Canada's 'housing bubble' deemed close to bursting

[hipster duck]

Originally Posted by someone123

This is a bit challenging to parse.

There's a short supply of land that can support higher density development. That's why these building sites are expensive. If the entire Lower Mainland were up-zoned for 80 storey buildings everywhere, there'd be no premium for high density zoned land. The price doesn't depend directly on the profit you can make from developing the land, it depends on supply and demand together. Under this scenario, most of these building sites zoned for high density would remain low density. This would be a big net win for affordability. The price of condos would tend to be closer related to the cost of building and servicing them rather than the artificially constrained supply of land.

Service upgrades are financed through development fees and property taxes assessed against improvements on land. The servicing issue is pretty much orthogonal to the land supply issue.

I think this is an interesting thought experiment, but it is not easy to replicate in real life. For starters, upgrading utilities and transport networks and improving land servicing for added density is not something you can increase here and there in geographical isolation. This has to be approached in a concerted, systematic fashion, so I don't think any municipal government would agree to upzone the entire region for maximum density, even if their constituents were okay with it. You're still going to have to add on to density where density already exists.

While I agree that Vancouver's supply of land for building higher density developments is probably constrained, I'm not sure that land free from constraints is ideal or even practical.

I also doubt the extent to which our land supply is constrained because, as I have mentioned, the property value of condominium units remains relatively stagnant.

Sure, the supply of large, single family homes in urban, walkable neighbourhoods is constrained relative to how they're demanded, but that's like saying the supply of Ferraris is constrained relative to their demand.

I'd rather the prices be low in an absolute sense; that matters the most in terms of housing affordability. If the prices simply stay the same in Vancouver in real terms most people will continue to have crappy housing options.

For you, moving from Halifax, or even for me, moving from Toronto, this may be the case. But the majority of movers move within the region, so it doesn't matter what the base price is, what matters is how much prices appreciate.

There is some pretty established economic evidence somewhere that housing starts (i.e. developers responding to new demand) are not affected by price levels but by the rate of change in price levels.

I also think that rent-seeking behaviour focused around buying things ("goods") and then turning them into "assets" by artificially keeping them out of the hands of other people is really bad for society.

I agree. Look, I'm not defending the current market setup as just. However, I think it's nearly impossible for us to get out of this. Simply put: real estate is where the majority of people's wealth is tied up, and the more expensive a housing market is, the higher the percentage of an individual's net worth or equity is tied to housing (as opposed to other investments). Much of our political-economic system is set up so that properties don't lose value and people don't lose their shirts. The higher the prices, the greater the stakes to protect these high prices.

When prices do collapse, like in 2008 in the US and much of the Eurozone, not only are the results catastrophic for the wider economy, but people who typically lose out on homeownership opportunities don't suddenly become winners and enter the property game. Recall that the first order of business after prices collapsed 50% in some Sunbelt areas was to foreclose and evict the most vulnerable homeowners - people who wouldn't qualify for mortgages or homeownership in Vancouver. I don't think a collapse of price levels will magically level the playing field for Vancouverites who are currently stuck renting crappy housing.

[someone123]

Originally Posted by hipster duck

For you, moving from Halifax, or even for me, moving from Toronto, this may be the case. But the majority of movers move within the region, so it doesn't matter what the base price is, what matters is how much prices appreciate.

Locals don't necessarily own property either. I know lots of younger people who grew up here and haven't gotten any help from their parents. There are have-and-have-not dynamics within pretty much any age demographic, ethnicity, etc. in this city.

Look, I'm not defending the current market setup as just. However, I think it's nearly impossible for us to get out of this. Simply put: real estate is where the majority of people's wealth is tied up, and the more expensive a housing market is, the higher the percentage of an individual's net worth or equity is tied to housing (as opposed to other investments).

Well, I think there's a bit of wishful thinking going on here when it comes to the idea that Vancouver can have a housing market that is highly volatile, but only in one direction. This doesn't seem to be how housing has worked out in many other places. Vancouver has already experienced at least one housing bubble and crash. I don't think the current system necessarily guarantees that everybody's real estate investments are safe. The long-term solution is to make housing plentiful and forget about using it as a retirement plan or get-rich-quick scheme. I actually do personally have a stake in the real estate market here (more than lots of locals) but I'd be happy to see the value of my property tank as a side-effect of a socially positive phenomenon. Dramatic improvement in the quality and availability of housing for everybody is a good example.

[hipster duck]

Originally Posted by someone123

Locals don't necessarily own property either. I know lots of younger people who grew up here and haven't gotten any help from their parents. There are have-and-have-not dynamics within pretty much any age demographic, ethnicity, etc. in this city.

