Canada's 'housing bubble' deemed close to bursting

[vanman]

Originally Posted by geotag277

It is frustrating how Eby seemingly has been maneuvered into complete silence on the issue. If the Greens/NDP are at an impasse on housing that is very bad. Vancouver can't wait until the next election to sort this out, and a sudden failure of confidence triggering another election might just end up with another liberal do-nothing situation.

The NDP will be releasing their first budget in February that will include a new comprehensive housing strategy. They've already indicated that they're going to address both the demand and supply side of the problem. John Horgan has even stated that he will be going after speculation specifically. Housing affordability is clearly the number one issue BCers care about it and the NDP know that if they don't get this right they will lose power.

[geotag277]

Originally Posted by lio45

It can't be done in Vancouver because Vancouver rents are exceptionally low compared to property prices. It's impossible to build rental properties in such circumstances (unless the government's paying for it).

After building "The Metropolitan" in Vancouver, the owner of the building would have to decide between getting a pittance yearly in incoming rent, or selling 500+ units as condos (a.k.a. glass-and-steel bitcoins) for skyhigh prices to rich Chinese investors and maybe some locals too. I have no doubt the former route would be, if not outright money-losing (possible given the land values and construction costs), incredibly uninteresting financially compared to the latter.

This is very similar to saying "Building units with 2 bathrooms can't be done, developers would have to choose to sit on them and get a pittance, or sell to be re-developed into units with 1 bathroom which are higher profit margin".

Going rates for rent in Vancouver can justify rental properties being placed across the city which can earn a profit in mid-rise rental vehicles, very similar to Metropolitan. 500 units at 1000/month average is 6 mill a year revenue. Clearly it is possible to make that work in Vancouver across almost any lot.

The city should be mandating this through zoning regulations and tying adding rental units to be built at some percentage to other multi-family vehicles, just like Burnaby is mandating 3 bedroom units, and other bylaws generally limit the types of things developers can build. This will have a bonus of putting downward pressure on land prices if cap rates are indeed that low, since this will limit a good chunk of land to lower profit margin vehicles. All the while putting downward pressure on rental prices which will put downward pressure on new condo prices. It's win-win-win.

Saying it's impossible because land values are already out of control is absurd.

[whatnext]

Anybody who is still dumb enough to believe Chinese buyers don't have a detrimental effect on Canada's real estate market needs to read this article from today's sun. A real mind blower:


....These representatives of China’s elite played fast and loose with the truth and treated provincial immigration programs and permanent residency requirements as mere annoyances.

One compared having to spend the required qualifying time in her expensive residence to a jail stint.

The two families had invested together for nearly a decade but fell out in 2014 when their joint investments soured, giving rise to lawsuits in China and B.C.

The Fu family, who arrived in Vancouver in 2010 after applying under the P.E.I. investor program, initiated the Supreme Court action as part of their efforts to recoup losses they blamed on their former friends.

The Xia family, the successful defendants, obtained approval from Manitoba and came as landed immigrants in Aug. 2012.

In good times, the families made astronomical profits in the republic, particularly in Hangzhou, known as China’s Gold Coast near Shanghai, between 2010 and 2012.

They transferred millions to Canada and purchased three properties in Vancouver: 3561 Mayfair Ave. in 2010 for $2,380,000; 3307 West 19 Ave., in 2011 for $2,850,000, and 4769 Elm Street in 2012 for $3,080,000...
According to the ruling, there were some 174 transactions between the two families during the years in question in both countries, money was loaned in one country and repaid in another, some transactions used false beneficiaries and information about the true source of funds was falsified.

Justice Griffin said the families agreed it best to structure the transactions in ways that disguised true ownership, “just as they often did when buying properties in China.”

The Fu family used their employees to transfer lump sums just under the personal restriction on transferring more than $50,000 out of China to avoid detection. They transferred almost $1 million in Sept. and Oct. 2012 this way....

http://vancouversun.com/opinion/columnists/chinese-legerdemain-taken-for-granted

[geotag277]

Originally Posted by geotag277

This is very similar to saying "Building units with 2 bathrooms can't be done, developers would have to choose to sit on them and get a pittance, or sell to be re-developed into units with 1 bathroom which are higher profit margin".

