Canada's 'housing bubble' deemed close to bursting

[lio45]

Originally Posted by misher

I see a lot of people supporting screwing developers, well that’s a very short term strategy. Unless your working with developers so that they make money too then don’t expect them to stay. You might get a few rentals in the short term but long term instability chases people away.

You misunderstood me. I said it would work (i.e. that it would boost the amounts of rentals getting built), I didn't say I supported the idea.

It would make BC look like those banana republics where the new government can just decide to "nationalize" your industry and take it, and you're left with nothing.

[milomilo]

Originally Posted by lio45

^ this is the argument in a nutshell. I'll illustrate further with an example.

There are almost no gas stations left in Manhattan nowadays. Why? Because land values are so high that no one can profitably operate a gas station there anymore (and if you had one already, it made less and less sense not to cash out, so nearly everyone did at this point.)

If you rezoned a few currently vacant parcels to "gas station only and this is guaranteed set in stone until the end of times", what would happen?

The value of these parcels would fall until they'd stabilize at levels where it makes financial sense to build and operate a gas station there, and you'd eventually see gas stations pop on those parcels. Because that's the one and only thing you can do there - the land has absolutely no other possible use. Either you put a gas station there or else the land is worthless. So it's worth whatever can be justified by the business case of a Manhattan gas station, not a penny more.

And again, yes, the owners of those vacant properties (who, no doubt, paid dearly for them already, and they plan is to hold onto them until the day they resell for even more money) would scream to high heaven if you did this.

You are defining success as building individual rental only buildings, but success should be seen as city wide reductions in rent. Yes, a city could pick out individual vacant lots and zone them as rental only, and that would mean that the incentives to build a rental on that lot specifically would be higher. But once it gets built, it will charge equivalent rent to all the other rentals in the city. Do this once, and it won't make any difference, but do this enough that it affects the market, and then you start restricting supply of the market housing (which can still be rented out), which in turn raises your rent city wide.

In your example of a gas station in New York, yes you would end up with a gas station. But you'd also get sued by the land owner for the arbitrary change of land use and loss of money. So essentially the city would be subsidizing a gas station.

[milomilo]

Originally Posted by lio45

You misunderstood me. I said it would work (i.e. that it would boost the amounts of rentals getting built), I didn't say I supported the idea.

It would make BC look like those banana republics where the new government can just decide to "nationalize" your industry and take it, and you're left with nothing.

It would increase the ratio of purpose built rentals to non purpose built rentals, a pointless goal. It would not decrease rent paid, which should be the goal.

[milomilo]

Originally Posted by rbt

The zoning itself would change the fundamentals as the it shifts the value of the land to whatever the local cap-rate values it at. A $50M plot of land with condo/office options, may only be a $10M plot of land as rental-only.

The hard part is convincing landowners that a future government will not revert the zoning (generally or a specific exemption just for them) so they're forced to sell at that lower price.

Of those individual pieces of land. How much are you going to rezone? How are you going to compensate the owners of that land? And what have you done to the supply of land for builders city wide? You've restricted it.

[milomilo]

Originally Posted by SpongeG

My city of Coquitlam is losing a lot of old rental stock to highrises currently, but as a requirement, any new developments must replace the lost rentals with new ones.

Such as there were two 3-storey rentals down my street that were and are being replaced by two towers, the old rentals had maybe 80 rentals between them, one of the towers will be a full rental with 200 rental units replacing the lost ones. most of them will be market value, a few are set aside for below market and fewer still for low income rentals.

It is a good way to ensure that rentals are being built. A few thousand rentals will be coming along in the next few years as part of numerous new developments.

It only appears to be a success, but what has been done is a further restriction on developers building units. The true issue is that housing is too expensive, and government tinkering in this way does not solve that problem, it only makes the market less efficient.

[lio45]

Originally Posted by milomilo

Do this once, and it won't make any difference, but do this enough that it affects the market, and then you start restricting supply of the market housing (which can still be rented out), which in turn raises your rent city wide.

Disagree with that part.

Without rental-only zoning, what you see on those parcels are:
-not used (kept vacant / land values speculation)
-condo tower:
------subcategory A: bought by investor, kept vacant
------subcategory B: bought by investor, rented
------subcategory C: bought by occupier, occupied

If instead you had rental-only zoning on these, you'd completely eliminate the "not used" and "subcategory A" cases.

