Canada's 'housing bubble' deemed close to bursting

[Pinion]

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[whatnext]

Originally Posted by Pinion

I find it somewhat amusing that a Canadian doesn't even consider that governments can control these bubbles if they want.

They already require foreigners to pay a bigger minimum downpayment.

Interesting article in the Globe & Mail. Scary what one BC appraiser had to say about banning foreign buyers:

Steady push continues for a foreign buyer ban in Vancouver housing

...Harpinder Sandhu has been an appraiser for B.C. Assessments for nine years, valuating residential, commercial and industrial properties. As vice-president of Canadian Union of Public Employees 1767, he worked on a housing report with the B.C. Government and Service Employees' Union. They represent B.C. property assessment workers, and they came up with the report because of their expertise on valuations, to help address out-of-control prices...

...Mr. Sandhu is not keen on the idea of a foreign buyer ban because he believes it could burst the bubble. The extent of foreign-owned real estate is much higher than government has indicated, he said. In 2017, a year after announcing a foreign-buyers tax in August, 2016, the then-government said transactions involving foreign nationals represented about 5 per cent of the Vancouver market.

Any appraiser will tell you [foreign buying] is much higher, Mr. Sandhu said.

"It's probably closer to 25 per cent in Vancouver, Burnaby and Richmond, even."

Because the share of the foreign-owned market is so high, Mr. Sandhu fears a restriction would pose the danger of an immediate deflation. If a neighbourhood has 100 homes in it, it only takes the sale of four or five homes in a year to value that neighbourhood. If those four or five homes are determining the market, and you remove foreign money, it could change rapidly...(bold mine)

https://www.theglobeandmail.com/real-est...for-a-foreign-buyer-ban/article37960222/

[ssiguy]

A quick update on Vancouver............. Townhomes and especially condos are still selling well but 40-50% of all new condo sales are to foreigners so what happens after the budget in 2 days is anyone's guess.

SFH sales on the other hand are plunging and inventory soaring. SFH in Van/NV/WV/Rich/Burn rely almost totally on foreign buyers as even very high income earners could never afford a home in the inner suburbs. Here are the stats comparing major market cities of sales/inventory of single family homes from Jan 15 to Feb 15/2016 to Jan 15 to Feb 15/2017:

Vancouver................Inv +10%............sales -30%
North Van.................Inv + 26%..........sales -18%
West Van..................+30%.........................-57%
Richmond..................same..........................-61%
Burnaby....................+14%.........................-18%
Langley.....................-6%...........................-22%
Surrey.......................-5%............................-41%
Coquitlam.................+33%.........................-32%

With all the talk of the NDP bringing in speculator taxes, disallowing pre-sales condos for foreigners and numbered companies, and a very heavy crackdown on money laundering and tax evasion and mothers and kids buying massive homes with no declared income, this decline in SFH will continue but really start to impact condos as well.

[geotag277]

Tuesday budget! So exciting. Got my popcorn ready.

[ssiguy]

^^ well I guess that all depends on what the government does. If they bring in strong anti-speculation measures, close loopholes, and target money launders and tax evaders then yes, get out the popcorn but if they don't then it's time to break out the Prozac.

[bless-u]

Complete ban on buying existing and new properties by foreigners in cities like Vancouver and Toronto might seem drastic at first, but it might be just the remedy for the on-going problem that doesn't seem to have an end in sight. Along with further increase in Foreign Buyers Tax to 25%, Empty House Tax to 15% and at least 10% Land Tax on empty farmland or land purchased by foreigners, it will certainly send a loud and clear signal to potential flippers and those who intend to use Canadian properties as deposit boxes. It doesn't need to be a permanent measure, but it needs to be implemented for at least ten years with a mid-term review after five years. It needs that extended period of time to roll back the damages done in all previous decades. Advertising and selling new and existing Canadian properties overseas to foreigners should also be banned in conjunction.

Domestically, shadow lending and every relevant professional practice that contribute to it must be eradicated completely. Government of all levels must step in and step up to develop independent monitoring body, stricter national regulations and heavier fines and punishment to control the real estate industry and the process of buying and selling properties. Evidently, self-regulating doesn't work at all, and the so-called fine for breaking rules are grossly inadequate as preventive measure. It's mostly perceived as cost of doing business by dishonest agents. Much more can be done domestically to mitigate the problem of housing market. We just need to pull the right parties together and make things happen concurrently. Drastic measures are necessary for drastic problems.

