truenorth00]

Retired seniors used to move in with their kids in their 60s or move to an apartment. Boomers these days, insist that age in place means they stay in their empty 4 bedroom homes and that government has to re-organize social and health services to be delivered to their houses. Mostly paid for by younger tax payers of course.

It boggles my mind that so many Boomers literally have kids trying to raise grandkids in shoebox condos, while the Boomers live in their SFDs and they never make the connection that they are personally contributing to the problem.

[lio45]

Originally Posted by Truenorth00

Retired seniors used to move in with their kids in their 60s or move to an apartment. Boomers these days, insist thar age in place means they stay in their empty 4 bedroom homes and that government has to re-organize social and health services to be delivered to their houses. Mostly paid for by younger tax payers of course.

And to top it off, everyone else finances their deferred property taxes at 0.25% annual interest! ...

[WarrenC12]

Originally Posted by theman23

IIRC, rents are up 20% YOY in Vancouver.

Don't think anyone expects that (or any of the inflated price of goods and services we're seeing this year) to ever go down.

The government freeze on rent increases means that new tenants are paying through the nose for very limited supply.

[WarrenC12]

Originally Posted by Truenorth00

Also, I don't buy that inflation will be down sharply in 6 months. Even with a recession. There has to be enough people who cycle through mortgage renewals and wealth destruction from lower housing prices to actually take money out of the economy. That's easily a multi-year process.

I don't know about sharply, but I'm curious how many more months will see it increase. I do think we will start to see YOY decreases before the end of 2022 on the monthly numbers. They will be slow for sure.

On housing, the BoC has already overshot. It will be a bloodbath for some. Of course this isn't their mandate, they are doing everything with their eye on inflation and nothing else, I would hope.

Energy and the supply chain via China are the driving factors IMO. Both should improve dramatically if we're in a recession (along with the US).

[Nouvellecosse]

I'm reminded of UBC prof and housing expert David Hulchanski's (para)quote in which he said that real estate can't be both affordable and a good investment.

In order for it to be a good investment, prices have to continually rise which tends to happen through increased demand and limited supply. Governments can make it seem like they're helping to make it more affordable by offering financing tools like tax breaks and first time buyers assistance programs but these mostly just help and encourage people to tackle ever increasing prices and take on more debt rather than actually lowering the prices or meaningfully increasing people's income.

The two main issues he often mentions are increased inequality which causes the bulk of the money developers are chasing to be at the top end rather than in the middle like it used to be, and constraints on supply due to things like zoning and the federal gov's exit from social housing. In terms of the latter, when they handed down housing to the provincial level in the late 90s, there was an inevitable drop in total spending after the initial transfers dried up.

[goodgrowth]

Originally Posted by swimmer_spe

What we really need is a "post war" housing boom a la the 1950s. The problem is, all the land that people could build something on is tied up in greedy developer hands that want to squeeze as much money from it as possible.

This couldn't be farther from the truth. Municipalities set land use laws and if anyone is benefiting from land use restrictions it's landlords not developers.

We can't have a post war housing boom today because it would be called "sprawl".

[someone123]

Originally Posted by Nouvellecosse

I'm reminded of UBC prof and housing expert David Hulchanski's (para)quote in which he said that real estate can't be both affordable and a good investment.

Yeah, this is another area where lots of people are in la-la land. One response you see is calls to partition the market into "affordable" and "market" components with the market components yielding a good return while the affordable stuff solves the housing issues. That may work for niche groups but in Vancouver most of the population cannot buy itself good quality housing through the market, so 40-80% of the housing supply would have to come through the special affordable channel and the investment from the government is not there for that volume.

Instead we get tokenism where the government spends 8 years consulting NIMBYs and putting up 40 unit buildings by Commercial Drive that a few people similar to lottery winners get to live in. That ain't gonna fix housing around here.

As you say the market here is also clearly messed up with tiny areas being zoned for investor grade projects run by a few developers that cater to the high end. We have a few developers building private beaches for million dollar shoebox condos while a bunch of renters are in precarious poor quality housing. There's no easy path to large volumes of affordable rental stock through the municipal planning system.

[goodgrowth]

This will be an unpopular opinion but I'm convinced some of the issue with things today is the education system.

If you are churning out a glut of BA's/MA's and people who spent 20+ years of "solving" everything through words and language...then that's mostly what you'll get. And a lot of those types end up in politics..

So you end up with "we need another report to analyze". Solutions which basically amount to just calling things what you want the solution to be "Rapid housing initiative", "Affordable" housing.

It's the problem of words as solutions.

The "rapid housing initiative" couldn't be farther from rapid. Things that municipalities label "affordable" housing are not scalable in any sense.

[lio45]

I'm convinced most of the issue is that the people who vote tend to benefit from real estate being a good investment.

[1overcosc]

Originally Posted by Truenorth00

Ummm no. The majority of land in our urban centres is tied up in single family housing that is blocked off to redevelopment. AKA "the yellow belt".