Therefore the supply of units available as rentals would rise, and so would the vacancy rate. This would drive rents down, or at least prevent them from going up with a vacancy rate of 0% and the population of the city continuing to increase while no one builds rentals because cap rates make no sense at all.

[SpongeG]

well they could just knock down rentals and replace with condos like Burnaby did for years before the new council and it would be even worse. Burnaby's new council is pro renter not pro developer.

[lio45]

Originally Posted by milomilo

And what have you done to the supply of land for builders city wide? You've restricted it.

The opposite. Of those X parcels we'd rezone, currently, a nonzero number is held by land speculators therefore unavailable to builders.

By rezoning for rental only, as explained already, you're putting a solid cap on values and completely stopping land speculation (land values are now essentially fixed as a function of local minimum acceptable cap rates, i.e. local rents, which themselves are tied to local wages and cost of living).

Then the only thing that makes financial sense is to build on the parcel or sell to someone who will. No point anymore holding onto it to speculate on increasing land values.

(It's the reason why we're in agreement that we'd see gas stations eventually appear on all those Manhattan parcels, by contrast to the previous few years where they were vacant and staying that way.)

[someone123]

Originally Posted by lio45

If instead you had rental-only zoning on these, you'd completely eliminate the "not used" and "subcategory A" cases.

Therefore the supply of units available as rentals would rise, and so would the vacancy rate. This would drive rents down, or at least prevent them from going up with a vacancy rate of 0% and the population of the city continuing to increase while no one builds rentals because cap rates make no sense at all.

Yeah, it's not just the supply of housing in the sense of number of units or bedoroms, there's also a question of how efficiently the housing is used. A unit might be owned by 1 person who declares it as a principal residence on paper and lives overseas most of the time, or it could be subdivided into 3 suites and inhabited by 8 people.

Like I said the investor-class condos are not built to the same standards either. A lot of them are shiny looking but not as functional as they could be for real inhabitants and not very convenient for either families or roommates given their size.

[rbt]

Originally Posted by lio45

I don't know if you've read my posts from the last couple pages but that's a perfect summary of what I've been saying. In about ~1% of the words, possibly less.

I generally only read about 1 in 10 pages on this thread, so no I hadn't.

Cheers to like minds and all that.

[lio45]

Originally Posted by milomilo

How are you going to compensate the owners of that land?

I'm pretty sure municipalities are allowed to alter zoning anytime without compensating anyone.

A few years ago my hometown Sherbrooke decided to start only allowing new office buildings over a certain amount of square feet in a very small perimeter centered on downtown (great news for me financially, though I immediately saw it as unfair too) and then a bunch of current owners of commercial land on major arterials outside that perimeter started to unite to raise hell, and the City eventually backed down (not entirely, but quite a bit).

But it was never a question of "can't do it".

[milomilo]

Originally Posted by SpongeG

well they could just knock down rentals and replace with condos like Burnaby did for years before the new council and it would be even worse. Burnaby's new council is pro renter not pro developer.

If the end result of the policy is that instead of 1000 condo units built you get 800 condo and 100 purpose built rental units, as logically would be the case, then the situation would not be better, even though you built 100 rentals.

[Skygazer]

Originally Posted by SpongeG

Burnaby's new council is pro renter not pro developer.

Oh really? That's great news! I moved away a couple years ago and haven't kept up to date at all on what's going on over there, but the situation was pretty bad at the time (and I lived in Metrotown - seemed like every other apartment was scheduled to be knocked down and turned into a condo).

What are some of the changes they've been implementing?

[milomilo]

Originally Posted by lio45

Disagree with that part.

Without rental-only zoning, what you see on those parcels are:
-not used (kept vacant / land values speculation)
-condo tower:
------subcategory A: bought by investor, kept vacant
------subcategory B: bought by investor, rented
------subcategory C: bought by occupier, occupied

If instead you had rental-only zoning on these, you'd completely eliminate the "not used" and "subcategory A" cases.

Therefore the supply of units available as rentals would rise, and so would the vacancy rate. This would drive rents down, or at least prevent them from going up with a vacancy rate of 0% and the population of the city continuing to increase while no one builds rentals because cap rates make no sense at all.

You are suggesting a sort of command economy for housing where the city looks around for lots that it doesn't like the look of, and then tells the private sector what to build. We know economies don't function well in that model, so this will not be successful.