Going rates for rent in Vancouver can justify rental properties being placed across the city which can earn a profit in mid-rise rental vehicles, very similar to Metropolitan. 500 units at 1000/month average is 6 mill a year revenue. Clearly it is possible to make that work in Vancouver across almost any lot.

The city should be mandating this through zoning regulations and tying adding rental units to be built at some percentage to other multi-family vehicles, just like Burnaby is mandating 3 bedroom units, and other bylaws generally limit the types of things developers can build. This will have a bonus of putting downward pressure on land prices if cap rates are indeed that low, since this will limit a good chunk of land to lower profit margin vehicles. All the while putting downward pressure on rental prices which will put downward pressure on new condo prices. It's win-win-win.

Saying it's impossible because land values are already out of control is absurd.

As a further point to the saying that it's impossible to develop rental housing in Vancouver due to land prices , the land that the Metropolitan was built on was relatively expensive, I believe the lot previously sold for about $20 million, but may have changed hands more recently for about $10 million. This would encapsulate 99% of Vancouver if only the city drove these developments from an urban planning perspective.

[lio45]

Originally Posted by geotag277

Going rates for rent in Vancouver can justify rental properties being placed across the city which can earn a profit in mid-rise rental vehicles, very similar to Metropolitan. 500 units at 1000/month average is 6 mill a year revenue.

$6M gross income without vacancies is absolute peanuts for such an enormous building, and it's a horribly low ROI (financially unsustainable if you've used leverage to build that 500+ unit building). You could earn the same by selling merely a few of your 500+ units every year.

[lio45]

Originally Posted by geotag277

This will have a bonus of putting downward pressure on land prices if cap rates are indeed that low, since this will limit a good chunk of land to lower profit margin vehicles.

Actually, not really, because what Chinese investors mostly want is to take their money out of China and put it into a safe vehicle. They don't care about cap rates. The cap rate on bitcoins is 0%, but they're nonetheless direct competition to a certain type of real estate investing where the words landlord, tenant, rent, lease, etc. are totally alien.

The value of bitcoin doesn't need to be supported by a cap rate like normal real estate; it's not relevant.

[whatnext]

Originally Posted by lio45

Actually, not really, because what Chinese investors mostly want is to take their money out of China and put it into a safe vehicle. They don't care about cap rates. The cap rate on bitcoins is 0%, but they're nonetheless direct competition to a certain type of real estate investing where the words landlord, tenant, rent, lease, etc. are totally alien.

The value of bitcoin doesn't need to be supported by a cap rate like normal real estate; it's not relevant.

Indeed, see the article above.

[dleung]

Lol, remember back when red was about $1-2M, pink was $500k-$1M and light blue was under $500k?

Really curious if Toronto has maps like these - I've tried looking but couldn't find any.

[geotag277]

Originally Posted by lio45

$6M gross income without vacancies is absolute peanuts for such an enormous building, and it's a horribly low ROI (financially unsustainable if you've used leverage to build that 500+ unit building). You could earn the same by selling merely a few of your 500+ units every year.

6 million in perpetual revenue is a bit different than 6 million in finite one time sales, which at the same time reduces your future earning potential.

In any case, even if developing rentals for 6 million yearly revenue is seen as a horrible inefficient use of capital, then great - if we tie rental units to broader condo development land use, that will help push down prices of land as developable land is now tied to an inefficient use of capital which will drag down earning potential on all land. Plus, you add dedicated rental stock that can't be purchased by foreign buyers, so that boogeyman is also dealt with.

It's win-win-win-win.

[whatnext]

Originally Posted by dleung

Lol, remember back when red was about $1-2M, pink was $500k-$1M and light blue was under $500k?

Really curious if Toronto has maps like these - I've tried looking but couldn't find any.

So are you finally ready to admit Mainland Chinese buyers are a problem?

[geotag277]

Originally Posted by vanman

The NDP will be releasing their first budget in February that will include a new comprehensive housing strategy. They've already indicated that they're going to address both the demand and supply side of the problem. John Horgan has even stated that he will be going after speculation specifically. Housing affordability is clearly the number one issue BCers care about it and the NDP know that if they don't get this right they will lose power.

I'm a bit curious why the government can pull moves like this without releasing an official budget, and yet can't do something relatively simple like closing the foreign buyer tax on condo pre sales. Is there something I'm missing?

I understand waiting for the budget to unveil a long term affordable housing strategy, but it seems there are low hanging fruit moves which could be done on day one, that obstinately the NDP and Green parties both agree with. What am I missing?

