Chinese Investors Driving Up Metro Housing Prices

[logan5]

Originally Posted by jhausner

People raising concerns are to me no different than those people wanting affordable housing for the poor on Waterfront property downtown Vancouver. They're just selfish individuals that don't know what the word sacrifice truely means.

Concerns:

1. A lot of people are now spending more than 50% of their income towards housing.

2. The price of housing has risen at much higher rate than inflation.

3. Most peoples wages have stagnated.

4. Families are being forced further and further away from their jobs.

The sacrifices are getting greater and greater every year. Do you share these concerns, or is everything fine with you as long as your property value rises at an abnormal rate?

[Zassk]

Originally Posted by logan5

Concerns:

1. A lot of people are now spending more than 50% of their income towards housing.

2. The price of housing has risen at much higher rate than inflation.

3. Most peoples wages have stagnated.

4. Families are being forced further and further away from their jobs.

The sacrifices are getting greater and greater every year. Do you share these concerns, or is everything fine with you as long as your property value rises at an abnormal rate?

All true except I would argue #3. Median wages have gone up about 25% in 15 years, and overall taxation rate dropped by a huge amount on Gordon Campbell's watch (whatever you think of him, this is a fact). The result is that our disposable income has grown favourably compared to inflation, even if it hasn't kept up with real estate.

[BCPhil]

Originally Posted by Porfiry

There is no "right" or "wrong" in markets, the price is set by the buyers and sellers who are participating in the market. The only way to force prices in any direction is to change the balance of the two.

Exactly!

My point was so what if some people can make huge sacrifices, it does not relate to the actual price of homes. If you included the next sentence of mine in your quote, you would be able to see that that was the point. I wasn't trying to defame the free market, just pointing out that because people CAN afford higher prices, it doesn't mean that the market is NOT overvalued.

But anyway, to continue on your train of thought....

The price IS set by buyers and sellers. But there is nothing about they buyer and seller relationship that forces the agreed upon price to not be overvalued.

If a seller is looking to sell, they will sell for the highest price someone is willing to buy. Enter people with lots of money, looking to "invest" it. They buy a property, out bidding other potential buyers. Now other sellers see this higher price, and raise their price. More investors come along and take those properties. Even if the investor/overpaying buyer is a tiny part of the total number of buyers, the sellers will put up prices to the point where they were willing to buy. The influx of speculators have caused exactly what they were trying to cash in on, rising home prices. Nothing has happened in the economy externally to this to justify higher home prices. There is no huge increase in income, there is no influx of jobs and business. They then sell their properties at this increased price and make a profit. Others see this and want in on the action, buy properties, hope the price raises and sell. Sellers want in on this and raise their prices to the most investors are willing to pay.

Wealth is coming out of a sector of the economy where no wealth has been generated. People are taking money out of the economy, they are not buying products, buying less food, cheaper cars, eating out less, spending less on entertainment and so on. This is draining money from the real economy, and dumping it into this pretend economy, where wealth is created just from the pure desire for more wealth, instead of being created by actual labor.

I'm not against free markets, in fact I am very much for them. But free markets require some rationality to them. Wealth is supposed to be created by growth, not by speculation. There is still an ever increasing source of supply; new houses are built each day, new condo towers are being built.

So, I'm not saying that housing needs to be affordable. It does not need to be strictly regulated.

But there is one important variable that does drive markets, that speculators take advantage of, and that is need. Right now people NEED to live here, and many are willing to buy at current prices. They need the property for what it is supposed to be, a place to live so they can enjoy their lives. But there does come a point where prices will be higher than what people who need to buy are willing or able to pay. The entire idea behind speculation is that the property will be worth more to someone who needs it in the future. If that does not happen.....

Anyway what I am saying is that because of the free market buyer-seller relationship, I feel it is entirely possible and likely that prices can irrationally be driven up by foreign Chinese speculators who are looking for places to invest their money. And that is the question in this thread.


Just ask the people of Ordos City, if there are any.

[ckkelley]

Originally Posted by WarrenC12

I'm still not sure why buying RE is the be-all-end-all for so many people.