Well, that's too bad. I don't own property, but I plough my savings into other investments. It's not like you must own property in Vancouver to live here.

By the way, if I really want to own property I can do it elsewhere while continuing to rent in Vancouver. Nobody said that property you own must be where you live (the Chinese expats seem to understand this).

I don't think the current system necessarily guarantees that everybody's real estate investments are safe.

There are no guarantees in investing. But the fact of the matter is that governments have a huge incentive to prop up the property market, as opposed to other forms of investments: millions of voters depend on property markets for their wealth. If the property markets evaporate, so does personal wealth and, basically, almost all middle class prosperity.

The long-term solution is to make housing plentiful and forget about using it as a retirement plan or get-rich-quick scheme.

Apart from the fact that property ownership is at the core of our economic system, why should we make housing plentiful in Vancouver? Vancouver is a great place to live, but it doesn't have the natural draw of good employment like the other high cost cities in Canada. Shouldn't we be encouraging people to move to where work is, rather than to Vancouver?

I actually do personally have a stake in the real estate market here (more than lots of locals) but I'd be happy to see the value of my property tank as a side-effect of a socially positive phenomenon. Dramatic improvement in the quality and availability of housing for everybody is a good example.

Again, see my previous post about why property markets tanking does not mean that poor renters are better off. I don't think the average renter in Greece or Portugal is economically better off now than they were in 2007 when home prices were double what they are today.

[whatnext]

Originally Posted by hipster duck

Pre-war bungalows are cute, but let's call a spade a spade here. These are suburban, single family homes that do not create any vibrancy or life to the surrounding area. The demolition of these for monster homes doesn't subtract from the density of the area, the number of people walking around on the sidewalks, or the viability of operating street-facing retail (of which there are generally none). Lamenting the demolition of these is like lamenting the demolition of an old Dairy Queen. Sure, it's a nice trip down memory lane, but these old houses never made the city a city.

I'm sorry but that is simply untrue. The prewar neighbourhoods with 33' lots are and were the most successful neighbourhoods in the city. You can see that from the retail high streets that grew up to serve them and continue to thrive: Main Street, West Fourth, West 41st through Kerrisdale, Dunbar and Fraser.

The dehumanizing box-in-the-sky condos are the worst sort of "neighbourhood". Most people don't even know who is living just a few inches above or below them!

[1overcosc]

You can totally make a house quite liveable while retaining its heritage.

There's a company in Kingston, called BPE Development, that focuses on doing exactly that. Generally they build old properties at risk of being demo'ed due to neglect/poor condition, then gut the interior while retaining the exterior (in many cases, this is so thorough that the brick/stone walls become an empty shell), then rebuild the interior to have a modern living space with such conveniences as modern HVAC systems, for example. Then afterwards they rent or sell the finished space as apartments/condos. I rented one of their reconstructed heritage homes for two years, it was really nice... a 120 year old Victorian home on the outside, a brand new house on the inside!

It's a very successful business model as they are able to buy these rotting properties for next to nothing, and then rent/sell them for a high price, as the combination of a downtown location and a highly attractive interior makes them very valuable. This model may not be reproducible elsewhere, though. I feel like it can only happen in lower value markets, like Kingston.

[st7860]

Originally Posted by someone123

Dramatic improvement in the quality and availability of housing for everybody is a good example.

The ALR might have to be tapped to do that...

[ssiguy]

Another problem with Vancouver is it's condo market and the buying en masse of condo in buildings. A building of X number of condos may only be sold to have as many buyers and even many of those are rentals.

Vancouver will continue because now people hate the tear downs but want them maintained to keep the value of their own properties high. Most know that extremely few can buy at Vancouver housing prices and the value is not in the house but the land. Everyone knows that if you have a house more than 20 years old, it has little value and zero chance of selling unless it can be torn down. Thing is in Vancouver nearly every house can be torn down regardless of it's age or character.

The city has introduced a new "regulation" on pre-war tear downs..............when they tear it down the materials have to be recycled. A demo outside of this is just a 2 minute jaunt to City Hall, apy a little fee and it's done. If that isn't complete capitulation I'm not sure what is.

The destruction will continue to it's effect on maintaining high real estate prices and Vancouverites complete indifference to historical structures or the viability of neighbourhood communities. In Vancouver neighbourhoods with character are nothing more than tear downs they haven't gotten to yet.

[whatnext]

I have to confess I'm thinking of cashing in. I just don't see how Vancouver single family homes can continue to appreciate much more. They're already so out of touch with incomes, and I don't want to miss the boat. I like my house, but not so much that a large condo and nest egg isn't tempting.