How many lots actually are there left vacant in Vancouver, due to speculation? If there are many, then there is an underlying reason for that, which of course is that they expect prices will be higher in the future. The solutions to this are either to build enough supply market wide to cause prices to fall, or more creatively tax properties (like a land value tax) such that it disincentivizes leaving lots undeveloped.

[milomilo]

Originally Posted by lio45

The opposite. Of those X parcels we'd rezone, currently, a nonzero number is held by land speculators therefore unavailable to builders.

By rezoning for rental only, as explained already, you're putting a solid cap on values and completely stopping land speculation (land values are now essentially fixed as a function of local minimum acceptable cap rates, i.e. local rents, which themselves are tied to local wages and cost of living).

Then the only thing that makes financial sense is to build on the parcel or sell to someone who will. No point anymore holding onto it to speculate on increasing land values.

(It's the reason why we're in agreement that we'd see gas stations eventually appear on all those Manhattan parcels, by contrast to the previous few years where they were vacant and staying that way.)

Rental only buildings aren't the only rentable units. By doing as you say, you may increase the ratio of rentals to non-rentals built, but your overall amount of construction will fall. So you don't end up with more total supply in the end.

[lio45]

Originally Posted by milomilo

By doing as you say, you may increase the ratio of rentals to non-rentals built, but your overall amount of construction will fall.

How do you figure this? Because in my view, as explained already, it's the opposite: if you drastically reduce land values then you're opening opportunities for the free market to build rental buildings in those areas, opportunities that didn't exist previously.

The only type of construction that'll fall is the speculative type - the building of glass-and-steel bitcoins for billionaire Chinese money launderers. Meanwhile anything that makes financial sense from a cap rate / landlording point of view will get built, something that didn't happen before.

It's the beauty of the free market: if there's cheap land available in Vancouver on which it's possible to put a rental building and enjoy a good cap rate, then it's inevitable that someone somewhere will do it.

To me, it's obvious that the overall numbers of available units would increase if the City did this.

[lio45]

Originally Posted by milomilo

You are suggesting a sort of command economy for housing where the city looks around for lots that it doesn't like the look of, and then tells the private sector what to build. We know economies don't function well in that model, so this will not be successful.

Well you kind of described zoning.

I could give you many examples of this but that's the freshest:

Last year I had a vacant commercial unit and I knew two guys who had a coffee torrefaction business and needed space downtown, I was pretty sure they could operate there but in the end, they couldn't at that building by a hair. The building is on the city's main commercial street downtown, on a corner lot; right on the other side of that side street (i.e. starting at the following building, my neighbor across that side street) you start to have "light industrial" allowed (which is the zoning you need if you want to transform food on the premises), but not on the side where that building was. Meanwhile on "our" side there were a bunch of other extra commercial uses allowed that aren't allowed on the other side, I guess as a means to try to balance things out. (I have buildings on the other side, like 1-2 blocks away on the same street, but would have had to swap already-installed commercial tenants to accommodate the coffee guys there; made no sense for anyone). It's all quite arbitrary.

Apparently Houston doesn't have zoning (they have something else though, it's not entirely a free for all), personally I've always liked the idea of loosening our current zoning practices.

[vid]

In Thunder Bay we've made downtown zoning essentially a free-for-all where very few restrictions apply (you can't build a asphalt plant beside city hall for example) and corner lots, specifically, get expanded uses, so in our case that coffee roasting business would have had no problem getting in, especially if it were downtown. We've got coffee roasters all over the place it seems. It's not without issues. A developer wanted to build a sports facility and hotel on the edge of the city and the city said he can only build the hotel first, and not the sports facility, but he's got everything lined up for the sports facility and it's essentially shovel ready while the hotel is still negotiating. The city eventually made an exemption for him but that it had to do that in the first place is absurd. At the same time the city is working on building its own identical sports facility.

Euclidean zoning is a big part of why our cities are all sprawled out to fuck and the quality of life in most of our neighbourhoods is shitty. I wouldn't be surprised if your building in Sherbrooke has some kind of stupid restriction on who can live above it as well, or requires it to have some stupid number of parking spaces that it will never actually fill. The amount of empty parking spaces in Thunder Bay is absurd. All this land businesses have to buy, pave, plow, and pay taxes on, just to satisfy numbers on paper? It never gets used! The number of developments in this city that had to become smaller than intended because they couldn't meet parking requirements is sad for those of us who like high rises.

[milomilo]

Originally Posted by lio45

How do you figure this? Because in my view, as explained already, it's the opposite: if you drastically reduce land values then you're opening opportunities for the free market to build rental buildings in those areas, opportunities that didn't exist previously.