We rent, we save money, and invest the savings in many things other than RE, especially the tax savings vehicles (RRSP, TFSA, Cdn dividend tax credits).

People eating kraft dinner and cutting their cable TV to buy RE in this area make me laugh...

Still flogging that horse eh? You must shake your head at the insanity. "Why isn't anyone listening to me?!!"

[BCPhil]

Originally Posted by Zassk

Because people want to live in Vancouver more than they want to live in Portland. That should be self-evident. This will always have a bearing on prices.

You want cheap housing, don't pick Vancouver. Take a one-way ferry or airplane to a market you can afford. This is the sort of action that led many to Vancouver in the first place - many of them were fleeing places that had already become unaffordable decades ago.

Sorry if your parents could afford Vancouver and you can't. The city doubled in size in a few decades. It stands to reason that affordability will have changed in the process. Sorry if you feel there is something fundamentally wrong with this. We can't grow our city without causing that kind of change.

There are many nice cities out there that are much cheaper. Portland, for instance. But you're not going to find a clone of Vancouver that is cheaper, because if it was truly a clone of Vancouver, then it would be equally desirable and therefore equally expensive.

Those evil foreign investors? They are a symptom, not the cause.

Depends on how you quantify demand.

The Portland Metropolitan area population, between 2000 and 2010 grew by over 15%. Seattle was at 13%. I believe that eclipses Metro Vancouver's growth, as the most recent census data, between 2001 and 2006 puts us at 6.5%. So if you double over double time you still get an overly simplified 13%. Other regions of this country have grown just as fast.

So to me anyway, it seems like the desire of people to live in Portland is similar to the desire to live in Vancouver.

But if you have a different way of quantifying the desire to live here, let me know.

I haven't mentioned myself at all, and I haven't said I am unable to afford to live in this city. In fact, my concern is for the sustainability of our local economy. An overpriced housing bubble can ruin our economy. It can burst, costing many thousands of people their investments, and leaving them unable to continue to finance their homes. Or it could lead to ever increasing prices, driving away lower income families, resulting in a destruction of the downtown economy. Who is going to work in Starbucks if there is no one left who can afford to work for minimum wage?

Much of the desire to live in Vancouver is still fueled by the middle class office worker, working in offices downtown, living the downtown lifestyle. Is that sustainable without the jobs? If downtown becomes an over priced haven for investment money, would people still want to live there? It is a tight rope we are walking on right now, and I think we are just barely keeping our balance. A strong gust caused by double dip recession, especially austerity measures in the US drying up our largest trading partner, could cause Vancouver to lose its precarious balance.

[quobobo]

Originally Posted by BCPhil

There is still an ever increasing source of supply; new houses are built each day, new condo towers are being built.

I appreciate what you're saying, but I don't think this is quite right. New housing supply is being provided, but it seems to me that there isn't nearly enough being provided in the areas that people want it (i.e. Vancouver near downtown) - due to zoning limits.

Quick Econ 101 refresher: firms usually produce a good until marginal cost equals the price they can obtain for that good.

New condos near the Skytrain stations in Surrey (Quattro etc) tend to be selling around $300 per square foot, which is close to the construction cost of a new concrete high-rise around 100-150m (this is sort of a ballpark, I haven't looked at the RS Means construction cost estimates in a few months). More or less, this is the market in action.

However, selling prices in Vancouver are closer to $600 per square foot despite marginal construction costs being much lower than that. Absent zoning limits on height and density, developers would be building up until the marginal cost of adding a new floor approached $600psf. These buildings would be gigantic - well beyond the height of any building outside downtown.

So, yeah, there are significant regulatory limits on the amount of housing that would be built in Vancouver by developers. Calling the current situation a free market is a huge misnomer if you ask me.

[jlousa]

In theory but reality would change that. Lets assume hard costs of $300psf for concrete construction with nice finishes. Lets assume $200psf for buildable land cost near the core. So selling at $600 doesn't leave a huge profit with financing costs and the soft costs tallied in.
Let's now remove all zoning limits, what would happen is construction costs would rise as you build much taller, the total land price would also increase as it's being controlled by zoning now. W/O a limit it would skyrocket and the total cost would still be in a similar price range per buildable sqftage. If demand is held at $600psf then construction costs + Land costs + soft costs + developer profit will add up to $600psf. If demand becomes $500psf then land prices would have no choice but to come down as construction costs are relatively fixed as is the developers need for profit.
Developers do not set price, the consumer does, the OV is a perfect example of that.