[st7860]

Then go find a realtor that you trust. However, do you seriously think things will sink over 15% in the next few years?

[dleung]

Originally Posted by cornholio

I am sorry but I don't see any whiteness any where around where I live (Collingwood / Killarney area).

I do know that western immigration is at a real disadvantage and as a result non existent (not that it matter anymore). Really though I have no idea what you are talking about in your post. Are you trying to shut down the discussion? I mean the fact of the matter is that Vancouver has gone through a rapid transformation, and not a good one by all accounts (say my Chinese colleagues who have lived here for 30+ years). The city is broken as a result imo and what you see now is a generation of people hitting their late 20's early 30's who dont have families that can help them out (often because they them selves were leveraged in to the market) starting to get to a age where the time to start a family is rapidly running out and they are getting to the point they have to leave Vancouver. Its really just starting now, skilled people in their late 20's early 30's are starting to vacate the city, and/or build up some nasty resentment. This is why this issue needs to be dealt with.

How are they at a disadvantage? Maybe we should do what universities already do and try reverse-affirmative action... bring back the immigrant investor program but double the required GPA - I mean $$$ - for the Chinese

[lio45]

Originally Posted by whatnext

I have to confess I'm thinking of cashing in. I just don't see how Vancouver single family homes can continue to appreciate much more. They're already so out of touch with incomes, and I don't want to miss the boat. I like my house, but not so much that a large condo and nest egg isn't tempting.

If interest rates start to climb back up, Vancouver SFHs will almost certainly lose at least a bit of value. (Even if the values are "only" flat, that's still a poor investment.)

I have said already in this thread that personally I'd definitely sell if I had any property over there, but of course you do what you want

[cornholio]

Originally Posted by whatnext

I have to confess I'm thinking of cashing in. I just don't see how Vancouver single family homes can continue to appreciate much more. They're already so out of touch with incomes, and I don't want to miss the boat. I like my house, but not so much that a large condo and nest egg isn't tempting.

My brother is selling his house right now. His main rationale, "if someone wants to give me $900k for a 3 bedroom home with no alley in east Vancouver then I will take it and run" (and everything is selling over asking around his area). Will downsize to a townhouse in Tsawassen mortgage free since employment is in Richmond until he can retire in 10 years (very early) and leave the region with his early pension and go in to the private field in the IT sector. His second rationale is even if prices were to continue climbing it would only mean that his neighborhood is no longer for people like him, upper middle class income wise, so no hard feelings. By the way this is a 400k appreciation in 5 or 6 years.

Its a bubble sure, but it can go on for a long time (or in my opinion be on the brink now), but the point stands..> is your neighborhood still for people like you? If not, its probably a good idea to take the cash and leave and live happily ever after. That's my story. As far as I am concerned I invest my money in other ways and do look at property outside of Canada since I have that option, but I would not touch property in Vancouver with a ten foot pole (even if I wish I did 5-10 years ago...but that just means it makes so much less sense to me now).

[st7860]

Originally Posted by cornholio

My brother is selling his house right now. His main rationale, "if someone wants to give me $900k for a 3 bedroom home with no alley in east Vancouver then I will take it and run" (and everything is selling over asking around his area). Will downsize to a townhouse in Tsawassen mortgage free since employment is in Richmond until he can retire in 10 years (very early) and leave the region with his early pension and go in to the private field in the IT sector. His second rationale is even if prices were to continue climbing it would only mean that his neighborhood is no longer for people like him, upper middle class income wise, so no hard feelings. By the way this is a 400k appreciation in 5 or 6 years.

Its a bubble sure, but it can go on for a long time (or in my opinion be on the brink now), but the point stands..> is your neighborhood still for people like you? If not, its probably a good idea to take the cash and leave and live happily ever after. That's my story. As far as I am concerned I invest my money in other ways and do look at property outside of Canada since I have that option, but I would not touch property in Vancouver with a ten foot pole (even if I wish I did 5-10 years ago...but that just means it makes so much less sense to me now).

He thinks prices will quickly sink and stay sunk until he retires??

[cornholio]

Originally Posted by st7860

He thinks prices will quickly sink and stay sunk until he retires??

No he wants to downsize and be mortgage free now and then leave the region in 10 years all together. He does not care where prices will go. The math makes perfect sense. Townhouses outside of Vancouver/Burnaby are cheap in comparison (less then his appreciation in 5 years), and nicer then his place, his commute will be the same, and he will have zero mortgage. All the while like he said, if prices stay where they are then it only means his neighborhood is not for people like him, upper middle class income with his wife. I would do the same.

