Canada's 'housing bubble' deemed close to bursting

[whatnext]

Originally Posted by someone123

Sure, but I said foreign cash is drying up + local incomes are falling. I don't think the flow of Chinese money will continue at the same rate at least for a few months at minimum (China just reported its first negative quarter ever for negative GDP growth; even with them cooking the books they couldn't bring themselves to say it went up), and whether or not it will resume next year is uncertain. Vancouverites create a "floor" below the Chinese-fueled prices, but I think that floor is much lower and is falling right now. Vancouverites having no money also means that some will feel more pressure to sell sooner. There are a lot of Vancouverites who treat their home like an ATM and believe they are rich, with little income and hardly any other assets.

The HELOC crowd could get hit really hard when they realize there's compounding interest and a deferred property tax balance against their property which is worth 60% of what it was a couple years ago. You could have a bunch of 65 year olds who thought they were going to be world travelers but actually are stuck in a crappy apartment living on rice and beans. Some people are not saving for retirement because they believe their house is a retirement plan.

Yes, we see the usual real estate pimping suspects trying to claim that nothing will have changed but the reality will be quite different.

[lio45]

Originally Posted by misher

Here's an example of a mixed property with a 5% cap.

https://www.westerninvestor.com/done-dea...property-fetches-1-21-million-1.24127318

And that's exactly what I was saying - the cash flow of something with such a close-to-zero cap rate is going to approximately resemble the cash flow of a hoard of gold bars under your bed.

[misher]

I do wonder about immigration targets, since we've set a target does that mean we'll be accepting lower quality applications so we meet that target? If so, how will that mix with the fact that housing construction is down across the nation?

“Even during deep and painful previous recessions, housing starts in Canada didn’t fall below an annual rate of 100,000 units. This time around, they will break that barrier,” said the economists.

https://business.financialpost.com/execu...-post-covid-19-world?video_autoplay=true

[scryer]

Nothing that we didn't already know but still interesting nonetheless:

How Singapore Solved Housing

[Truenorth00]

https://betterdwelling.com/canadian-real...op-up-to-30-moodys-advises-institutions/

Canadian real estate prices are expected to drop in the baseline, and the declines get bigger as the lockdown persists. The S0 baseline shows prices decline 8% in real terms, with a return to breakeven one year later. In the S3 scenario, prices decline 20% in real terms, and recover in late 2024 or 2025. In the S4 forecast, prices fall over 30% well into 2022, and recover in real terms towards the end of the decade. Reconstructing their model with the same macros parliament is using, prices drop about 24%.

[misher]

Originally Posted by scryer

Nothing that we didn't already know but still interesting nonetheless:

How Singapore Solved Housing

Singapore uses a bunch of migrant slave labour in work camps to build housing for locals which is a repeat of BC's Housing policy in the 19th-20th century where kidnapped or low paid slave labour lived in warrens building large houses for an upper white cast. I'm sure if we take a bunch of slaves from India and other poor asian nations we can get cheap housing built too, we can just copy the system Dubai is using where 3/4th of its population is slave labor. This video doesn't show where migrant laborers who build this housing live. I appreciated that it pointed out Singapore's "ethnic quota's" where its Malay ethnic group makes up 13.4% of the population but can occupy 22% while its Indian ethnic group making up 12.3% of the population can only occupy 12%. Welcome to fascism.

Singapore's cramped migrant worker dorms hide Covid-19 surge risk
City-state has been lauded for its comprehensive measures but officials have been accused of overlooking key group

https://www.theguardian.com/world/2020/a...nt-worker-dorms-hide-covid-19-surge-risk

• Video Link





Copying Singapore's system in Canada depends on whether you want an equal country where everyone has the same opportunities, or a fascist state that exists to benefit a select few/group.

[CityTech]

Japan would be a better model to copy. While they do have a declining national population, Tokyo still experiences decent growth due to rural-to-urban migration, and yet house prices have been steady in Tokyo for decades. There's plenty of construction there as developers actually build enough to keep prices steady.

https://www.wsj.com/articles/what-housing-crisis-in-japan-home-prices-stay-flat-11554210002

What Housing Crisis? In Japan, Home Prices Stay Flat
Supply keeps up with demand in Tokyo thanks to few restrictions on development

Over the past decade, Japan has consistently built almost 1 million new homes and apartments each year, according to official statistics. In the U.S., where the population is more than double Japan’s, 1.25 million new homes were built in 2018.

