Canada's 'housing bubble' deemed close to bursting

[whatnext]

There's no reason working Canadians should have to settle for second-best housing so offshore money can have the cream of the crop. It's pathetic that some here accept that as a given.

[Drybrain]

Originally Posted by LeftCoaster

CMA income is irrelevant when so much money is being pored into the city from abroad, originally HK and the US, then steamrolled with Mainland China money, and now seeing more and more new entrants such as Russia and Latin America. Trying to apply normal housing metrics to markets like this just doesn't work. And these investors only want high end condos or SFH near the core, hence why you see the major split between asset classes, a split you are now starting to see in Toronto and simply don't see in Montreal.

Bottom line is housing IS affordable in Vancouver, you just need to redefine what your concept of housing is. For better or worse an average Vancouverite can no longer afford a SFH close to the core, but mid market condos, low rises and townhouses are still affordable, if a tad expensive.

Yu're right about the overall trends away from SFHs, but housing is not affordable in Vancouver, even condos and low rises, etc. The average Greater Vancouver condo is $521,000, over $100,000 more than the Toronto CMA average of $416,000 (also considered high). Prices there are rising faster than anywhere else.

We can debate about how inflated it is, but it's not affordable, by any definition of the term. If the city's housing market is being driven to extremes by the global super-rich using the city as a place to park their cash, that's a city that has given up on its own citizens.

[GreaterMontréal]

Vancouver will be a resort city. already is.

[LeftCoaster]

^ Hmm, seems strange that BC and Vancouver are leading the country in GDP and job growth then? BC's LTM job growth is nearly triple that seen in Ontario or Quebec. Not really the kind of stats one would expect to see out of a resort city.

Originally Posted by Drybrain

Yu're right about the overall trends away from SFHs, but housing is not affordable in Vancouver, even condos and low rises, etc. The average Greater Vancouver condo is $521,000, over $100,000 more than the Toronto CMA average of $416,000 (also considered high). Prices there are rising faster than anywhere else.

Actually, outside of the last 6 months, condo prices are nearly flat in Greater Vancouver:
http://www.rebgv.org/home-price-index?region=Greater+Vancouver&type=Apartment&date=2015-10-01

Likewise for townhouses:
http://www.rebgv.org/home-price-index?region=Greater+Vancouver&type=Townhouse&date=2015-10-01

As for the last 6 months, things have certainly shot up, but that is an abnormality to what has been seen over the last 5 years, which is indicative of a market in equilibrium with plenty of supply delivered and healthy local demand. The last 6 months are troubling, as there should not be a spike of that magnitude when condo supply is so readily available, but I would wait for more than a half year trend to draw any conclusions from that. Could spell trouble on the horizon though.

And as for the average price, you have to keep in mind that the YVR average includes a lot more luxury condos per capita, and possibly on an absolute basis, than YYZ. The median condo price in Vancouver and Toronto are quite similar and based off cost of construction plus profit, which is a much more accurate measure of affordability. You can still easily find a 3 bedroom condo in the burbs for around 500K.

[LeftCoaster]

Originally Posted by whatnext

There's no reason working Canadians should have to settle for second-best housing so offshore money can have the cream of the crop. It's pathetic that some here accept that as a given.

I'm all for having a national discussion about placing curbs on foreign capital in residential real estate, but as it stands most people are allowed to purchase a house in Canada, much like most Canadians are allowed to purchase a summer home or investment property elsewhere.

It's a global economy, and just like Vancouver mining companies make billions extracting resources from other countries, others are allowed to freely invest in Vancouver. We can't have our cake and eat it too.

[whatnext]

A Maple Street home in Kits Point, with an asking price of $1.9 million, fetched $2.9 million last week — $1 million over the asking price. The bidder, one of 17, was a local buyer.

