Canada's 'housing bubble' deemed close to bursting

[lio45]

Originally Posted by someone123

From the perspective of BC and to a lesser extent Vancouver this is pretty bad though. I won't get into how much I pay in taxes but it's a lot and it's almost all income tax (I do pay property taxes but they barely register in comparison). My employer pays taxes because I work here too. I assume the $4M cash buyer would have a declared income of $0 or so, and might spend very little in the local economy. Most of the policy decisions we talk about are province level decisions so this provincial analysis matters.

I don't think I would leave if I sold a place for $4M. But I might retire or semi-retire at the ripe old age of ~30 and travel a lot, which has its own implications for the economy.

By the way, if you owned a $4M condo in Vancouver you would probably not be very happy with a $300,000 condo in Halifax. A comparable one would likely be more in the $1M range. Halifax isn't that cheap by conventional measures of affordability, it's just cheaper than Vancouver and Toronto. It also has a lot of low value outlying areas with effectively infinite housing supply. The nice neighbourhoods are in shorter supply though and they cost a lot more.

I was just throwing numbers out there. (Also, that $4M was an example of a crazily overpriced amount you'd get offered, "make me move" style, for your current condo, which I gather is only worth some ~$1M, so likely comparable to a $300,000 in Halifax.)

It's true, though, that if people end up retiring instead, the benefits of that capital to the economy end up being greatly mitigated. However realistically I'm not sure you'd want to stay inactive for too long at that age.

General question: we take an average, working, income-tax-paying Canadian in his 30s, and give him a few millions dollars originating from external sources, tax-free. Is that a net economic gain from Canada's POV, or a net economic loss? Can we have a consensus...?

[GlassCity]

Originally Posted by lio45

Again though: if it's injections of Chinese money into Canada that made this happen, that's obviously a net gain for the country.

Is it though? I can sort of see your logic of "spreading the wealth" being good for Canada, but if it comes at the price of a hollowing out of its 3rd biggest city and Pacific anchor, I don't know if it's that simple.

Either way, luckily this is mostly a provincial problem and this is definitely not a good thing for BC. Hopefully it's fixed at some point. As I've said before, I don't mind Vancouver being too expensive for some people - but let it reflect domestic demand and characteristics, not external ones.

[lio45]

Originally Posted by whatnext

Im travelling in Australia right now and Sydney didn’t appear much cheaper than Vancouver. And Lots of Chinese money obviously at play in both Sydney and Melbourne.

I think Sydney's even worse. However as Pinion says it's more justifiable in a variety of ways. It's a more desirable city (great climate), as well as the top city in the country, where the HQs and businesses are. I think all the classic metrics (incomes, rents) would show property prices in Sydney to be less "out of whack" than Vancouver.

[lio45]

Originally Posted by GlassCity

Is it though? I can sort of see your logic of "spreading the wealth" being good for Canada, but if it comes at the price of a hollowing out of its 3rd biggest city and Pacific anchor, I don't know if it's that simple.

Well, the greater net calculation is indeed pretty simple -- but it all depends on where the material removed during that "hollowing out" ends up. Some of it will leave the country, some of it won't. If everyone who gets rich from an infusion of fully external money stays in Canada, obviously it's a net gain, but in practice, we know some will leave.

At first sight I think enough of it stays in the country to make it a net positive, but I confess I don't have data. (And now geotag would say I'm being a classic myself, making someone else dig it up for me )

Honestly though, I'm pretty sure no one has clear data on this. Anecdotal evidence seems to suggest at least a significant chunk flees to places like Alberta and Surrey, which would be "good".

[giallo]

Originally Posted by lio45

I think Sydney's even worse. However as Pinion says it's more justifiable in a variety of ways. It's a more desirable city (great climate), as well as the top city in the country, where the HQs and businesses are. I think all the classic metrics (incomes, rents) would show property prices in Sydney to be less "out of whack" than Vancouver.

Even with the HQs and head offices, Sydney is even more out of whack than Vancouver. Houses prices in the biggest Australian city are even worse than in Metro Van. I mean, it's sandwiched in between Hong Kong (#1) and Vancouver (#3) as the second least affordable city on that planet. It's got some serious pricing issues.