Japan’s home prices finished last year around the same level as they were nearly a decade ago, according to data from Japan’s Ministry of Land, Infrastructure, Transport and Tourism. In Tokyo, home prices finished 2018 around the same level as they were near the turn of the century.

Housing prices have been constrained in some parts of Japan due to anemic economic growth and population decline, said Mr. Kobayashi. But the price trend is the same in Tokyo, where the population is rising, he said.

In Tokyo last year, housing starts came in around 145,000, according to Japan’s land ministry. This figure is on par with the total number of new housing units authorized last year in New York, Los Angeles, Boston and Houston combined, based on the U.S. Census Bureau data. The same feat was achieved in 2017.

Paywalled article, but root cause of the healthy market is around 20 years ago, as a response to their economic malaise, Japan massively deregulated and relaxed development and zoning controls in an attempt to goose the construction industry. A key part of that was taking control of development away from municipalities and having it be regulated directly by the national government; this takes away the power of NIMBYs.

Construction and development is so streamlined that even brand new high-end construction remains affordable:

Consisting of 24 buildings, “Harumi Flag” is slated for completion by 2024. It is expected to house some 12,000 people in 5,632 condominiums and apartments.

Some of Harumi Flag’s residential towers offer ocean views from 50 floors above Tokyo Bay. The units are also likely to be roomier than typical Tokyo condominiums.

Still, their prices are expected to be cheaper than those in the surrounding area given the “sheer amount of inventory in an already saturated area of Tokyo,” said Adam German, the vice president of business development at Housing Japan. If they’re not at market prices or even a bit below, “the units will have significant trouble selling,” he said.

To follow that example, we'd need:
-Weakening city councils and having provincial bureaucrats take charge of zoning and planning, to ensure the voices of NIMBYs are fully cut out of the process;
-Abolishing all development fees
-Eliminating barriers to entry for construction and development to ensure healthy competition (ie. no more cartels of 4 megadevelopers colluding to keep supply low--this 100% happens in Ottawa, and I'm sure elsewhere as well)

[kwoldtimer]

Originally Posted by Truenorth00

https://betterdwelling.com/canadian-real...op-up-to-30-moodys-advises-institutions/

One wonders how many Canadians would be unable to renew their mortgages if there were a 25-30% drop lasting several years?

[misher]

Originally Posted by CityTech

Japan would be a better model to copy. While they do have a declining national population, Tokyo still experiences decent growth due to rural-to-urban migration, and yet house prices have been steady in Tokyo for decades. There's plenty of construction there as developers actually build enough to keep prices steady.

https://www.wsj.com/articles/what-housing-crisis-in-japan-home-prices-stay-flat-11554210002



Paywalled article, but root cause of the healthy market is around 20 years ago, as a response to their economic malaise, Japan massively deregulated and relaxed development and zoning controls in an attempt to goose the construction industry. A key part of that was taking control of development away from municipalities and having it be regulated directly by the national government; this takes away the power of NIMBYs.

Construction and development is so streamlined that even brand new high-end construction remains affordable:



To follow that example, we'd need:
-Weakening city councils and having provincial bureaucrats take charge of zoning and planning, to ensure the voices of NIMBYs are fully cut out of the process;
-Abolishing all development fees
-Eliminating barriers to entry for construction and development to ensure healthy competition (ie. no more cartels of 4 megadevelopers colluding to keep supply low--this 100% happens in Ottawa, and I'm sure elsewhere as well)

Hear hear, this is exactly how we should solve things.
We've been trying our solution and things just keep getting worse.

[misher]

Have been saying for a while that high immigration not foreign buyers has driven Vancouver's price gains. You can really see it take off in BC in 2013 whereas money laundering and foreign buyers as a % did not change much since 2006:



https://twitter.com/CapEconCanada/status/1255548488089251840/photo/1

[lio45]

OMFG, I drove through the DTES earlier tonight (Friday night ~11 pm for a little errand) for the first time this year and it is absolutely insane - people living in the streets, in tent cities... copious amounts of litter absolutely everywhere... looked like I took a portal to the worst favelas of Rio!

