Canada's 'housing bubble' deemed close to bursting

[rofina]

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%.

And what impact has that actually had? My understanding is that the NZ cities are still prohibitively expensive.

[milomilo]

Originally Posted by someone123

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.

It's just a huge problem to solve. If it took 30 years to create a city's affordability problem, then it will probably take about as long to fix even if the city and its residents want to do it.

[Nite]

Originally Posted by rofina

And what impact has that actually had? My understanding is that the NZ cities are still prohibitively expensive.

Since they never address the problem like Vancouver and Toronto, ie increasing housing supply, their measures have had zero impact.

[milomilo]

Originally Posted by Truenorth00

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.

[YOUTUBE]CCOdQsZa15o[YOUTUBE]

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

Just as much a problem is how restrictive the zoning laws are even if they do allow higher density. North American cities essentially act like Soviet city planners designing the precise details of every building on every street, but without any tools to actually build things. So if what the market wants doesn't match the design, it doesn't get built.

An example of this is 16 Ave NW in Calgary. A decade ago the city rebuilt the road to be nicer and upzoned the whole thing to take advantage of this, envisioning a high density urban boulevard. But 10 years later only one single large building has been built (this one), with many empty/demolished/under utilized lots and no vibrancy. Meanwhile, a block north and south has undergone quite a bit of development of non-descript 4 floor wooden condos. So clearly the city plans for 16 Ave NW don't match market need, but it got close enough with its plans on 15 and 17 Ave.

There's a similar story for all our TOD sites around LRT stations. I saw it explained somewhere and can't remember exactly, but it seems that it is somehow more valuable for developers to hold onto these high density zoned parcels adjacent to the LRTs and keep them empty, rather than actually build them. Probably because the City wants something different to the market.

And then of course we have setback, parking laws etc. That mean even if the City wants new rowhouses or whatever built, their requirements are so onerous that it only makes sense in a handful of situations. In a way it does make some streets look nicer when there is consistency, but it does mean that it is essentially impossible to ever substantively change the built form of a SFH block.

[rofina]

Originally Posted by milomilo

It's not true that the majority of the country is land you can't build on, the opposite in fact.

But even if it was true, the better policy to locking the doors and putting an end to growth is to reduce policy that restricts development. It should be easy, we just need to want to do it.

I agree, the issues we face as a country are largely self imposed regulatory burden.

There isn't a good reason for our housing woes. I think that's what's really frustrating.

[whatnext]

Since we have a couple here, I'm curious why anyone would leave the UK or Western Europe? This isn't postwar where people like my dad left due to a WWII devastated Europe with rationing etc. The "North American Dream" of your own house is pretty much dead in our biggest cities. Why exchange living in flat in London or Paris for living in a flat in Toronto? Vancouver already has London-style housing prices without the high paying jobs or attractions.

[logan5]

Originally Posted by someone123

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.

Since the high cost of a house in Vancouver is due to the high cost of land, the idea is to unlock enough land to drive land costs down. Unlocking the 280 000 detached homes to be subdivided would be the equivalent having an area the size of Langley, Delta and Surrey combined, wide open for development of new houses.

[milomilo]

Originally Posted by whatnext

Since we have a couple here, I'm curious why anyone would leave the UK or Western Europe? This isn't postwar where people like my dad left due to a WWII devastated Europe with rationing etc. The "North American Dream" of your own house is pretty much dead in our biggest cities. Why exchange living in flat in London or Paris for living in a flat in Toronto? Vancouver already has London-style housing prices without the high paying jobs or attractions.

I'm not as rosy eyed about European and especially UK housing policies - they are just as wrong about many things as Canadians and Americans. The abundance of space in North America should mean that houses are generally cheaper and bigger, something we should want. I also have no interest in living in, or especially owning, a condo.

But desiring greater housing density and relaxed regulation is in no way incompatible with this. All this potential increased supply would do is create options. People who want to live in a shoebox in the sky can do so, as can someone who wants to live in a rowhouse or even a large SFH. Limiting development such that no or few SFHs can be replaced just means you are limited to housing people in those SFHs that have already been built or building new ones at the edge of the city. And since in Vancouver there is very little land left, you can't do the latter and thus with a limited supply of housing, then prices have to rise.

I guess your answer would be to lock the doors to newcomers (pretty selfish as the son of someone who moved here in search of a better life), but that would mean denying economic growth to the country as a whole just because certain cities can't build enough houses. And you probably wouldn't solve the problem anyway.

[Doady]

If the Ford government can stay in power in Ontario for another term or two, this "housing bubble" could finally be gone:

Ford government steamrolling opposition to Pickering wetland development, protesters say
Province pushing plan through despite opposition from community, environmentalists

Sabrina Jonas · CBC News · Posted: Mar 11, 2021 11:05 PM ET | Last Updated: March 11

Protesters voicing their opposition to a proposed development project that would destroy the Lower Duffins Creek wetland in Pickering gathered Thursday outside the offices of the company that owns the land.