But as you said, things like the weather and natural environment make it far more understandable as to why prices may be the way they are.

Again, I urge people to check out this comprehensive study about these cities, and why they've gained the title "World's Least Affordable".

http://www.demographia.com/dhi.pdf

[someone123]

Originally Posted by lio45

General question: we take an average, working, income-tax-paying Canadian in his 30s, and give him a few millions dollars originating from external sources, tax-free. Is that a net economic gain from Canada's POV, or a net economic loss? Can we have a consensus...?

I think it could be but you would need to add a bit more information to the scenario.

In the housing scenario you're not just getting cash, you're trading real estate for cash. So you need to subtract the value of the house from the net gain. This means in some sense the net gain is 0 (the market value of the house is what it was sold for). You could say that the net gain is the difference between what the house was sold for and what it could have been sold for without the external buyer, although this is problematic in some ways (locals pay inflated prices too). The house would obviously not have sold for $0 without an external buyer. In most cases in metro Vancouver I think the inflation caused by foreign buyers is much more modest than 4x. My unscientific estimate is closer to 30% +/- 10% in the case of houses in Port Coquitlam (there are other bubble-inducing factors like our low interest rates).

The money also comes from somewhere, and it has to involve some kind of trade with Canada, possibly by third parties, of goods, services, cash, or debt. The Chinese person had to get Canadian dollars somehow to trade for the house. The typical cycle in North America is that we buy cheap disposable Chinese things for less than the cost to produce them here and our manufacturing falls apart (and China's massive debt bubble inflates). The cycle is closed when the factory owner in China comes and pays $4M for a home on Vancouver's west side.

I am not trying to weasel out of answering; I think these are core concerns in your scenario, the sorts of things the government of Canada is hopefully thinking about even if they are not concerns we normally have to worry about on an individual basis.

[lio45]

Originally Posted by giallo

Even with the HQs and head offices, Sydney is even more out of whack than Vancouver.

I doubt it, based on the bits of info I have. My ex in Sydney started her job earning six figures a year from day one, and pays several grand in rent monthly. With figures like that property values are already more justifiable than Van's.

[milomilo]

Originally Posted by lio45

Well, the greater net calculation is indeed pretty simple -- but it all depends on where the material removed during that "hollowing out" ends up. Some of it will leave the country, some of it won't. If everyone who gets rich from an infusion of fully external money stays in Canada, obviously it's a net gain, but in practice, we know some will leave.

At first sight I think enough of it stays in the country to make it a net positive, but I confess I don't have data. (And now geotag would say I'm being a classic myself, making someone else dig it up for me )

Honestly though, I'm pretty sure no one has clear data on this. Anecdotal evidence seems to suggest at least a significant chunk flees to places like Alberta and Surrey, which would be "good".

You're being too simplistic though, as you say we don't have the data. Economies are built from cities, and Vancouver is one of Canada's most important cities. Along with being third largest, it's also our only major city on the west coast and gateway to the pacific with a major port. I don't think essentially writing that city off to get 0.1% more GDP is actually sound economic policy. Shall we do the same with Toronto? Montreal?

Besides, there is the aspect that it's a pretty barbaric policy to encourage the desolation of a beautiful city that 2.5M people call home.

[Pinion]

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[lio45]

Originally Posted by someone123

I think it could be but you would need to add a bit more information to the scenario.

In the housing scenario you're not just getting cash, you're trading real estate for cash. So you need to subtract the value of the house from the net gain.

I'm not sure I agree with this. The asset is still physically in Canada, so any income it generates in the future will be taxed here. Also, any time there's any investment or maintenance to be done on it, it will be done by Canadians paying taxes here.

For us to fully substract the value of the asset in the calculation, the property would have to be physically taken back to China by the buyer.

(Not as farfetched as you might think -- for example, the magnesium plant that was on this site in Quebec, employing some 300+ people, was sold to the Chinese, who dismantled it over a couple years and reassembled it in China. That plant was a longtime customer of ours, FWIW.)