[punface]

The Vancouver Sun has printed a reply to Cam Good's "The new real estate protectionism is misguided" column (which phesto posted on this thread a few days ago.)

http://www.vancouversun.com/business/Vancouver+renting+better+option+than+buying/4674158/story.html

...

We, as a people, are out of money. And adding to your already onerous credit burdens is not an option, especially when housing price declines are all but assured. And we haven't even factored property taxes, closing costs, repairs, and renos into the equation. The top of any bubble is fuelled by unreasonable mania, and that's precisely where we are now. Don't let calls of "impotence" persuade you to do something your gut has told you is wrong. And remember that one word you won't hear from any real estate agent: Rent.

Gord Goble is a Vancouver-based writer.

[logan5]

Originally Posted by quobobo

However, selling prices in Vancouver are closer to $600 per square foot despite marginal construction costs being much lower than that. Absent zoning limits on height and density, developers would be building up until the marginal cost of adding a new floor approached $600psf. These buildings would be gigantic - well beyond the height of any building outside downtown.

Do you happen to know at approximately what height or density a tower in Vancouver ceases to become profitable?

[whatnext]

It never ceases to amaze me that people here will defend the right of foreign investors to drive up our real estate prices stratospherically, at the expense of those working and living here.

It's a shame that BIV doesn't allow non-subscribers to read their articles, but Peter Ladner's original column (which the realtor attempted to rebutt), featured a number of interesting facts and points:

- The one overseas owner who is holding 300 local residential properties.
- Stupidly high real estate price discourage businesses thinking of locating here.
- It makes for unsafe neighbourhoods (eg. a block with 5 empty houses)
- It sentences many of those working in the City to long commutes, there goes the beloved Livable Region Strategy
- It forces gov'ts into ham handed policies like the STIR program to try and preserve affordability.

Foreign ownership restrictions are the norm in many places in the world, its not radical and would help solve the problem.

[jlousa]

So are people now admitting that property values won't drop?
Otherwise you'd want all the foreign investors you can get, have them bid up prices, sell your property to them, rent for a fraction of the carrying costs while you invest your large lump sum payment, sit back and wait for the major drop that's supposedly coming and then buy your house back for half off and keep the other half to do what you want with.

Also remember all those empty houses/condos are paying property taxes w/o using services, so they are subsidizes the rest of us. No empty properties means tax increases all around to pay for increased demand on services.

[quobobo]

Originally Posted by jlousa

In theory but reality would change that. Lets assume hard costs of $300psf for concrete construction with nice finishes. Lets assume $200psf for buildable land cost near the core. So selling at $600 doesn't leave a huge profit with financing costs and the soft costs tallied in.

Absolutely, but land costs don't really matter for this analysis (unless rezoning significantly increases land prices - more on that later) because we're considering marginal costs. Once the land is owned by the developer, if they can build another floor at $300-$400psf and sell at $600psf they'll build significantly more units.

Let's now remove all zoning limits, what would happen is construction costs would rise as you build much taller, the total land price would also increase as it's being controlled by zoning now.

1) Construction costs rise slowly enough that the landscape would still be very different - I'm pretty sure $300 psf is still a decent estimate for 25 storeys - much different than the neutered 5-10 storey projects we see in places like the Olympic Village and Mount Pleasant.

2) Land price depends significantly on zoning mostly because densely-zoned land is scarce in the area. If the allowable height/density was tripled everywhere in Greater Vancouver, do you think property would triple in price? I doubt price increases would be remotely close to that.

Do you happen to know at approximately what height or density a tower in Vancouver ceases to become profitable?

To be honest I'm not sure - the data I've seen usually stops giving estimates around 25 floors.

[whatnext]

Originally Posted by jlousa

So are people now admitting that property values won't drop?
Otherwise you'd want all the foreign investors you can get, have them bid up prices, sell your property to them, rent for a fraction of the carrying costs while you invest your large lump sum payment, sit back and wait for the major drop that's supposedly coming and then buy your house back for half off and keep the other half to do what you want with.