In a less constrained market, you would see a whole lot of small developers buying up those old bungalows with their large lots and putting quadplexes on them turning each lot from one home into four. We don't get this today because we've made it unprofitable for any developer to do this and explicitly prohibit it in many cases. If there's only a small amount of developable land left, this favours very large developers, since they are the only ones with the capital and skill to build high rises.

If you want to see how bad the situation is, just look at Toronto declaring several hundred properties along the Danforth line historical, preventing them from ever being redeveloped. And you want to see the excuses politicians come up with when told that development fees make housing unaffordable for young people? Watch this reaction from Mayor John Tory (start at 1:07:45):

https://youtu.be/ocwArOyP4zs



https://twitter.com/bilal_akh/status/1546990576066859011?t=RaF38baaiBVWanIlrEMBUg&s=19




Nova Scotia has the right idea:



https://financialpost.com/opinion/opinion-want-to-boost-housing-supply-look-to-nova-scotia

Ontario's housing task force recently made a similar recommendation. Hopefully the Ford Government has the testicular fortitude to tell municipalities to go suck a bag of...lemons.

It sounds radical, but I'm honestly wondering if what we need in this country is to abolish municipalities entirely, and just place all municipal services in the hands of provincial ministries.

There's so many files - from this planning disaster to building transit to disposing of waste - that would be better run from the province with a holistic view of things. As opposed to city councils that consistently end up being run according to the interests of NIMBYs and Karens.

[1overcosc]

Originally Posted by goodgrowth

This will be an unpopular opinion but I'm convinced some of the issue with things today is the education system.

If you are churning out a glut of BA's/MA's and people who spent 20+ years of "solving" everything through words and language...then that's mostly what you'll get. And a lot of those types end up in politics..

So you end up with "we need another report to analyze". Solutions which basically amount to just calling things what you want the solution to be "Rapid housing initiative", "Affordable" housing.

It's the problem of words as solutions.

The "rapid housing initiative" couldn't be farther from rapid. Things that municipalities label "affordable" housing are not scalable in any sense.

People don't want to hear this, but honestly I think you have a good point.

IMO, this country is teetering on the edge of broken and we need very fundamental reforms to fix it. (see my post above about abolishing municipalities, as example of a radical reform I think would do good).

I'll probably get attacked on here for this, but honestly, this is one area where a Pollievre government might do some good - his "fire the gatekeepers" mantra is oversimplistic but there's a lot of merit behind it.

[1overcosc]

Originally Posted by Truenorth00

It's called land banking. And it's a concern to be sure. And we could probably tax it away. However....

1) The shortage of construction personnel and the Boomer wave in that group cycling out means that developers couldn't develop most land if they wanted to. They are just about building as fast as they can today.

2) The amount of land that is banked by developers pales in comparison to both the quantity and quality of land that is locked up in the yellow belt. A single family home in the 416 that can be redeveloped is worth more than a lot at the edge of Oakville in so many ways. Less fiscally burdensome (uses existing infrastructure). More profitable to the developer. Better quality of life for residents. And better for the environment. Probably cheaper for the families too.

Add that to another fundamental problem with this country: While our labour shortages are most severe and consequential in blue collar professions, our immigration system is designed to bring in white collar workers, by prioritizing higher levels of education in the points system and using international students as a feedstock for new permanent resident applications.

[Truenorth00]

Originally Posted by someone123

Yeah, this is another area where lots of people are in la-la land. One response you see is calls to partition the market into "affordable" and "market" components with the market components yielding a good return while the affordable stuff solves the housing issues. That may work for niche groups but in Vancouver most of the population cannot buy itself good quality housing through the market, so 40-80% of the housing supply would have to come through the special affordable channel and the investment from the government is not there for that volume.

Yep. Make it $100k less for me by charging every neighbour on my floor $10k more. That's not solving anything. All it's doing is raising the general price by $10k.

Originally Posted by goodgrowth

This will be an unpopular opinion but I'm convinced some of the issue with things today is the education system.

If you are churning out a glut of BA's/MA's and people who spent 20+ years of "solving" everything through words and language...then that's mostly what you'll get. And a lot of those types end up in politics..

So you end up with "we need another report to analyze". Solutions which basically amount to just calling things what you want the solution to be "Rapid housing initiative", "Affordable" housing.

It's the problem of words as solutions.

There's nothing wrong with BA and MAs. The problem is that it's not easy to tell voting Boomers that housing affordability cannot be solved without them making sacrifices. To some extent this is a zero sum game.

Just imagine a minister goes into a caucus meeting and tells their colleagues they have plan to bring down housing prices 50%. How do you imagine the rest of that meeting is going to go?

Again, go watch that reaction from John Tory to a Toronto housing advocate arguing that high development charges are bad for housing affordability. Then go watch the NIMBY housing association rep say that the problem is too much immigration.

Now imagine a platform that runs on, "we're going to bring down real estate prices 50%". How do you think that party will fair at the polls?

The political unpalatability of all this is why governments are reduced to trying to manage the bubble rather than going all out to try and solve it. The only sincere move happening now is provincial governments starting to blanket lift zoning restrictions. And even there many are dragging their feet.