[lio45]

Originally Posted by geotag277

6 million in perpetual revenue is a bit different than 6 million in finite one time sales, which at the same time reduces your future earning potential.

Both are ridiculously minuscule numbers though for the kind of cost you would expect for a 500+ unit building in Vancouver. I think it was pretty clear that I wasn't suggesting actually selling the units at such a snail's pace... just pointing out how abnormal these ratios are that you can make more money selling 2% of the building than you would if you could pocket the entire gross income for a full year without any vacancy as net (BTW, you can't).

In Vancouver you can't possibly make ends meet with only 6 million in gross revenue for a 500+ unit building.

In any case, even if developing rentals for 6 million yearly revenue is seen as a horrible inefficient use of capital, then great - if we tie rental units to broader condo development land use, that will help push down prices of land as developable land is now tied to an inefficient use of capital which will drag down earning potential on all land. Plus, you add dedicated rental stock that can't be purchased by foreign buyers, so that boogeyman is also dealt with.

It's win-win-win-win.

Well, as I said (or I think I said), that's the only way to do it. If there's the political will to zone areas for rental only or, as a more moderate measure, mandate a minimum % of rental units in each new condo building, that will help make Vancouver housing more affordable.

The thing with Chinese investors is that they're not interested at all in paying to lease housing in Vancouver as a living place for themselves. They want to buy and own. So they don't really drive up rents directly, as they don't compete for that. They do indirectly: they bid properties up, so they drive cap rates down, therefore there's less and less rentals available (the existing stock gets turned into condos, and no one builds rentals anymore) so scarcity drives rents up... but that gets fixed via making rental units mandatory.

[lio45]

Originally Posted by dleung

Lol, remember back when red was about $1-2M, pink was $500k-$1M and light blue was under $500k?

Really curious if Toronto has maps like these - I've tried looking but couldn't find any.

I'd be curious to see a map of Montreal showing SFHs just to compare, because that is really a lot of color on that map. I'd expect a city of several million to be nearly all grey, with the colors found only on the suburban fringes in satellite cities.

In fact how colorful that map is is a pretty clear indication that Vancouver's abnormally SFH-heavy, I'd say.

[dleung]

Originally Posted by lio45

I'd be curious to see a map of Montreal showing SFHs just to compare, because that is really a lot of color on that map. I'd expect a city of several million to be nearly all grey, with the colors found only on the suburban fringes in satellite cities.

In fact how colorful that map is is a pretty clear indication that Vancouver's abnormally SFH-heavy, I'd say.

Already disproven by statscan a couple pages back (below). Vancouver #1 in fewest SFH, Montreal #2, and #3... not Toronto, but Victoria! Yes, Vancouver proper has a lot of SFH given the city's planning credentials, but the suburbs more than pick up the slack.

[GreaterMontréal]

Already disproven by statscan a couple pages back (below). Note how Victoria has less SFH than quebec city and practically the same proportion as Toronto.

In Montréal, almost all of the SFHs are found in the suburbs, not on the island.
you end up with Ville Mont-Royal and the West-Island.

maybe 32% total, but more like 60% in the suburbs

[geotag277]

Originally Posted by dleung

Already disproven by statscan a couple pages back (below). Vancouver #1 in fewest SFH, Montreal #2, and #3... not Toronto, but Victoria! Yes, Vancouver proper has a lot of SFH given the city's planning credentials, but the suburbs more than pick up the slack.

If I'm remembering things correctly, Toronto was #3 in the 2011 census, so Victoria has closed the gap and passed them. IIRC Victoria also recently passed Toronto in average SFH price as well...

[WhipperSnapper]

Originally Posted by geotag277

I don't agree that there isn't a fundamental difference between 1 and 2 million people. For 1 million people the density picture is almost wholly different compared to the calculus at 2 million. Ottawa, Calgary, Edmonton are all cities which do OK for density and that is what a 1 million density picture looks like. Winnipeg and Quebec City are good examples of those almost 1 million cities where you can certainly tell they are playing in a different dimension regarding density compared to Vancouver.

Vancouver was doing quite well with density and urban planning when it was 1 million people (which wasn't even that long ago btw, we're talking 80s). During the 90s Vancouver reached an inflection point where they needed to get in front of density to maintain their urban planning advantages, and they didn't (roughly when Vancouver real estate passed Toronto, big red flag right there).

