Canada's 'housing bubble' deemed close to bursting

[ssiguy]

Interesting article today on Canada' housing bubble and what NZ did to quell theirs. The Bank of NZ {BoC} warned the government about h rising levels of mortgage debt could destablize the currency and entire economy with a rise in interest rates made the NZ government act.

They BANNED all foreign investment in real estate in 2014 and by this May, the amount required as a down payment will rise to 20%.

[casper]

Originally Posted by ssiguy

Interesting article today on Canada' housing bubble and what NZ did to quell theirs. The Bank of NZ {BoC} warned the government about h rising levels of mortgage debt could destablize the currency and entire economy with a rise in interest rates made the NZ government act.

They BANNED all foreign investment in real estate in 2014 and by this May, the amount required as a down payment will rise to 20%.

But if the cause of the housing "bubble" (if we can't to call it that), is Quantitative Easing in Canada how does that have any impact.

[Good Baklava]

Originally Posted by ssiguy

Interesting article today on Canada' housing bubble and what NZ did to quell theirs. The Bank of NZ {BoC} warned the government about h rising levels of mortgage debt could destablize the currency and entire economy with a rise in interest rates made the NZ government act.

They BANNED all foreign investment in real estate in 2014 and by this May, the amount required as a down payment will rise to 20%.

What we need is a speculator’s tax targeting locals and foreigners alike.

[p_xavier]

With development costs averaging $200k in Vancouver and Toronto while many cities don't have any, that would need to be addressed to decrease costs.

[Danny D Oh]

Originally Posted by ssiguy

Interesting article today on Canada' housing bubble and what NZ did to quell theirs. The Bank of NZ {BoC} warned the government about h rising levels of mortgage debt could destablize the currency and entire economy with a rise in interest rates made the NZ government act.

They BANNED all foreign investment in real estate in 2014 and by this May, the amount required as a down payment will rise to 20%.

I haven't gone in depth on the NZ policy but the way it has been explained in our media makes me believe it will create a housing crisis favouring people and entities who have the capital to own many properties.

Will be interesting to see the effect on the rental market when you price most people in median income range completely out of the housing market as a matter of policy, the requirement for 20% down. Is it better to have people carrying mortgage debt at 40% of their income or spend 50% of their income or more on rent?

Not sure if they have a similar system of mortgage insurance to Canada and that might be an important difference.

[SignalHillHiker]

One of the homeowners on my block bought a smaller version of my house in 2015 for $175K.

They probably did around $25K in renovations - it’s completely different inside. Not top of the line or anything, but all new just the same.

They just accepted an offer of $144K. Yikes.

I’m glad that’s not me. I bought pretty much as cheap as my house can possibly be. Had a viewing today - they were here for more than a hour so seemingly quite interested. They asked for more info about the roof, plumbing, and heating costs - all of which are relatively good. Fingers crossed!

[casper]

Originally Posted by Danny D Oh

I haven't gone in depth on the NZ policy but the way it has been explained in our media makes me believe it will create a housing crisis favouring people and entities who have the capital to own many properties.

Will be interesting to see the effect on the rental market when you price most people in median income range completely out of the housing market as a matter of policy, the requirement for 20% down. Is it better to have people carrying mortgage debt at 40% of their income or spend 50% of their income or more on rent?

Not sure if they have a similar system of mortgage insurance to Canada and that might be an important difference.

If the goal is to encourage individual buyers, you could do that by extending government backed mortgage insurance only to individuals that do not already own a home.

[Nite]

Originally Posted by ssiguy

Interesting article today on Canada' housing bubble and what NZ did to quell theirs. The Bank of NZ {BoC} warned the government about h rising levels of mortgage debt could destablize the currency and entire economy with a rise in interest rates made the NZ government act.

They BANNED all foreign investment in real estate in 2014 and by this May, the amount required as a down payment will rise to 20%.

I wonder why banning foreign ownership in 2014 didn't solve the problem?
Its funny how building more never seems to enter policies makers minds, instead NZ will make housing un-reachable to a huge portion of their population when building more would have both improve economic growth and stop prices from growing. Whether it's Sydney, Auckland, San Francesco, Vancouver or Toronto, politicians are too scared to up-zoned there cities away from single family homes to meet the demand for housing. None of these cities should have more than 10% of the land devoted to single family housing, there is a reason you don't see SFH in major cities in Europe and Asia. If the goal is to make housing affordable then NZ has just done the opposite.