[st7860]

Originally Posted by cornholio

No he wants to downsize and be mortgage free now and then leave the region in 10 years all together. He does not care where prices will go. The math makes perfect sense. Townhouses outside of Vancouver are cheap, and nice then his place, his commute will be the same, and he will have zero mortgage and cash in his pocket. All the while like he said, if prices stay where they are then it only means his neighborhood is not for people like him, upper middle class income with his wife.

If he doesn't care about prices then why is he getting out now?

I've heard of people getting out to lock in their gains but i've never heard of someone being upset that prices stay the same and moving away because of the neighourhood not being at the same level

[cornholio]

Originally Posted by st7860

If he doesn't care about prices then why is he getting out now?

I've heard of people getting out to lock in their gains but i've never heard of someone being upset that prices stay the same and moving away because of the neighourhood not being at the same level

I said he doesn't care what happens with prices once he dumps his house and go's mortgage free with technically a free townhouse, no debt and a high income plus a cash infusion to invest as he sees fit. Greed is not the be all end all. He is making the right move imo and for the right reasons. Keep in mind he has no long term plans to stay in this region, mostly because of the prices and rapid change. The reason he is not leaving right away is because he has a good public job with his wife and they need to time their pensions right before they "retire" and move in to the private sector.

As for your second comment I agree with him, if he and his wife cant afford the property in their neighborhood on their income then the neighborhood is not for people like him and his wife, and they have high incomes. Once he leaves it doesn't matter what happens to prices, he is out.

[st7860]

Originally Posted by cornholio

I said he doesn't care what happens with prices once he dumps his house and go's mortgage free with technically a free townhouse, no debt and a high income plus a cash infusion to invest as he sees fit. Greed is not the be all end all. He is making the right move imo and for the right reasons. Keep in mind he has no long term plans to stay in this region, mostly because of the prices and rapid change.

As for your second comment I agree with him, if he and his wife cant afford the property in their neighborhood on their income then the neighborhood is not for people like him and his wife, and they have high incomes. Once he leaves it doesn't matter what happens to prices, he is out.

sounds like a workholic that doesn't to many things after coming home from work

doesnt make sense that he's upset at what other peoples incomes are

[cornholio]

Originally Posted by st7860

sounds like a workholic that doesn't to many things after coming home from work

doesnt make sense that he's upset at what other peoples incomes are

He is not upset. Rather happy I would think, I would be. He has a very high income, about double the median and his wife close to that. If you think he is a workaholic then you don't know what public sector IT means. 6 weeks paid vacation at this stage of his career and plenty sick days and working from home once a week helps.

But this is off topic...

Just your image is 100% wrong. Just a normal family with high incomes who are throwing in the towel on Vancouver.

[st7860]

Originally Posted by cornholio

He is not upset. Rather happy I would think, I would be. He has a very high income, about double the median and his wife close to that. If you think he is a workaholic then you don't know what public sector IT means. 6 weeks paid vacation at this stage of his career and plenty sick days and working from home once a week helps.

But this is off topic...

Just your image is 100% wrong. Just a normal family with high incomes who are throwing in the towel on Vancouver.

You said something about he thinks the neighourhood isnt' for him if prices keep stable or increase. That sounds like an unhappy person.

Also he wants to live in Tsawwassen because of the commute so it sounds like he cares primarily about work.

3 bedroom house for $900,000. He's giving up a lot by selling out as is. If he really wanted to unlock the value of his place he would rebuild it then sell it and pocket the income tax free.

[cornholio]

Originally Posted by st7860

You said something about he thinks the neighourhood isnt' for him if prices keep stable or increase. That sounds like an unhappy person.

Also he wants to live in Tsawwassen because of the commute so it sounds like he cares primarily about work.

3 bedroom house for $900,000. He's giving up a lot by selling out as is. If he really wanted to unlock the value of his place he would rebuild it then sell it and pocket the income tax free.

1) Sounds like sound logic, don't have to look any further in to it
2) His house though too small is in good shape, it makes no sense for him to waste time to rebuild or get in to that sort of business. He simply wants out, the sign just went up and it will be sold within a month or two. Perfect sense. He wants out now, as in asap. Numbers were crunched and decision was made (keep in mind we are very close)
3)The commute will be about the same. Tssawassen has a French immersion school and the new bridge will make it a breeze to commute. Otherwise the commutes would be the same.

Like I said imo its the right move. He is not the only one. The reason I mentioned this is because it was relevant to whatnext's question. That and it illustrates the issues of the current situation, the craziness of it all.