Canada's 'housing bubble' deemed close to bursting

[whatnext]

Originally Posted by rofina

Its so weird seeing a house this nice for that price. Its shocking, actually. The perspective looking at that from the BC market is just a world apart.

That house value is not even a solid down payment on a property here.

I dunno, $185k will get you a nice electric vehicle charging spot in Vancouver House.


There is literally no real dwelling of any kind for sale in the City of Vancouver for under $275k

[someone123]

Originally Posted by whatnext

There is literally no real dwelling of any kind for sale in the City of Vancouver for under $275k

IMO, Vancouverites and British Columbians tend to be in a bubble and don't realize (1) how warped prices are here and (2) what the real "net" difference in desirability is like between BC and all that is possible in the rest of Canada. The two go hand in hand to some degree.

I like it here and don't have any regrets (I own property and don't feel like my housing is precarious) but I don't know why say a 22 year old on a professional track without a large trust fund would choose to move to Vancouver right now. I think that is a bit of a problem for Vancouver and BC. It is not surprising to me that population growth here is slowly trending downward over time, particularly relative to other areas of Canada. It is too bad because I think if Vancouver were more affordable it could be a much more important city with greater opportunities. In particular it could attract and generate a lot more tech companies. Instead some people want it to be a real city while a politically powerful group treats it as a kind of retirement playground and ATM. Their impact is likely to outlive them.

[ssiguy]

^^^ This is a good chunk of the reason why BC continually has a labour shortage. It's not so much that BC is creating that many more jobs but rather they can't attract nor keep the labour they need and it's almost always due to the cost of housing.

[csbvan]

Pretty clearly just as bad in Ontario. BC is actually among the weakest performing markets, for price increases, during this big pandemic bubble run up.

[csbvan]

Originally Posted by ssiguy

^^^ This is a good chunk of the reason why BC continually has a labour shortage. It's not so much that BC is creating that many more jobs but rather they can't attract nor keep the labour they need and it's almost always due to the cost of housing.

No it's because BC was creating jobs. Just look at numbers in the year before the pandemic, over the year leading up to May 2019, BC created 1/4 of all of Canada's new jobs.

https://thetyee.ca/Analysis/2019/05/27/BC-Jobs-Economy-Red-Hot/

[MonkeyRonin]

Canada's housing market is on fire — and headed for disaster

By Max Fawcett | Opinion | March 15th 2021

COVID-19 has produced any number of weird outcomes, from conservatives advocating for a basic income to a failing video game retailer briefly becoming the most talked-about company in the world. But maybe the weirdest of all has been the U-turn in Canada’s housing market, which recovered from some weakness in early 2020 to post a rally that caught almost everyone off-guard — and has raised some difficult questions for policy-makers across the country.

Last May, in the face of data that showed resales falling by 57 per cent and the average price of Canadian homes plunging by 10 per cent, the Canada Mortgage and Housing Corporation released a forecast suggesting prices could drop by nearly 20 per cent in its worst-case scenario. Instead, they’ve rallied more than 20 per cent in places like Vancouver and Toronto, where the price of the average home — including condos — just crested the $1-million mark. Meanwhile, a house that was listed in east Vancouver for $1.72 million went for $872,134 over asking after nine days on the market.

This might seem like a good news story, and for Canada’s homeowners — especially the ones in major markets like Vancouver and Toronto — it clearly is. But while we’ve averted one economic disaster, we may be inviting another down the road. Housing now makes up nearly 10 per cent of Canada’s GDP, which is approximately 50 per cent higher than our historical average and twice that of the United States.

...

The danger here isn’t just that Canadians are taking on even more debt than before and putting themselves directly in the line of fire if interest rates have to rise in response to a surge of post-COVID inflation. It’s also that all of these dollars flowing into housing are being drawn away from other opportunities and sectors.

As economist Kevin Carmichael wrote back in January, “the world is in the midst of a transformative shift to a digital and carbon-neutral economy, a once-in-a-lifetime investing opportunity, and where are Canadians placing their bets? Houses, for the most part.”

And while those bets may be paying off for Canadians on an individual level, in the aggregate, they could prove disastrous for the country as a whole. “An exuberant housing market will continue to be a magnet for capital and entrepreneurial energy that would be better deployed in more productive industries,” Carmichael wrote. “Thousands of entirely rational decisions could unwittingly erode Canada’s competitiveness.”

Full article: https://www.nationalobserver.com/2021/03/15/opinion/canadas-housing-market-fire-and-headed-disaster

[csbvan]

This article sums up why housing bubble cheerleaders baffle me. Do these people really want Canadians to pump all of their investment income into housing? To never take risks investing in start-ups, or innovative new companies? For Canada to be a bedroom community for America's innovators?

I get that this forum has a hard-on for skyscrapers, but a bunch of boring cities filled with investor owned condos and debt-burdened residents, with a dearth of successful companies sounds quite awful to me, even if it means we have a few more pieces of starchitecture plopped down.

[milomilo]

Originally Posted by csbvan

This article sums up why housing bubble cheerleaders baffle me. Do these people really want Canadians to pump all of their investment income into housing? To never take risks investing in start-ups, or innovative new companies? For Canada to be a bedroom community for America's innovators?

I get that this forum has a hard-on for skyscrapers, but a bunch of boring cities filled with investor owned condos and debt-burdened residents, with a dearth of successful companies sounds quite awful to me, even if it means we have a few more pieces of starchitecture plopped down.

Is anyone on this forum "pro bubble"? I don't think many are, we just disagree on the causes of the rapid increase in prices, and whether or not it even is a bubble. I'm more inclined to believe these days that it is not a bubble, it is a permanent situation unless and until we drastically change course.