Across the way, on Chancellor Blvd. near UBC, realtor Andrew Hasman sold a home two weeks ago for $5.3 million — nearly $600,000 over asking. The sale followed a six-party bidding war won by a 22-year-old university grad whose parents live in China...

...The price for a typical detached home in Metro Vancouver, at nearly $1.2 million, jumped more than 20 per cent in the past year. Now, it is true that the region’s economy is performing well at the moment, probably better than any other metropolitan area in Canada. But few Vancouver-area residents got 15- or 20-per-cent pay raises in the past year.

Median family income in Vancouver in 2013, according to Statistics Canada, was $73,390. An income of about $150,000 is required for mortgage payments on an $800,000 Vancouver home.(bold mine)

Read more: http://www.vancouversun.com/business/bar...market/11541248/story.html#ixzz3sXY7nCC6

[koops65]

Originally Posted by ssiguy

The reason SFH are so expensive in Vancouver is that Vancouver lets anyone buy a SFH and then replace it with a much larger one that sits empty but does have proper fung shui when the owners pop in once or twice a year.

Vancouver's willingness of wholesale destruction of entire neighbourhoods creates a completely speculative market that benefits the Chinese money launderer. The ultra expensive Westside {even by Vancouver standards} has become the domain of Chinese passport buyers.

It's akin to having Westmount or Rosedale being turned into Chinese suburbs where the old stock housing {regardless of heritage value as in Vancouver heritage has no value} being torn down and then no one actually occupying the house. There are whole streets on the Westside that have most of the houses with no electrical power usage or garbage pickup and $5 million dollar homes with lawns with overgrown grass, weeds everywhere, and no cars in the drive way.

Vancouver has gone from WASP to multicultural to bi-cultural in a generation.

Please provide a picture, or some sort of stats for this... if not, then I'll have to chalk it up as another personal anecdote...

[LeftCoaster]

Everything SSI posts is a personal anecdote. Or a misinformed assumption. Or a wild generalization.

He sure says them with a lot of conviction though.

[ssiguy]

The Globe and Mail just 2 weeks ago did an article on Vancouver's hollow communities on the Westside.

[lio45]

Originally Posted by Drybrain

I don't see what tenant issues have to do with it.

Artificially low rents push the upper limits of the generally acceptable monthly mortgage payment downward, which has a direct effect on property prices.

[casper]

Originally Posted by LeftCoaster

I'm all for having a national discussion about placing curbs on foreign capital in residential real estate, but as it stands most people are allowed to purchase a house in Canada, much like most Canadians are allowed to purchase a summer home or investment property elsewhere.

It's a global economy, and just like Vancouver mining companies make billions extracting resources from other countries, others are allowed to freely invest in Vancouver. We can't have our cake and eat it too.

The only problem with restrictions on foreign ownership of residential property is it does not work. You setup a shell company, the company owns the property the foreign investor owns the company. It is the model that is used in places like Mexico. Other than creating work for lawyers to administer shell companies it is pointless. Added benefit of this strategy is removes the need to pay property transfer tax as you simply change the share ownership instead of the actual land title.

[Procrastinational]

Originally Posted by casper

The only problem with restrictions on foreign ownership of residential property is it does not work. You setup a shell company, the company owns the property the foreign investor owns the company. It is the model that is used in places like Mexico. Other than creating work for lawyers to administer shell companies it is pointless. Added benefit of this strategy is removes the need to pay property transfer tax as you simply change the share ownership instead of the actual land title.

Instead of restricting foreign ownership, I'd rather see a land value tax. Restricting foreign investment whether in real estate or stocks creates more problems than it's worth. At the very least, have these foreign owners pay higher taxes on the properties than they do now so that we can cut taxes for locals. While a land value tax would also be paid by locals, the bonus revenue from foreign owners mean that we could afford reasonably large cuts to taxes mainly paid by locals like income and payroll taxes.