And if mortgage rates go up, along with gas prices? Yet real estate prices continue to climb because of foreign influence? Result: locals frozen out of even more markets.

Originally Posted by jlousa

Also remember all those empty houses/condos are paying property taxes w/o using services, so they are subsidizes the rest of us. No empty properties means tax increases all around to pay for increased demand on services.

That's one argument, but it sure doesn't make for welcoming or successful neighbourhoods.

[quobobo]

Originally Posted by whatnext

That's one argument, but it sure doesn't make for welcoming or successful neighbourhoods.

Assuming these are condos - who cares if some are usually empty? Allow more floors to be built and the neighbourhood will have just as many inhabitants plus some extra property tax revenue.

[Porfiry]

Originally Posted by whatnext

It never ceases to amaze me that people here will defend the right of foreign investors to drive up our real estate prices stratospherically, at the expense of those working and living here.

It's a shame that BIV doesn't allow non-subscribers to read their articles, but Peter Ladner's original column (which the realtor attempted to rebutt), featured a number of interesting facts and points:

- The one overseas owner who is holding 300 local residential properties.
- Stupidly high real estate price discourage businesses thinking of locating here.
- It makes for unsafe neighbourhoods (eg. a block with 5 empty houses)
- It sentences many of those working in the City to long commutes, there goes the beloved Livable Region Strategy
- It forces gov'ts into ham handed policies like the STIR program to try and preserve affordability.

Foreign ownership restrictions are the norm in many places in the world, its not radical and would help solve the problem.

The things that drive up "drive up our real estate prices stratospherically" are supply and demand issues. The nationality of the buyer is an irrelevant issue. A rich Canadian who buys into Vancouver has exactly the same effect on the market as a rich Chinese. I know those Albertans have lots of money, so we should probably build a wall to keep them out.

Actually, we should just prevent anyone with any wealth or success from living in our city. That'll solve it.

[whatnext]

Originally Posted by Porfiry

The things that drive up "drive up our real estate prices stratospherically" are supply and demand issues. The nationality of the buyer is an irrelevant issue. A rich Canadian who buys into Vancouver has exactly the same effect on the market as a rich Chinese. I know those Albertans have lots of money, so we should probably build a wall to keep them out.

Actually, we should just prevent anyone with any wealth or success from living in our city. That'll solve it.

Your facile argument ignores the fact that China itself has restrictions on foreigners purchasing real estate.

[Yume-sama]

Originally Posted by whatnext

Your facile argument ignores the fact that China itself has restrictions on foreigners purchasing real estate.

I do suppose you'd like to pick and choose which Chinese regulations you would like to impose on the Canadian people ?

Not many people openly advocate the adoption of Communist Chinese policies.

Chinese people themselves just got the right to own private property in 2004. (not that property rights in China really ever exist)

There's no restrictions on ownership in Japan. We should all move there and show them a thing or two~

[quobobo]

Originally Posted by whatnext

Your facile argument ignores the fact that China itself has restrictions on foreigners purchasing real estate.

And that makes it good policy?

[Zassk]

Originally Posted by BCPhil

Depends on how you quantify demand.

The Portland Metropolitan area population, between 2000 and 2010 grew by over 15%. Seattle was at 13%. I believe that eclipses Metro Vancouver's growth, as the most recent census data, between 2001 and 2006 puts us at 6.5%. So if you double over double time you still get an overly simplified 13%. Other regions of this country have grown just as fast.

So to me anyway, it seems like the desire of people to live in Portland is similar to the desire to live in Vancouver.

But if you have a different way of quantifying the desire to live here, let me know.

I have a different interpretation. The prices tell me that more people "wanted" to live in Vancouver, but more people "compromised" and moved to Seattle and Portland.

[whatnext]

Originally Posted by Zassk

I have a different interpretation. The prices tell me that more people "wanted" to live in Vancouver, but more people "compromised" and moved to Seattle and Portland.

You're proposing Canadians moved to Seattle or Portland rather than Vancouver? Unlikely, for a host of reasons.