Basicly the invisible hand of the market is telling these cities that they have to become like Singapore, Tokyo, HK, Bangkok and Paris and the population is saying no we don't and policy makers are implementing policies to reduce demand which have all failed and will continue to fail until substantially more supply is built and the population is all pikachu face when prices keep going up.

[Doady]

Canada's housing bubble wouldn't be so big and so long-lasting if Canadian cities weren't so restrictive on development:

Canadian cities trail U.S. counterparts in urban density: Fraser Institute

Canadian cities—including Toronto and Vancouver, which are experiencing an affordability crunch—can accommodate much more housing supply as they have much lower population densities than other major urban centres around the world, finds a new study by the Fraser Institute, an independent Canadian public policy think-tank.

“Compared to their international peers, Canadian cities have much lower levels of density, and thus an ability to expand the supply of housing,” said Josef Filipowicz, senior policy analyst with the Fraser Institute’s Centre for Municipal Studies and author of Room To Grow: Comparing Urban Density in Canada and Abroad.

https://building.ca/canadian-cities-low-density-fraser-institute/

[someone123]

Originally Posted by Doady

Canadian cities trail U.S. counterparts in urban density: Fraser Institute

Clickbaity headline. They compare Vancouver to San Francisco, Toronto to New York and London, etc. I don't think Canadian cities trail American cities, on average, in the net change in density from modern infill. The disparities are between older cities that developed in an earlier period and newer fast-growing metropolitan areas where low density suburbs have become relatively central.

But it is true that large swaths of inner city land in Canadian cities is off the table for high density redevelopment. In Vancouver there are detached housing areas 2 km from the heart of downtown (Kits Point and Strathcona).

[WarrenC12]

Originally Posted by Nite

I wonder why banning foreign ownership in 2014 didn't solve the problem?

If COVID has shown us anything, it isn't "foreigners" that are driving up housing prices.

[Nite]

Originally Posted by WarrenC12

If COVID has shown us anything, it isn't "foreigners" that are driving up housing prices.

Its been obvious for a long time that supply and not demand is the problem. That's why every policy design to reduce demand doesn't solve the problem, ie NZ banning foreign ownership.
However, Policy makers are stilling coming up with ever more elaborate methods to reduce demand and they which will also fail.

[milomilo]

Originally Posted by Nite

I wonder why banning foreign ownership in 2014 didn't solve the problem?
Its funny how building more never seems to enter policies makers minds, instead NZ will make housing un-reachable to a huge portion of their population when building more would have both improve economic growth and stop prices from growing. Whether it's Sydney, Auckland, San Francesco, Vancouver or Toronto, politicians are too scared to up-zoned there cities away from single family homes to meet the demand for housing. None of these cities should have more than 10% of the land devoted to single family housing, there is a reason you don't see SFH in major cities in Europe and Asia. If the goal is to make housing affordable then NZ has just done the opposite.

Basicly the invisible hand of the market is telling these cities that they have to become like Singapore, Tokyo, HK, Bangkok and Paris and the population is saying no we don't and policy makers are implementing policies to reduce demand which have all failed and will continue to fail until substantially more supply is built and the population is all pikachu face when prices keep going up.

It's amazing that NZ is touted as a model when they have fucked up their housing market even more than Canada, and is clear evidence that the foreign money aspect isn't a big deal. There is no excuse for a country as tiny as New Zealand with ample space to have high housing prices.

As you say, if they want lower prices, they should build more houses, it really is that simple.

[logan5]

Originally Posted by someone123

Clickbaity headline. They compare Vancouver to San Francisco, Toronto to New York and London, etc. I don't think Canadian cities trail American cities, on average, in the net change in density from modern infill. The disparities are between older cities that developed in an earlier period and newer fast-growing metropolitan areas where low density suburbs have become relatively central.

But it is true that large swaths of inner city land in Canadian cities is off the table for high density redevelopment. In Vancouver there are detached housing areas 2 km from the heart of downtown (Kits Point and Strathcona).

What's worse is the fact that the first ring suburbs like Richmond, Burnaby, and New West have houses sitting on 60 foot wide lots, easily large enough to accommodate 2 detached homes. In fact all of Metro Vancouver's housing stock sits on these oversized lots, except for Vancouver Proper, where they are 33' wide lots. Subdividing oversized lots would provide enough single detached homes for over a million people.