The money also comes from somewhere, and it has to involve some kind of trade with Canada, possibly by third parties, of goods, services, cash, or debt. The Chinese person had to get Canadian dollars somehow to trade for the house. The typical cycle in North America is that we buy cheap disposable Chinese things for less than the cost to produce them here and our manufacturing falls apart (and China's massive debt bubble inflates). The cycle is closed when the factory owner in China comes and pays $4M for a home on Vancouver's west side.

True, but the question is still quite simple IMO: if that factory owner didn't bring that $4M to Canada, but rather chose to go somewhere else with it, would we be better off? We'd still be buying just as much disposable Chinese 🞵🞵🞵🞵 anyway, so...

I am not trying to weasel out of answering; I think these are core concerns in your scenario, the sorts of things the government of Canada is hopefully thinking about even if they are not concerns we normally have to worry about on an individual basis.

No problem, it was a genuine question. I also realized we left out an important part: is that job one that can easily be filled by another (currently unemployed) Canadian, or would it be at risk of leaving the country for lack of talent? For example, in your case, I don't know what you do exactly but it could be possible that your employer would create an opening in Seattle to replace you if you left.

[GlassCity]

Originally Posted by lio45

Well, the greater net calculation is indeed pretty simple -- but it all depends on where the material removed during that "hollowing out" ends up. Some of it will leave the country, some of it won't. If everyone who gets rich from an infusion of fully external money stays in Canada, obviously it's a net gain, but in practice, we know some will leave.

At first sight I think enough of it stays in the country to make it a net positive, but I confess I don't have data. (And now geotag would say I'm being a classic myself, making someone else dig it up for me )

Honestly though, I'm pretty sure no one has clear data on this. Anecdotal evidence seems to suggest at least a significant chunk flees to places like Alberta and Surrey, which would be "good".

You're missing my point though. As milomilo is pointing out too, is this extra wealth worth the gradual loss of people and productivity in Vancouver, a city I would consider to be quite important for Canada? I know you think very rationally so I'm not making a value judgment on this being bad (though I think it is), I'm questioning if even in a rational model this isn't a desirable impact.

Also, I don't wanna speak for others, but when I say Vancouver is unaffordable I include all of Metro Vancouver, including Surrey. Surrey's facing the same issues Vancouver is. Maybe be at a lower ratio, but the point is it's not like it's easy for the middle class to afford Surrey either. It's not.

[geotag277]

Originally Posted by Pinion

It really isn't. Wages are way higher there. The national minimum wage is $18.29 per hour, that's more than most Vancouverites make. And it gets affordable in the distant suburbs, unlike Vancouver.

But it is bad for sure, which is why I'm not going back to Sydney.

Can't really find any data to corroberate your notion that "most Vancouverites make less than 18.29 an hour".

Considering a 40 hour work week, that's $731.6 a week, whereas BC as a whole has an average weekly earnings around $919.

Considering 260 working days a year that's a 38043.2 yearly salary, which is far under Vancouver's median salary of 48k.

[someone123]

Originally Posted by lio45

I'm not sure I agree with this. The asset is still physically in Canada, so any income it generates in the future will be taxed here. Also, any time there's any investment or maintenance to be done on it, it will be done by Canadians paying taxes here.

This is what makes the situation less bad than it could be and gives me hope for the future. The reality is that these foreign buyers are taking on a lot of risk. Prices might fall for any number of reasons and there is no guarantee that they won't pay higher taxes in the future on their assets, and that would leave them no alternative but to sell at a loss. If it turns out a bunch of investors bought in at a terrible time, lost millions, and the city more or less returns to normal then maybe the whole thing will have been a net positive, although there still will have been winners and losers.

But then again the reality on the ground is that fair taxation hasn't happened. The foreign buyers are running rings around Canadian regulators and our tax system.