Foreigners are banned from buying property in New Zealand — Canada should do the same
Diane Francis: Canada must close loopholes, end secrecy, and ban foreign ownership of real estate

http://business.financialpost.com/person...in-new-zealand-canada-should-do-the-same

Law to ban foreign home buyers to be introduced in Parliament, passed in new year

https://www.stuff.co.nz/national/politic...roduced-in-parliament-passed-in-new-year (Australia)

[ssiguy]

I totally gree that drastic problem require drastic measures but it puts the NDP in a terrible position. BC has a real estate economy and measures that would pop the bubble would create havoc on the economy to say nothing of the provincial finances as a grotesque amount of BC government revenue comes from land transfer taxes.

Thanks to the BCLiberals over the last 15 years BC has become an economy addicted to real estate and like all addictions, the long-term benefits of weening yourself off them is high but the short term withdrawl syptoms can be very painful.

[casper]

Originally Posted by ssiguy

I totally gree that drastic problem require drastic measures but it puts the NDP in a terrible position. BC has a real estate economy and measures that would pop the bubble would create havoc on the economy to say nothing of the provincial finances as a grotesque amount of BC government revenue comes from land transfer taxes.

Thanks to the BCLiberals over the last 15 years BC has become an economy addicted to real estate and like all addictions, the long-term benefits of weening yourself off them is high but the short term withdrawl syptoms can be very painful.

I would expect them to crack down on the casino activities. Perhaps crack down on any deal that involves property trading hands without the transfer tax.

They cold also play some games with home owner grants. Currently if you live in the home you get a home owners grant. Perhaps apply a property tax surcharge and wave it you quality for the home owners grant or the property is rented.

If they do something like that I would hope every last penny of extra taxes that comes in goes to fund co-op or social housing.

[osmo]

Originally Posted by ssiguy

A quick update on Vancouver............. Townhomes and especially condos are still selling well but 40-50% of all new condo sales are to foreigners so what happens after the budget in 2 days is anyone's guess.

How do you know this? Where is the reference point for this?

[someone123]

Originally Posted by ssiguy

I totally gree that drastic problem require drastic measures but it puts the NDP in a terrible position. BC has a real estate economy and measures that would pop the bubble would create havoc on the economy to say nothing of the provincial finances as a grotesque amount of BC government revenue comes from land transfer taxes.

Thanks to the BCLiberals over the last 15 years BC has become an economy addicted to real estate and like all addictions, the long-term benefits of weening yourself off them is high but the short term withdrawl syptoms can be very painful.

I don't know if it will play out this way but it's possible to separate out the real development and investment from the speculation and money laundering. It is also possible to fix the NIMBY zoning BS so that housing in Vancouver is built closer to where people want to live. There are cities in Canada that don't have $2M houses but still have lots of construction happening. And Vancouver has lost out on a lot of economic activity because of its expensive housing; maybe similar activity will make up somewhat for the lost real estate bubble activity.

It was funny listening to one of the provincial ministers dance around questions about what will happen to people losing equity though. To fix the problem in an equitable way, prices need to come down. This won't be so terrible for people who lose only a portion of the return on their investment, but it would necessarily be terrible for some who bought at the exact wrong moment (e.g. all the people who read too many real estate ads and were falling over themselves to buy at inflated prices before the stress test).

[bless-u]

I think the word "bubble" might not be an accurate description for the housing market in Vancouver, and to certain extend Toronto, any more. It's more like an inflamed tumour with poison inside. The bad stuff must come out one way or another. Bursting it might not be such a bad thing after all considering what is at stake for the future of the cities. No doubt, a lot of people would feel the burn if that happened. But if the houses they are living in are their primary and only residence, all the gain and loss would strictly be on paper only, and in time it'd come back to a more sustainable level. However, it'd be a painful lesson for those irresponsible and unscrupulous speculators.

[ssiguy]

You can't equate Vancouver and Toronto. Vancouver SFH is a whopping 80% more expensive than Toronto's. Even little Victoria is now more expensive than Toronto.

Toronto is also a fast growing city as StatsCan recently showed but Vancouver is a slow growing one being below the provincial and national rates and not even in the nation's top 25 fastest growing Metros. Toronto's housing sector is doing well because the economy is while in Vancouver while in Vancouver the opposite is true, the economy is doing well due to the housing sector and the laundered and dirty money it relys upon.

[giallo]

Originally Posted by bless-u

It's more like an inflamed tumour with poison inside. The bad stuff must come out one way or another.

I think that's an accurate way to describe Vancouver's current sickness.