[Nite]

Originally Posted by logan5

What's worse is the fact that the first ring suburbs like Richmond, Burnaby, and New West have houses sitting on 60 foot wide lots, easily large enough to accommodate 2 detached homes. In fact all of Metro Vancouver's housing stock sits on these oversized lots, except for Vancouver Proper, where they are 33' wide lots. Subdividing oversized lots would provide enough single detached homes for over a million people.

Toronto and Vancouver should do what Bangkok is doing to speed up construction and pour the foundation for multiple skyscrapers at one in the yellow belt.

[rbt]

Originally Posted by Nite

Toronto and Vancouver should do what Bangkok is doing to speed up construction and pour the foundation for multiple skyscrapers at one in the yellow belt.

Toronto has seen large projects, like The Well, do a single large excavation and simultaneous build-out. Doing land-assembly of that scale and selling 4000+ units at a single time is still quite difficult, so it's rare.


Also, if construction became more efficient then land prices would increase to claw-back that difference. Retail prices will remain at what the new owner can pay (which is likely a bit beyond what they're willing to pay); and land values are effectively "best-use" - developer costs (and reasonable profit).


The real trick is to devalue land. The most successful at this are locations where renting is typical and ownership is unusual so the cap rate dominates pricing, like Germany. Fear Of Missing Out doesn't really exist there for housing; nor do they get stuck taking — jobs in a city simply because they live there. I wouldn't object to an MZO which removed all density restrictions (except shadowing) within 200 meters of a subway station (new or existing) but required them to be residential rental units or commercial or both. Take the home-ownership premium out of the land bidding wars, let medium cost rentals dominate the best locations, and condo prices should eventually drop.

[milomilo]

As you say, while improvement in construction cost is good, it cannot achieve that much since so much of the cost is land and taxes, and the price is determined by the market. It will be fairly hard to bring the value of land down, so the the best option is to build as much on the land as possible. This doesn't have to be massive skyscrapers, but moderate widescale upzoning of SFH blocks is desirable.

As for Germany, their model is falling apart, which is entirely predictable. Enforcing rent controls and other restrictions is just another barrier on supply. And even if you do succeed in keeping rent payments down, you'll just end up with the shortages being resolved some other way (like high waiting lists).

Berlin’s Rent Controls Are Proving to Be a Disaster

[goodgrowth]

I think a more efficient way to build cities would be to liberalize development as much as possible and then just use a transit tax like you would a carbon tax as the "check" on transit issues.

[Truenorth00]

Originally Posted by milomilo

As you say, while improvement in construction cost is good, it cannot achieve that much since so much of the cost is land and taxes, and the price is determined by the market. It will be fairly hard to bring the value of land down, so the the best option is to build as much on the land as possible. This doesn't have to be massive skyscrapers, but moderate widescale upzoning of SFH blocks is desirable.

Exactly what the video I posted earlier talked about. We zone way too much for single family homes. To the point that we don't allow all the things that were allowed pre war like duplexes and triplexes and small apartment blocks (5-10 units), and mixed use zoning (small building with store at the bottom). Ironically, the most expensive neighbourhoods in every Canadian city are those that allow all of that or have it grandfathered in for historic reasons. Your only choice is increasingly shoebox in the sky in the downtown core or suburban McMansion with 40 min driving commute.

• Video Link

I'm convinced that none of our problems in North America can be solved unless exclusive single family zoning is killed.

[someone123]

Originally Posted by logan5

What's worse is the fact that the first ring suburbs like Richmond, Burnaby, and New West have houses sitting on 60 foot wide lots, easily large enough to accommodate 2 detached homes. In fact all of Metro Vancouver's housing stock sits on these oversized lots, except for Vancouver Proper, where they are 33' wide lots. Subdividing oversized lots would provide enough single detached homes for over a million people.

At metro Vancouver prices this still wouldn't provide affordable housing though. If it were possible to travel back in time it might have helped but these days it would require tons of demolition and expensive building.

You start with say a wide lot and house priced at $1.2M (this is a bit conservative these days). Then you tear down the house and build 2 new houses. Net cost (demo + build 2 houses) is perhaps $600,000. Eventual price is $1.8M so each new house is $900,000 (you lost half your land and didn't lose half of the sale price). We could tweak these numbers but this is the basic calculus.

I think $300,000 3 bedroom units are possible in towers with innovation in planning and construction technology (e.g. taller wood structures). And I believe that a large number of urban Canadians mostly care about the quality of their unit rather than detached house vs. flat per se.