Canada's 'housing bubble' deemed close to bursting

[geotag277]

Originally Posted by casper

Saskatoon has the number of residential lots controlled by the city. AbouT 6 years ago prices were hight and property sold wI thin days of being listed. The city created more residential lots and addressed demand prices dropped. You can't do that in Vancouver for sfh.

If the city/market was building to meet demand, the prices wouldn't be going up. It's really that simple.

[whatnext]

Originally Posted by GreaterMontréal

I'm pretty sure nobody in Calgary would let that happen. I don't think Nenshi would like it. An economy should not depend on real estate alone. Albertans want to live in SDHs, not condos.
http://www12.statcan.gc.ca/census-recens...016005-eng.cfm?=undefined&wbdisable=true

They didn’t seem to have a problem with being overly reliant on the oil and gas industry.

I tend to agree with geotag in this case. Given the severity of the oil collapse Calgary home prices should have fallen much further. Something was backstopping them. Likely some foreign buying.

[GreaterMontréal]

Originally Posted by whatnext

They didn’t seem to have a problem with being overly reliant on the oil and gas industry.

I tend to agree with geotag in this case. Given the severity of the oil collapse Calgary home prices should have fallen much further. Something was backstopping them. Likely some foreign buying.

the average real estate price is still down 40,000$ yoy dec 2016-2017. -8.71%

[lio45]

Originally Posted by geotag277

Canada should just ban foreign investment in real estate like New Zealand did.

http://www.nzherald.co.nz/property/news/article.cfm?c_id=8&objectid=11974077

Seems unenforceable, but I guess any such little barrier you throw in their path, even if it can be overcome, helps cool off foreign investment a bit.

(Also, I'm far from convinced the pros of doing that would outweigh the cons, in the grand scheme of things.)

[geotag277]

Originally Posted by GreaterMontréal

the average real estate price is still down 40,000$ yoy dec 2016-2017. -8.71%

Sure, if you look at December alone. December isn't usually a very indicative month of anything in real estate.

Average and median prices when seen across the entire year show growth in the Calgary market from 2016-2017. And you won't find much at all of a deterioration during the recession.

As an aside, I couldn't help but notice that Calgary had 2000+ active listings for single family detached homes in December, compared to Vancouver's.... 600.

[geotag277]

Originally Posted by lio45

Seems unenforceable, but I guess any such little barrier you throw in their path, even if it can be overcome, helps cool off foreign investment a bit.

(Also, I'm far from convinced the pros of doing that would outweigh the cons, in the grand scheme of things.)

We can work on the loop holes as we go. We don't have to make a perfect law out of the gate.

And I whole heartily agree there are a myriad of unintended consequences that may result. We have already seen this with foreign buyer taxes in both Vancouver and Toronto:

* investment gets redirected into condos, which arguably both Toronto and Vancouver aren't building enough of (Vancouver more so)

* this in turn causes affordable units to be driven up to unaffordable levels, so now the general population is priced out of condos + houses

* this in turn causes rents to rise faster than average as condos are being scooped off the market, which again drives affordability out

So far, all the foreign buyer tax has done for improved affordability in either Toronto or Vancouver is disproportionately affect the top end of the market. In which case, Canadians who are looking for a mansion in West Van or Richmond Hill will be overjoyed as the new found deals to be had.

Almost everybody else looking for affordable housing has suffered under this tax.

[casper]

Originally Posted by geotag277

If the city/market was building to meet demand, the prices wouldn't be going up. It's really that simple.

The city creates sub-divisions and tries to match demand. However the economy was stalled from a growth perspective for many years. Once it started to grow again demand grew faster than new supply could be added.

I think Saskatoon is one of the few cities in Canada that has a land bank, creates their own subdivisions and then releases lots onto the market.

[geotag277]

I think another dynamic of the Vancouver market that is poorly understood is that people generally don't want to move. What we've been seeing, at least in terms of SFH home list prices, is something of a "make me move" price, where the owners were not really interested in selling, but can't deny how lucrative it is to move.