The only type of construction that'll fall is the speculative type - the building of glass-and-steel bitcoins for billionaire Chinese money launderers. Meanwhile anything that makes financial sense from a cap rate / landlording point of view will get built, something that didn't happen before.

It's the beauty of the free market: if there's cheap land available in Vancouver on which it's possible to put a rental building and enjoy a good cap rate, then it's inevitable that someone somewhere will do it.

To me, it's obvious that the overall numbers of available units would increase if the City did this.

As must be clear, I'm a great believer in the power of markets. What you are suggesting though is making the market less free, and hence less efficient resulting in higher prices.

If affordability was the only goal, you would make the market be as free as possible - remove all zoning restrictions, take away the ALR, slash regulation and anything else that increases cost. Of course, there are downsides to doing this which is why we have regulation, but I would say that Vancouver looks to be far too far in the direction of less free market. Adding more restrictions, like rental only zoning or rent controls only adds to the burden.

What needs to be done in Vancouver is abundantly obvious. Along with demand side measures which have rightfully been made, the supply side also needs to be drastically improved. And to do that is similarly obvious, vast areas all across the city need to be upzoned. Having the bulk of the inner city covered with SFHs in one of the world's most expensive housing markets is a huge policy failure.

But even though the solution is so, so, obvious, the people do not want it, because truthfully they do not want the problem to be fixed. If you ask the average Vancouverite if they care about affordability, they'd probably say yes they do. But if you ask them if they would vote for a politician that promised to do what is required - cut the value of their home in half, they would say "hell no". And hence the housing market is permanently wrecked, with most every policy proposal only making the problem worse. I would almost bet money on Vancouver (and other expensive cities, like San Francisco) remaining unaffordable for decades, but I would be absolutely thrilled to be wrong about that.

Originally Posted by lio45

Well you kind of described zoning.

I could give you many examples of this but that's the freshest:

Last year I had a vacant commercial unit and I knew two guys who had a coffee torrefaction business and needed space downtown, I was pretty sure they could operate there but in the end, they couldn't at that building by a hair. The building is on the city's main commercial street downtown, on a corner lot; right on the other side of that side street (i.e. starting at the following building, my neighbor across that side street) you start to have "light industrial" allowed (which is the zoning you need if you want to transform food on the premises), but not on the side where that building was. Meanwhile on "our" side there were a bunch of other extra commercial uses allowed that aren't allowed on the other side, I guess as a means to try to balance things out. (I have buildings on the other side, like 1-2 blocks away on the same street, but would have had to swap already-installed commercial tenants to accommodate the coffee guys there; made no sense for anyone). It's all quite arbitrary.

Apparently Houston doesn't have zoning (they have something else though, it's not entirely a free for all), personally I've always liked the idea of loosening our current zoning practices.

And on that we are agreed. That is the way to affordability - loosening restriction, not tightening it.

[milomilo]

Originally Posted by vid

In Thunder Bay we've made downtown zoning essentially a free-for-all where very few restrictions apply (you can't build a asphalt plant beside city hall for example) and corner lots, specifically, get expanded uses, so in our case that coffee roasting business would have had no problem getting in, especially if it were downtown. We've got coffee roasters all over the place it seems. It's not without issues. A developer wanted to build a sports facility and hotel on the edge of the city and the city said he can only build the hotel first, and not the sports facility, but he's got everything lined up for the sports facility and it's essentially shovel ready while the hotel is still negotiating. The city eventually made an exemption for him but that it had to do that in the first place is absurd. At the same time the city is working on building its own identical sports facility.

Euclidean zoning is a big part of why our cities are all sprawled out to fuck and the quality of life in most of our neighbourhoods is shitty. I wouldn't be surprised if your building in Sherbrooke has some kind of stupid restriction on who can live above it as well, or requires it to have some stupid number of parking spaces that it will never actually fill. The amount of empty parking spaces in Thunder Bay is absurd. All this land businesses have to buy, pave, plow, and pay taxes on, just to satisfy numbers on paper? It never gets used! The number of developments in this city that had to become smaller than intended because they couldn't meet parking requirements is sad for those of us who like high rises.

Yep. Zoning certainly has benefits, and I like that it gives clear rules and (theoretically, at least), a simple process to get a building approved. But often the rules are not appropriate, or self defeating, but must be followed in Kafkaesque fashion.