It wasn't anywhere near as bad as this last time I was there (~2010).

Why the — isn't the City buying one-way bus tickets to Maple Creek for all of these junkies?!? Problem solved.

[misher]

Originally Posted by lio45

OMFG, I drove through the DTES earlier tonight (Friday night ~11 pm for a little errand) for the first time this year and it is absolutely insane - people living in the streets, in tent cities... copious amounts of litter absolutely everywhere... looked like I took a portal to the worst favelas of Rio!

It wasn't anywhere near as bad as this last time I was there (~2010).

Why the — isn't the City buying one-way bus tickets to Maple Creek for all of these junkies?!? Problem solved.

There usually spread out through the city panhandling and meeting dealers but now they are concentrated.

And it’s gotten worse since 2017 with unsheltered homeless up ~10%. Not sure why maybe the Sahota properties?

And yeah the provinces and cities already ship them all here.

[goodgrowth]

Originally Posted by CityTech

Japan would be a better model to copy. While they do have a declining national population, Tokyo still experiences decent growth due to rural-to-urban migration, and yet house prices have been steady in Tokyo for decades. There's plenty of construction there as developers actually build enough to keep prices steady.

https://www.wsj.com/articles/what-housing-crisis-in-japan-home-prices-stay-flat-11554210002



Paywalled article, but root cause of the healthy market is around 20 years ago, as a response to their economic malaise, Japan massively deregulated and relaxed development and zoning controls in an attempt to goose the construction industry. A key part of that was taking control of development away from municipalities and having it be regulated directly by the national government; this takes away the power of NIMBYs.

Construction and development is so streamlined that even brand new high-end construction remains affordable:



To follow that example, we'd need:
-Weakening city councils and having provincial bureaucrats take charge of zoning and planning, to ensure the voices of NIMBYs are fully cut out of the process;
-Abolishing all development fees
-Eliminating barriers to entry for construction and development to ensure healthy competition (ie. no more cartels of 4 megadevelopers colluding to keep supply low--this 100% happens in Ottawa, and I'm sure elsewhere as well)

Right so it can be done.

I can't think of a single bigger driver of inequality and the exposure of hypocrisy around wanting to fight inequality than when it comes to housing in this country.

[milomilo]

Originally Posted by goodgrowth

Right so it can be done.

I can't think of a single bigger driver of inequality and the exposure of hypocrisy around wanting to fight inequality than when it comes to housing in this country.

Totally agree. Housing unaffordability is, in my opinion, the most serious grievance that we all should have. It's most acutely felt by younger people but in truth it would be better for almost everyone if house prices were lower across the board.

And yet, despite it being such a severe injustice, it's also barely talked about. And the people that talk about it the most are almost always wrong about what the correct solution is. The Liberal governments FTB plan is the most egregious example of complete trash policy that ostensibly claims to help affordability, but in reality makes it worse.

The actual solution is simple, but hard. Build more houses in the places people want to live. The market should solve this problem, but political interference by the selfish class of homeowners means that the supply side of the market is frustrated.

[misher]

Originally Posted by milomilo

Totally agree. Housing unaffordability is, in my opinion, the most serious grievance that we all should have. It's most acutely felt by younger people but in truth it would be better for almost everyone if house prices were lower across the board.

And yet, despite it being such a severe injustice, it's also barely talked about. And the people that talk about it the most are almost always wrong about what the correct solution is. The Liberal governments FTB plan is the most egregious example of complete trash policy that ostensibly claims to help affordability, but in reality makes it worse.

The actual solution is simple, but hard. Build more houses in the places people want to live. The market should solve this problem, but political interference by the selfish class of homeowners means that the supply side of the market is frustrated.

Totally right but you missed interference by a stupid class of raving anti capitalist renters and poverty advocates who think more housing=bad and don’t know anything about economics. These are the people who argue that any new rentals go to foreigners and actively work to block rentals in Vancouver. We even have a poverty advocate on city council that voters against anything that isn’t non profit housing with rents below $500/month even if overall more rentals are obviously better than a big giant mansion for 1.

[goodgrowth]

Originally Posted by milomilo

Totally agree. Housing unaffordability is, in my opinion, the most serious grievance that we all should have. It's most acutely felt by younger people but in truth it would be better for almost everyone if house prices were lower across the board.