In a rational market, one would expect as prices continue to climb higher, that listings would also climb as more people "cash out". We've been seeing a bit of the opposite effect in Vancouver, were listings have been evaporating in the face of rising prices, putting even more upward pressure on prices.

One unintended consequence of an outright foreign buyer ban is the psychological effect on home sellers. If they no longer think they can "cash out" at these elevated prices, they simply won't sell. That would exacerbate an already tight listing market.

I think the correct way to read the effects of the current result of foreign buyer taxes is that the biggest impact has been on domestic psychological market dynamics. In Vancouver and Toronto, home prices have declined, yet condos have increased. If domestic buyers were waiting for home price erosion to enter the SFH market, they would be abandoning the condo market and scooping up these discounted SFH properties. That isn't what happened, which I think is the surest sign that these taxes are having unintended consequences on the market from a domestic perspective.

In real estate markets, condos are leading indicators of corrections and trailing indicators of recovery. In a bust, first condos go down, then housing prices go down. When markets recover, first SFH prices go up, then condos recover. We saw this dynamic in Calgary, within natural market conditions, during the recession. Condos went down huge at the beginning, followed by small decreases in SFH. SFH prices are starting to recover now, but condos are still on shaky ground and are still showing minor declines in some months next to minor increases.

Why isn't this happening in Toronto and Vancouver?

I think the best hope for affordability regarding introducing a foreign buyer ban on real estate in Canada is to incite widespread panic such that listings flood the market and people rush for the exits. The fact this hasn't happened already with foreign buyer taxes might be an indication that this hope is more of a glimmer. Especially in Vancouver we've seen listings evaporate even in the face of foreign buyer taxes (December 2017 recorded second lowest listings ever recorded in 10 years), which means inciting panic to increase listings to increase affordability might not even be possible in Vancouver.

Especially when it comes to the Vancouver market, an outright foreign buyer ban might simply result in a further erosion of listings, as people were assuming the only way to get the price they want was through foreign buyers, yet ironically by listing their property in the first place it was having a moderating effect on prices for all buyers. So you have less even less listings, putting even more upward pressure on prices, which might extend to the condo market as well.

In any case, it looks like the NDP/Greens in BC will make some serious moves along these lines in the next few months, so it will be very interesting to watch the effects play out.

[ssiguy]

On a broader note, this thread is about Canada's housing bubble but the reality is that in the vast majority of Canada, there is no such thing. A lot of cities have housing that is downright cheap but it's always been a BC thing.

This was very much a "made in BC" problem and because it only effected BC it was not considered relevant to Ottawa. When anything happens in Canada it's a regional issue but when it hits Toronto it becomes a national emergency and only then will Ottawa act as we are seeing now. Now that prices in Toronto are beginning to retreat it is already beginning to get less media coverage.

The reality is that there is no national housing bubble but just a BC one and it is 110% the fault of BC. The problem for BC is that when the bubble pops and the emperor finds out that his economy has no cloths, it too will be ignored by Ottawa and BC will have to deal with it's horrid withdrawl symptons from it's housing addiction with no help and even less attention from Ottawa.

[vanman]

^So you don't think the federal immigrant investor program had a huge role to play? Or the Quebec loophole? How many 1000s of millionnaire migrants came to BC through these programs which were completely outside of the jurisdiction of the province?

[CanSpice]

Originally Posted by ssiguy

On a broader note, this thread is about Canada's housing bubble but the reality is that in the vast majority of Canada, there is no such thing. A lot of cities have housing that is downright cheap but it's always been a BC thing.

This was very much a "made in BC" problem and because it only effected BC it was not considered relevant to Ottawa. When anything happens in Canada it's a regional issue but when it hits Toronto it becomes a national emergency and only then will Ottawa act as we are seeing now. Now that prices in Toronto are beginning to retreat it is already beginning to get less media coverage.

The reality is that there is no national housing bubble but just a BC one and it is 110% the fault of BC. The problem for BC is that when the bubble pops and the emperor finds out that his economy has no cloths, it too will be ignored by Ottawa and BC will have to deal with it's horrid withdrawl symptons from it's housing addiction with no help and even less attention from Ottawa.