The demonstrators denounced a ministerial zoning order (MZO) issued by the Ford government last fall that would allow the Triple Group of Companies to build Canada's largest distribution centre on the wetland, located south of Highway 401 near Pickering's border with Ajax.

https://www.cbc.ca/news/canada/toronto/w...estors-government-steamrolling-1.5946396

Granted, this is referring to an industrial development, but there are plenty other conservation areas in the GTA and throughout Ontario where new housing can be built.

[urbandreamer]

I've been looking at flats for sale in London. Why would people leave London for Toronto? Prices are almost the same in both cities.

[csbvan]

Originally Posted by logan5

Since the high cost of a house in Vancouver is due to the high cost of land, the idea is to unlock enough land to drive land costs down. Unlocking the 280 000 detached homes to be subdivided would be the equivalent having an area the size of Langley, Delta and Surrey combined, wide open for development of new houses.

Perhaps, but the City of Vancouver has eliminated single-family zoning and the uptake in higher density (duplexes with secondary suites) in formerly single-family zones hasn't been very impressive.

[someone123]

Originally Posted by csbvan

Perhaps, but the City of Vancouver has eliminated single-family zoning and the uptake in higher density (duplexes with secondary suites) in formerly single-family zones hasn't been very impressive.

Vancouver detached houses are a blend of luxury good and bitcoin-like financial store of value. Multimillion dollar property conversions into mixed houses-with-little-privacy-and-rental always seemed like they would be a niche thing rather than the norm, particularly given the economics of rents vs. purchase prices in this city.

The people I know who had suites in Vancouver with tenants viewed them as a temporary way to earn money or house older kids. In practice they ended up being somewhat annoying (relatively expensive/difficult construction for laneway houses, hit or miss tenants). I would rather own a smaller property than own a bigger one with a tenant. Many of the amateur landlords in Vancouver are slowly losing money and require price appreciation to get a return.

Vancouver would be much better off with robust construction of real rental buildings. The basement suites and laneway houses are not really a substitute. Laneway houses were a politically expedient way to give the appearance of action while doing next to nothing about affordability but giving homeowners a bit more flexibility.

[Doady]

Vancouver has an ocean on one side, mountains on another side, and the US border on another side. Maybe regulations aren't the main obstacle there.

[urbandreamer]

Vancouver has room for 100 million people.

[someone123]

Originally Posted by Doady

Vancouver has an ocean on one side, mountains on another side, and the US border on another side. Maybe regulations aren't the main obstacle there.

This was all true 20 years ago when the metro area had 80% as many people but detached house prices were about 1/4-1/5 what they are today.

[urbandreamer]

I blame the internet. The internet has made it easier for people to — on real estate, like Robinhood has created a bubble in garbage penny stocks.

[whatnext]

Originally Posted by someone123

This was all true 20 years ago when the metro area had 80% as many people but detached house prices were about 1/4-1/5 what they are today.

20 years ago, more like 15 years ago. Case in point:

1529 W. 6th Ave., No. 405, Vancouver

Asking price: $1.133 million

Selling price: $1.135 million

Previous selling price: $560,000 (2010); $399,828 (2007)

Days on market: 3

Taxes: $2,883.19 (2021)

Monthly strata fees: $606.56

Listing agent: Paul Albrighton, Re/Max Crest Realty

https://www.theglobeandmail.com/real-est...ille-condo-sells-quickly-on-first-offer/

[milomilo]

Originally Posted by someone123

This was all true 20 years ago when the metro area had 80% as many people but detached house prices were about 1/4-1/5 what they are today.

I don't think it is really possible now to have detached houses be affordable in Vancouver, as the supply is basically fixed. In fact, the very solutions that would make housing in general could make SFHs even more expensive, as you replace a number of SFHs with a greater number of smaller dwellings. That's not totally a given though as it's possible some people have more house than they need, or may be a large group crammed into a house when they'd be better suited to multiple apartments.

[milomilo]

Originally Posted by urbandreamer

I blame the internet. The internet has made it easier for people to — on real estate, like Robinhood has created a bubble in garbage penny stocks.

I believed the speculation thing a while back, and there was speculation in Toronto for a few months, for sure.

But now you can't really blame speculation as the cause. It's a symptom of the fundamentals.

[hipster duck]

It's not simple, but one thing we could do in cities like Toronto and Vancouver is have private developers - who know how to build housing with the amenities and features that middle class people aspire to live in - build copious amounts of rental housing, particularly 2 and 3 bedroom units, on 'surplus'* publicly-owned land that isnt subject to the same outrageous land costs. If municipalities and provinces can supply these lands and waive some of their development charges, many of these developments could still be affordable and yet profitable.

*There are still a lot of these lands in our cities. In Toronto, usually there's a public school and a publicly-funded Catholic school within spitting distance, both often only at half capacity (thanks to older, childless generations owning a lot of the SFH). Or maybe there's no need for an elementary school to be a one story building on 5 acres of land. Make it a 3 storey building with a rooftop play area (or just walk the kids to the park for recess). Then there are city golf courses that are probably worth billions of dollars if they were developed in the for-profit real estate market.