And yet, despite it being such a severe injustice, it's also barely talked about. And the people that talk about it the most are almost always wrong about what the correct solution is. The Liberal governments FTB plan is the most egregious example of complete trash policy that ostensibly claims to help affordability, but in reality makes it worse.

The actual solution is simple, but hard. Build more houses in the places people want to live. The market should solve this problem, but political interference by the selfish class of homeowners means that the supply side of the market is frustrated.

It's sort of a failure with of our monetary policy as well. I almost feel that housing should have it's own separate metric from the consumer price index.

The average housing price increased nearly 7% in the last year. That's way above the central banks inflation target of 2%

Maybe we need a national housing price index that targets 2% and if a local market exceeds that federal policies overrule local policies to increase supply.

[misher]

Originally Posted by goodgrowth

It's sort of a failure with of our monetary policy as well. I almost feel that housing should have it's own separate metric from the consumer price index.

The average housing price increased nearly 7% in the last year. That's way above the central banks inflation target of 2%

Maybe we need a national housing price index that targets 2% and if a local market exceeds that federal policies overrule local policies to increase supply.

The problem with that is that house prices increase for other reasons as well. For instance the average size of a house in Vancouver has been increasing as people now use up their floorspace limit when building whereas before people built small affordable houses that were often just 1 level with a single washroom.

We also have new safety and environmental features. Insulation, condensing boilers, cooling towers, double pane windows, fire suppression systems, triple thickness concrete, etc. all add costs that previously didn’t exist. There is simply a lot more to a new home than an old one.

Development fees, new taxes, and the permit process have also added at least 10-20%if not more to the cost of a house.

Rather than focus on prices we should probably focus on rents. Canada has a very high homeownership rate compared to many other nations like Denmark or Switzerland (the country with many millionaires!). It’s ok if that goes down we need to focus on affordability and a lot of people mistake that for home prices when it’s actually rents.

[goodgrowth]

Originally Posted by misher

The problem with that is that house prices increase for other reasons as well. For instance the average size of a house in Vancouver has been increasing as people now use up their floorspace limit when building whereas before people built small affordable houses that were often just 1 level with a single washroom.

We also have new safety and environmental features. Insulation, condensing boilers, cooling towers, double pane windows, fire suppression systems, triple thickness concrete, etc. all add costs that previously didn’t exist. There is simply a lot more to a new home than an old one.

Development fees, new taxes, and the permit process have also added at least 10-20%if not more to the cost of a house.

Rather than focus on prices we should probably focus on rents. Canada has a very high homeownership rate compared to many other nations like Denmark or Switzerland (the country with many millionaires!). It’s ok if that goes down we need to focus on affordability and a lot of people mistake that for home prices when it’s actually rents.

I believe rents are included in the CPI.

If you look at rentals.ca rental report: https://rentals.ca/national-rent-report Year-over-year the average increased by 4.8%. Though some localized markets are up 20-35% year-over-year (for one bedroom apt)

[misher]

Originally Posted by goodgrowth

I believe rents are included in the CPI.

If you look at rentals.ca rental report: https://rentals.ca/national-rent-report Year-over-year the average increased by 4.8%. Though some localized markets are up 20-35% year-over-year (for one bedroom apt)

Yep, but my point is that most housing discussions seem to involve prices which is should not be the focus. What’s the point of decreasing housing prices if they’ve driven up rents? Yet success is measured by prices not rents.

As you can see after the new taxes and rent controls in 2017-2018 rents have only increased faster. It’s only that now new renters pay most of the increase subsidizing old renters rather than the increase being shared evenly.

[goodgrowth]

Originally Posted by misher

Yep, but my point is that most housing discussions seem to involve prices which is should not be the focus. What’s the point of decreasing housing prices if they’ve driven up rents? Yet success is measured by prices not rents.

As you can see after the new taxes and rent controls in 2017-2018 rents have only increased faster. It’s only that now new renters pay most of the increase subsidizing old renters rather than the increase being shared evenly.

I'm not advocating for rent control. I am generally advocating for decreased regulations and a competitive construction industry so that supply can keep up with demand in a more timely fashion so prices don't increase so quickly.