I do believe Calgary, Ottawa, & Edmonton, once they reach 2 million, will have a better balanced multi-family strategy which meets the needs of their citizens to a much better extent compared to Vancouver today. Comparing Canadian cities with 1 million people to Vancouver is part of the picture of Vancouver's extreme falling off with meeting the needs of their residents.

I respect that. I still say in the context of new housing starts the difference between 1 million and 2 million is negligible compared to other factors that contribute to multi-family over single family.

[lio45]

Originally Posted by dleung

Already disproven by statscan a couple pages back (below). Vancouver #1 in fewest SFH, Montreal #2, and #3... not Toronto, but Victoria! Yes, Vancouver proper has a lot of SFH given the city's planning credentials, but the suburbs more than pick up the slack.

Huh, weird... Oh wait, that's for CMAs!!! So that doesn't contradict me at all. I've already acknowledged Montreal's sprawly suburbs are full of SFHs.

Basically, it's like I just said Manhattan didn't have many SFHs, and you reply with New York CSA data that shows there's a gazillion SFHs in New Jersey and Connecticut, and you think you've brought up something that invalidates my original point.

As I said, I'd like to see the Montreal map at the same scale. I'm pretty sure it would be very noticeable that the colors would be further away from the core. This has an effect on housing prices, obviously; if the island of Montreal was mostly SFHs right now, prices would be clearly higher.

[lio45]

Originally Posted by GreaterMontréal

In Montréal, almost all of the SFHs are found in the suburbs, not on the island.
you end up with Ville Mont-Royal and the West-Island.

maybe 32% total, but more like 60% in the suburbs

His stats are "by census metropolitan area". Says so at the top.

I think it's somewhat misleading the way they chose to name the cities, because when you label cities in the form "Toronto, Ont." it kind of implies the city.

FWIW, if I had made that table I'd have called them "GTA", "Greater Montreal", etc. to more faithfully and clearly convey the truth at a glance.

[WhipperSnapper]

Originally Posted by geotag277

I don't think we should be comparing $60 million office Calgary CBD boom-time deals with what I'm talking about. Just like Vancouver's Trump Tower and Shangri La, while tall, don't really solve any fundamental problems for Vancouver residents when it comes to housing. They might add a lot of units (not even given the sqft per unit), but they are marketed at the top end, so who cares? One recent development in Calgary was the Metropolitan, centrally located in the Beltline, a 500+ unit rental midrise with reasonable rents, a development among a cluster of other projects which did wonders for helping Calgary balance the market and provide affordability for residents. Where is the analogous development in Vancouver? It doesn't even exist.

I'm talking about the city stepping up to the plate to partner with developers on transforming Vancouver's housing picture by keeping up with demand across the spectrum. Rental units, across the price spectrum. Housing options, across the price and bedroom spectrum (with mandated three bedroom units). And so on.

The picture being painted in Vancouver today is not runaway speculation (for multi-family: CoV %80+ domestic buyers, Richmond %80+ domestic buyers, Burnaby %90+ domestic buyers, etc.), but rather a dearth of housing options at the lower end of the price scale. Why did a foreign buyer tax re-direct so much investment into condos? It doesn't make sense if foreign speculation was the primary driver. I recently looked at available places in Vancouver, and there is white hot demand at the lower end of the price spectrum. There is such intense demand for it, that developers and the city could literally print money if only they stepped up to the plate and came up with a plan to actually provide these options for residents. Why don't they? Where are the "Metropolitan" developments in Vancouver? This is in a place with crisis level <1% rental vacancies.

A market is driven by supply and demand, and while foreign buyer bans will marginally help the demand side, there is a big gaping hole in Vancouver's urban development strategy around the supply side.

The city is failing it's residents, over and over and over again. Vancouver used to be at the forefront of urban development when it was the size of Ottawa and Calgary today. Now it is falling on it's behind. I don't know how you can conclude otherwise considering what is happening there.

I was only pointing out the outrageous prices being paid for developable property through a local reference in which many forumers felt and still feel is a lot of money (which it is) for a million plus office tower development site. How do you begin to offer affordability when $200,000 is being spent per unit just for the land? Adding more density? These sites are already building at huge floor area ratios to bring it down to $200,000.