As well, a land value tax would discourage foreigners from sitting on vacant properties as investments, without making it illegal. Let's say a property worth $3.0 million is purchased this year. The for an average house, the land value component of that is probably $2.5 million. A modest 1% land value tax would mean $25,000 a year in taxes. If that buyer were to flip the house for $4.0 million after 5 years, they'd make a profit of $1 million, but would have paid between $125,000 and $175,000 in taxes over those 5 years, and then would pay capital gains on top of that (personally I think property should be exempt from capital gains, but that's another story). That takes a huge chunk out of the profit of investment properties. At the very least, the owners would probably rent the place out rather than leave it vacant, to cover the cost of the tax.

In a nutshell, I think a land value tax would solve Vancouver's housing problem in a much more fair way than restricting foreign ownership, and it would alleviate any tax evasion concerns of foreigners owning multi-million dollar places with minimal declared income. As a bonus a land value tax doesn't discourage lot improvements, as unlike a property tax, improvements aren't tax, just the land value itself. People don't create the value of land, the rest of the community ultimately does.

[dleung]

Originally Posted by Drybrain

Vancouver stands alone as having, by a huge margin, the greatest discrepancy between single-family prices and overall prices (as well as the highest prices overall).

That attests to the high value of land in Vancouver, and the scarcity of detached houses. Condos are only 10% higher than in Toronto, which makes sense.

Until we solve the foreign money issue, it's not incomes that are driving house prices here, but net worth. Even the 2nd/3rd generation local Chinese have disproportionately high savings relative to income.

LOL and I still see people sentimentally referring to "working Canadians"... why not just "Canadians"? The SFH-for-everyone crowd can get their fill of power centres and diabetes by moving elsewhere.

[casper]

Originally Posted by Procrastinational

Instead of restricting foreign ownership, I'd rather see a land value tax. Restricting foreign investment whether in real estate or stocks creates more problems than it's worth. At the very least, have these foreign owners pay higher taxes on the properties than they do now so that we can cut taxes for locals. While a land value tax would also be paid by locals, the bonus revenue from foreign owners mean that we could afford reasonably large cuts to taxes mainly paid by locals like income and payroll taxes.

As well, a land value tax would discourage foreigners from sitting on vacant properties as investments, without making it illegal. Let's say a property worth $3.0 million is purchased this year. The for an average house, the land value component of that is probably $2.5 million. A modest 1% land value tax would mean $25,000 a year in taxes. If that buyer were to flip the house for $4.0 million after 5 years, they'd make a profit of $1 million, but would have paid between $125,000 and $175,000 in taxes over those 5 years, and then would pay capital gains on top of that (personally I think property should be exempt from capital gains, but that's another story). That takes a huge chunk out of the profit of investment properties. At the very least, the owners would probably rent the place out rather than leave it vacant, to cover the cost of the tax.

In a nutshell, I think a land value tax would solve Vancouver's housing problem in a much more fair way than restricting foreign ownership, and it would alleviate any tax evasion concerns of foreigners owning multi-million dollar places with minimal declared income. As a bonus a land value tax doesn't discourage lot improvements, as unlike a property tax, improvements aren't tax, just the land value itself. People don't create the value of land, the rest of the community ultimately does.

We already have that.

In BC there is a property transfer tax. I view it as a money grab by the government since they charge a separate registration fee and it is unclear what value is create. A tax that other projects such as Saskatchewan don't have.

We also have a very progressive property tax system. If you don't live in your property you pay the full rate. Live in your property you get a good discount and if your are senior the discount is even higher.

If I understand your proposal the property tax will be based on the assessed value of the land and not the building? How does that work with strata buildings where most of he value is the building? The idea has merits, I am just not certain of how the mechancis of it will work.

[Drybrain]

Originally Posted by dleung

That attests to the high value of land in Vancouver, and the scarcity of detached houses. Condos are only 10% higher than in Toronto, which makes sense.