Uhh...

[ssiguy]

Originally Posted by vanman

^So you don't think the federal immigrant investor program had a huge role to play? Or the Quebec loophole? How many 1000s of millionnaire migrants came to BC through these programs which were completely outside of the jurisdiction of the province?

Yes a lot of it was thru federal jurisdiction but the province could have negated that decades ago. Instead of a 15% foreign tax a 1015% tax, no housing destruction unless replaced by higher densities, no buying of pre-builds by foreigners, keeping proper track of nationalities buying property, disallowing property purchases from numbered companies, put an end to all the money laundering in BC casinos, going after tax cheats who declare no income but miraculously buy $5 million homes with cash, enforcing the ALR so it doesn't become a property flipping/property tax avoidance scheme, disallowing students to buy homes when they are attending BC schools..........these are all tools within provincial and/or municipal jurisdiction but the city & province made conscious decisions not to employ them.

BC and Vancouver went out of their way to fuel the housing speculation to keep the dirty money coming and now they have an economy based on it.

[dleung]

Originally Posted by geotag277

Yes, the numbers are changing, as we are having a casual conversation online, you seem to think you are writing a PhD thesis or something. I am not applying much rigor to the conversation, just throwing out ideas. I can freely admit that. At the same time I am somewhat taking some of your assumptions at face value and you are acting like a 🞵🞵🞵🞵🞵 with some of my assumptions. Regardless, can you screen shot your calculation of the Elements lot size in GIS, because I still think you are talking out of your behind over-exaggerating the size of the lot.

In any case, I would agree that 80-100k per unit is still too high, which is why I suggested the myriad of things that can be done to drag down those land values almost overnight. Most of them focus on rental units and limiting speculation.

Fortunately we already have real life examples to see how the numbers work out. Here's the assessment roll for a 9 year old, 7-storey 80-unit building on West Broadway:

http://vanmapp.vancouver.ca/pubreports_n...0&LandCoordinate=65009508&SiteId=BCS3655


Note that it's already much denser, and less ground-oriented than your high-end Calgary example.

The site according to GIS is 25,000sf, or as you would say "4 lots" lol. The land is assessed at just over $40M, and the building at $29M, if you add up each strata unit. The average unit is about $860K, about $500k of each unit is land. The average unit size is 850sf, compared to the 3-bedroom units in Elements.

It's in a west-side location on a transit corridor, so $10M "per lot" might be high. But on Cambie St, SFH lots start at $3.5M, then jump to $6M when rezoned, and $9-10M when assembled with other lots for future development. The average SFH 60' lot in Vancouver located nowhere near transit, is over $3M.

If we upzone all SFH for multi-family the price per lot would be much higher than $3M, but hopefully lower than $10M. Let's say $5M average for the city of Vancouver ($6M westside, $4M eastside). The average 800sf unit, if we did midrises everywhere, as dense as inner city Paris, will cost $600K, with $250k going to land.

[geotag277]

dleung - thanks, that's a great comparable in terms of lot scale. I would argue a development like that should be surrounded by similar developments to drive density in the area. I wonder what would have been if the surrounding area was also upzoned at the same time to add units and moderate prices 10 years ago. That's the problem with sitting on your hands for so long regarding density - you reach a breaking point where the financials stop working for affordability.

I agree with current land prices it is very hard to add affordable density. It won't work without policies to drag down land prices. Tying inefficient expensive rental units required to be built along with multi-family, and limiting resident to resident resales via rezoning and other legislative changes could help contribute to lowering land values. If developer upside is limited, and residents can't resell to speculators or the property can't be used anymore as a SFH residence, the land price will come down.

For the record, one block away from your example, it looks like this:

[whatnext]

Originally Posted by vanman

^So you don't think the federal immigrant investor program had a huge role to play? Or the Quebec loophole? How many 1000s of millionnaire migrants came to BC through these programs which were completely outside of the jurisdiction of the province?