[bless-u]

Originally Posted by ssiguy

You can't equate Vancouver and Toronto. Vancouver SFH is a whopping 80% more expensive than Toronto's. Even little Victoria is now more expensive than Toronto.

You are right. The housing crisis in Vancouver is far severer than that in Toronto as it's been around for much longer time, but Toronto is quickly catching up. It is experiencing similar problems arisen from the housing crisis. I didn't equate the two cities, I simply related one to another. That's why I wrote "...to certain extend..."

Housing crunch could drain Toronto talent pool
The Toronto Region Board of Trade says 42 per cent of young professionals would consider moving to a more affordable housing market.

https://www.thestar.com/business/real_es...nch-could-drain-toronto-talent-pool.html

Youth pay the price for British Columbia’s real estate crisis

https://www.theglobeandmail.com/opinion/...bias-real-estate-crisis/article38018591/

[geotag277]

Foreign buyer tax going from 15 to 20.

Speculator tax of 0.5% assessed value in 2018, 2% each year after.

Close identity loop holes in property sale records (I assume blind trusts)?

Not closing the pre-sale condo purchase loop hole, but adding new identity disclosures to try to close loop holes.

More protections to prevent renters from being kicked out due to demolitions & renovations.

Maybe tweaking the rental subsidy?

First glance - not enough. Not even close.

[240glt]

Sounds like the BC NDP will extend the foreign buyers' tax to other parts of the province including the Okanagan

https://www.vernonmorningstar.com/news/bc-budget-ndp-cracks-down-on-speculators-hidden-ownership/

[someone123]

It is tricky because a lot of what is happening is that there is a speculative bubble; people buying under the assumption that they'll get a good rate of return on investment from rising property prices. That bubbly part of the demand is probably pretty fickle, and will already see pressure from rising interest rates. If it disappears there won't be a need for a baroque set of housing taxes and regulations.

One interesting idea I saw was rental zoning. It was even rumoured to be included in the budget as planned legislation but I am not sure if it was. For it to work well I think it would need to be used aggressively around areas like Commercial Drive. If you took even one square kilometer there and zoned it for 12-60 storey rental-only towers that could be a way to get private developers to build a lot of new housing.

Unfortunately putting pressure on cities to improve zoning is likely to be politically expensive. There was a lot of talk about letting communities decide for themselves what housing should be built (a good drinking game is to do a shot whenever a politician says "community"). This is part of what got us in our current mess.

[geotag277]

I was expecting some major rental announcements, but it seems like rental zoning is not included?

Here's the main document:

http://bcbudget.gov.bc.ca/2018/bfp/2018_Budget_and_Fiscal_Plan.pdf

I can't find any reference to rental zoning in the entire thing.

Not really sure how rental zoning would work - because it would require the municipality to get really tough with rezoning, which has historically been the politically challenging part of densification. You bring up rental zoning, inevitably people are going to complain about affordable housing.

[Docere]

Originally Posted by ssiguy

You can't equate Vancouver and Toronto. Vancouver SFH is a whopping 80% more expensive than Toronto's. Even little Victoria is now more expensive than Toronto.

I know it's a big gap, but 80%? TREB covers a much wider area than the Greater Van real estate board.

Toronto is also a fast growing city as StatsCan recently showed but Vancouver is a slow growing one being below the provincial and national rates and not even in the nation's top 25 fastest growing Metros. Toronto's housing sector is doing well because the economy is while in Vancouver while in Vancouver the opposite is true, the economy is doing well due to the housing sector and the laundered and dirty money it relys upon.

According to the BC real estate lobby, it's not a bubble, Van is just so amazing and world class etc.

[geotag277]

Originally Posted by geotag277

Here's the main document:

http://bcbudget.gov.bc.ca/2018/bfp/2018_Budget_and_Fiscal_Plan.pdf

Speculator tax seems to be the main meat regarding the housing market - 0.5% of assessed value in 2018 and 2% for years after that. A 1M house will have a 20k yearly bill if it is flagged as "speculative". Combined with closing identity loop holes, this might be a powerful mechanism to discourage inefficient land use among the SFH market in particular (probably to a lesser extent condos as well).

The government will introduce legislation in 2018 to impose a speculation tax on
residential property in BC. The new annual property tax will target foreign and domestic
home owners who do not pay income tax in BC, including those who leave their homes
vacant. Satellite families — households with high worldwide income that pay little
income tax in BC — will also be captured by the tax. The tax will be effective for the
2018 and future tax years.

IMO this is the bill to watch in 2018. Seems to be an area ripe for nebulous loop holes so will be interesting to see how they close them.