Until we solve the foreign money issue, it's not incomes that are driving house prices here, but net worth. Even the 2nd/3rd generation local Chinese have disproportionately high savings relative to income.

LOL and I still see people sentimentally referring to "working Canadians"... why not just "Canadians"? The SFH-for-everyone crowd can get their fill of power centres and diabetes by moving elsewhere.

The numbers I posted above are a 25% difference ($416,000 in TO vs $521,000 in Van).

Anyway, I'm sensing a sort of assumption in some of these posts that Vancouver is some new super-urban model of a Canadian city, and the only reason people think it's expensive is because we can't let go of our oh-so-dated SFH dreams.

That's silly, because A: Vancouver's proportion of single-family to multi-unit housing isn't even that much higher than the norm for large metros, and is behind at least one other city (MTL), and B: Condos are super expensive too.

Take a two-person household making the $78,000 median income for that household size. Now say they want to buy the $521,000 average condo. Guess how much a 15% down payment is? $78,000, a whole year's pre-tax income. Add to that your closing costs: lawyer's fees, realtor fees, land-transfer tax, etc.

It might be different if the city were going gangbusters on purpose-built rental stock (I'm a big advocate of rental over ownership) but that's not happening.

[MolsonExport]

^Sensible post.

Consider also mortgage payments out of said median income, and what will happen to these payments once interest rates (inevitably) rise.

[Berklon]

More than a third of homeowners struggle to pay the bills: survey

Nearly 40 per cent of Canadian homeowners say they have found themselves short of money to cover their monthly expenses at least once in the past year, turning to debt, cashing in savings or borrowing from family to pay the bills.

Rising house prices have contributed to the sizable share of homeowners who struggled to pay their bills, with 38 per cent who have a mortgage telling a survey by Manulife Bank of Canada that they considered their local housing market to be unaffordable.

And this is with interest rates at historical lows. Yet another indication that home prices aren't in line with incomes.

The story also made the Financial Post:

Debt load has many Canadians ‘living on the edge,’ with high housing prices largely to blame: report

[geotag277]

Originally Posted by Drybrain

That's silly, because A: Vancouver's proportion of single-family to multi-unit housing isn't even that much higher than the norm for large metros, and is behind at least one other city (MTL), and B: Condos are super expensive too.

As I said, I believe condos are overvalued in Vancouver, although probably not as much as people assume.

Regarding proportions, it doesn't say as much as you think it does. A city like Montreal has the ability to add single family detached housing stock to meet demand, Metro Vancouver doesn't have that option and indeed, as I mentioned 20 times previously, detached single family home dwellings are actually decreasing quite dramatically in Vancouver (versus rising in all other Canadian CMAS). It's simply a matter of supply and demand.

It should also be noted that nearly 50% of all single family detached housing stock in Metro Vancouver is located in Surrey, where average prices are in the ~700k range. You might make a case that housing in Surrey is overpriced, seeing as how it is fairly detached from Vancouver, but for most other components in the Metro Vancouver single family housing market there simply isn't going to be the supply available and those land values are going to be exceptionally high and will continue rising as Vancouver continues growing. That's just how it works.

[geotag277]

Originally Posted by whatnext

There's no reason working Canadians should have to settle for second-best housing so offshore money can have the cream of the crop. It's pathetic that some here accept that as a given.

Who are you kidding? Single family detached housing hasn't been affordable in Vancouver since the 90s, even then pay cheques were stretched on upper middle class families to barely afford it. Average "Working Canadians" haven't been able to afford it for a generation.

This mentality that everyone who has a job in Vancouver is entitled to live in a single family detached home with a yard on a 5000+ sqft plot of land is doing more harm than good. These land plots need to be broken down into multiple more affordable living units in the form of townhomes and condos.

Let go of the entitlement.

[flar]

I drove down Granville to and from the airport last week, and I was astonished at how many homes were either for sale, or fenced off for new developments. Absolutely crazy, and some of those houses are really nice.