Up until recently (the NDP government change this somewhat) BC was particularly bad for corruption through political donations. There were weak rules on corporate and union donations as well as foreign donations, which are completely banned in a lot of places. Whenever there's a major story about some major development in BC, chances are the companies involved have donated money to the provincial parties. Onni, the developer that recently got in trouble for renting out an entire new "apartment" building on Airbnb, donated $400,000 to the BC Liberals a couple years ago. In my opinion donations like this are corruption, plain and simple.

[whatnext]

Originally Posted by Pinion

It really isn't. Wages are way higher there. The national minimum wage is $18.29 per hour, that's more than most Vancouverites make. And it gets affordable in the distant suburbs, unlike Vancouver.

But it is bad for sure, which is why I'm not going back to Sydney.

True but everything is a bit more expensive. I was surprised that I could actually buy a bottle of Australian Shiraz cheaper in Bellingham than Sydney! Restaurant meals are more expensive though not tipping helps. And though it’s nice to get out of the rain, extreme heat is a climate issue of a different kind. I love Sydney but dealing with the heat on a daily basis would be trying. Looked at a couple condos for fun, I’d say the construction quality was a bit less than we’re used to.

[giallo]

Originally Posted by lio45

I doubt it, based on the bits of info I have. My ex in Sydney started her job earning six figures a year from day one, and pays several grand in rent monthly. With figures like that property values are already more justifiable than Van's.

If you read the link I've posted twice on this subject, you'd get a better idea of why Sydney's affordability issues are even worse than Vancouver's. It's a long read, but you can go to page 29 for a summary of all housing markets from Australia to China to the US.

What I did get out of the survey is that Vancouver is well on its way to becoming the second least affordable market very soon. It's just not their yet.

From the survey:

"Vancouver had already developed a severely unaffordable housing market in the first Survey (2004), which has been associated with its urban containment policy, adopted about five decades ago. Vancouver has experienced the greatest housing affordability deterioration among major markets in the Demographia Annual International Housing Affordability Survey, with its Median
Multiple deteriorating from 5.3 to 12.6, equivalent to 7.3 years of pre-tax median household income."

[ssiguy]

The foreign money is certainly a gain for many but not for most.........it's a bonanza for wealthy homeowners and disastrous for the lower income and youth. This is why BC has the highest overall poverty and child poverty rates in the country as well as having the largest gap between the rich and the poor. This
greatly inhibits socio-economic mobility. In Vancouver if you are born in a wealthy household your wealth will increase dramatically due to the Chinese and their dirty money while if you are not, the chances of you attaining a middle class lifestyle are greatly diminished as more of your income goes to rent leaving you with little savings, lots of debt, and no chance of entering the housing market. High productivity regions helps lift all boats while as property speculative ones creates a new "Guilded Age".

An economy based on real estate speculation is also a very unproductive one. It requires only phoney & dirty money and just the skills of being able to swing a hammer. It also results in the young and educated leaving the province due to it's low wages as reflected by it's low productivity, inhibits workers wanting to move there, and inhibits legitimate businesses from expanding because they can't afford the lease/property to do it and can't pay the higher wages to get and retain those high skilled workers.

[logan5]

It's Gilded. And you shouldn't keep saying in blanket terms that all Chinese money is dirty. It makes you sound racist.

[dleung]

Originally Posted by logan5

It's Gilded. And you shouldn't keep saying in blanket terms that all Chinese money is dirty. It makes you sound racist.

He referred to the Chinese as "locusts" a bunch of times so I think that ship has sailed

[ssiguy]

First, I have NEVER referred to these people as "locusts."
Second, although real estate agents, developers, and politicians like to refer to this as a racial issue to shut down the conversation, Chinese is NOT a race, it's an ethnic group.

[whatnext]

Originally Posted by dleung

He referred to the Chinese as "locusts" a bunch of times so I think that ship has sailed

You like to keep throwing that out. I referred to the Chinese investors who swept in and drove up prices with no intention of living in Canada as locusts (see example in link below). Do you disagree. You’re quick to throw out the term “racist” but never let your opinion slip on the effect of Foreign Buyers....

https://www.google.ca/amp/vancouversun.c...hinese-legerdemain-taken-for-granted/amp