Another piece from the Vancouver Sun outlining how immigration fraud is used to purchase real estate:
http://vancouversun.com/opinion/columnis...court-case-details-seven-migration-scams

[ssiguy]

Thanks for posting that "whatnext" and it really shows the gravity of the problem.

These loopholes and flagrant money laundering is something that everyone knows about and the BC Liberal party enthusiastically embraced so that's no surprise. The really telling part of this story is how open the plaintiffs are about the dirty money, tax cheating, and immigration buying.............it's been going on so long with absolutely no repercussions that to admit to it seems almost a non-issue because the idea of them having to pay for their crimes doesn't even occur to them.

Laws are only laws if they are enforced and if they're not they are nothing more than suggestions. This is what the BC Liberals did in the past 18 years............we suggest you invest your money in a law abiding and productive manner but if you don't then that's OK too. It was Campbell's & Christy's rendition of "don't ask, don't tell."

[Docere]

Andrew Weaver is calling for a ban on foreign buyers:

http://www.cbc.ca/news/canada/british-co...-on-foreign-real-estate-buyers-1.4480033

[someone123]

Originally Posted by ssiguy

These loopholes and flagrant money laundering is something that everyone knows about and the BC Liberal party enthusiastically embraced so that's no surprise. The really telling part of this story is how open the plaintiffs are about the dirty money, tax cheating, and immigration buying.............it's been going on so long with absolutely no repercussions that to admit to it seems almost a non-issue because the idea of them having to pay for their crimes doesn't even occur to them.

It's obvious that some aspects of our immigration system and real estate market are prone to corruption. They worked out okay when they were for people who had ties here, but they don't work well in a globalized world where people can easily work in any country and move their money around.

An even deeper issue is that the tax burden in Canada is heavily slanted toward income and away from real estate, and residential real estate in particular. You may pay $0 in capital gains and almost $0 in property taxes (homeowner grant, senior grant) on a house that is worth $1.6M and made you $1M, but you have to pay income taxes if you earn $30,000 a year. This is unfair and distorts the economy.

[geotag277]

Originally Posted by Docere

Andrew Weaver is calling for a ban on foreign buyers:

http://www.cbc.ca/news/canada/british-co...-on-foreign-real-estate-buyers-1.4480033

Weaver also recently brought up the fact that it's unlikely BC could actually implement a ban without Federal help, but could increase the foreign buyer tax to 1000% to have the same effect.

I find Weaver's recent rabid stances against foreign buyers a bit strange and unexpected from him specifically. He's on record as saying he would have voted against the foreign buyer tax (he missed the actual vote), citing he thinks it's unfair to tax contributing residents who happen to be foreign. He's said on multiple occassions (1, 2) that he would prefer to add incentives to build rentals units, and in [2] above even is concerned about protecting the bubble so that it doesn't burst.

Most of all, Weaver has previously been most concerned with things that you would expect the Green party to be concerned about - blocking pipelines and transitioning the province away from fossil fuels - he's said hardly anything on housing by relative comparison over the years.

If you'd ask me who would be the voice driving a hand stance on housing, it would have been David Eby, not Andrew Weaver. Yet, Weaver seems to be angling more and more recently on stepping into the hard line housing voice within the legislature.

I'm not really sure what it means, but it may be that Weaver is attempting to rally support around the green party, and he may be expecting a confidence vote sooner rather than latter.

In any case, Docere's article confirms that an outright ban is not on the table for the February budget, which is likely to disappoint many. Will be very interesting to see what happens in February.

[dleung]

Originally Posted by someone123

An even deeper issue is that the tax burden in Canada is heavily slanted toward income and away from real estate, and residential real estate in particular. You may pay $0 in capital gains and almost $0 in property taxes (homeowner grant, senior grant) on a house that is worth $1.6M and made you $1M, but you have to pay income taxes if you earn $30,000 a year. This is unfair and distorts the economy.

You want people to pay capital gains taxes on the home they live in... so that if they ever have to sell and move within Vancouver, they'll have to downgrade??