[Harrison]

Originally Posted by milomilo

Is anyone on this forum "pro bubble"? I don't think many are, we just disagree on the causes of the rapid increase in prices, and whether or not it even is a bubble. I'm more inclined to believe these days that it is not a bubble, it is a permanent situation unless and until we drastically change course.

A permanent situation where a 'cheap' house in Vancouver costs 1.5 million and $1 million in Toronto? There has to a breaking point, as wage growth will, in no way, match these housing price increases over any length of time.

Or, everyone that wants to buy a house just moves to the Prairies (Maple Creek anyone?) where housing is much cheaper.

I, for one, would enjoy living in Vancouver or Toronto, but not if my monthly housing costs exceed (or nearly exceed) my monthly net take home pay. It is funny because in Edmonton, where I live, wages in my field are higher than in either Vancouver or Toronto, yet housing costs are much, much less.

[csbvan]

Originally Posted by milomilo

Is anyone on this forum "pro bubble"? I don't think many are, we just disagree on the causes of the rapid increase in prices, and whether or not it even is a bubble. I'm more inclined to believe these days that it is not a bubble, it is a permanent situation unless and until we drastically change course.

Whether or not it's a bubble, it doesn't change the fact that 10% of our GDP is tied up in real estate investment (it last peaked at around 7% of GDP during the late 80s bubble that took 20 years to recover from, just as an aside). That doesn't have anything to do with zoning regulations or planning regimes, and it doesn't have any to be a permanent situation. That is the result of an unhealthy amount of the country's wealth and investment power being tied up in real estate. The government could implement measures to make investing in real estate less desirable, which could allow it to filter into more productive segments of our economy.


https://betterdwelling.com/canadas-economy-has-never-been-more-dependent-on-real-estate/

[milomilo]

Originally Posted by Harrison

A permanent situation where a 'cheap' house in Vancouver costs 1.5 million and $1 million in Toronto? There has to a breaking point, as wage growth will, in no way, match these housing price increases over any length of time.

Or, everyone that wants to buy a house just moves to the Prairies (Maple Creek anyone?) where housing is much cheaper.

I, for one, would enjoy living in Vancouver or Toronto, but not if my monthly housing costs exceed (or nearly exceed) my monthly net take home pay. It is funny because in Edmonton, where I live, wages in my field are higher than in either Vancouver or Toronto, yet housing costs are much, much less.

I foresee it not being a breaking point, but a miserable plateau where most people are living at the very edge of affordability.

Originally Posted by csbvan

Whether or not it's a bubble, it doesn't change the fact that 10% of our GDP is tied up in real estate investment (it last peaked at around 7% of GDP during the late 80s bubble that took 20 years to recover from, just as an aside). That doesn't have anything to do with zoning regulations or planning regimes, and it doesn't have any to be a permanent situation. That is the result of an unhealthy amount of the country's wealth and investment power being tied up in real estate. The government could implement measures to make investing in real estate less desirable, which could allow it to filter into more productive segments of our economy.


https://betterdwelling.com/canadas-economy-has-never-been-more-dependent-on-real-estate/

I totally agree it isn't healthy, but most people are still wrong about the causes of the issue and we can't fix it until a majority of people both agree on the causes and have a desire to fix it.

There's probably some frothiness recently because of stimulus, increased savings, low interest etc. But that's a short term issue and will shake itself out once things normalise. What won't change much is the number of people looking for houses and the number of houses for sale. Unless that changes, the problem isn't going away.

The only thing I think the federal government could do to remedy this is to tax wealth/property. But even the mere mention of that whips up the entire population into a fit of rage, so it isn't going to happen. Thus the misery continues.

[rofina]

Expensive housing is a total drain on the economy.

Its money that's ultimately going to pay for the utility of shelter, and a giant amount of debt, or profit for the lenders. The real winners are banks.

Imagine Canadians house payments being redirected into productive job creating investments, or a more consumption and usage in the economy. The virtuous cycle would be unbelievable, and ironically would likely increase demand for housing.

[csbvan]

Originally Posted by rofina

Expensive housing is a total drain on the economy.

Its money that's ultimately going to pay for the utility of shelter, and a giant amount of debt, or profit for the lenders. The real winners are banks.

Imagine Canadians house payments being redirected into productive job creating investments, or a more consumption and usage in the economy. The virtuous cycle would be unbelievable, and ironically would likely increase demand for housing.

Perhaps we would be more competitive (errr actually competitive) internationally, in the next 10 or 15 years?

While the world is in the midst of a tech revolution, Canadians bet on real estate
Kevin Carmichael: We’ve resumed plowing a ridiculous amount of money into assets that do nothing to improve the country’s ability to generate wealth

https://financialpost.com/news/economy/w...-revolution-canadians-bet-on-real-estate

[someone123]

Originally Posted by milomilo

The only thing I think the federal government could do to remedy this is to tax wealth/property.

I'm not even sure we need a general wealth tax. A land tax would probably be sufficient for Vancouver and would get at the problem. If the land were taxed more its market value would be lower. If we taxed land instead of land plus improvements we'd discourage speculation a bit too, and encourage development of the highest and best use. People in condos would barely be hit while those occupying prime inner city detached houses would pay a higher bill. They could sell their properties and move into condos if they wanted. I'd suggest that the land tax be revenue neutral and returned through an income tax rebate.

If you own a $2,000,000 home in Vancouver you only pay $6,000 in annual property taxes. It is lower than this in practice because people 55 and older can defer their taxes and pay interest rates below inflation, regardless of how rich they are. Then on top of this of course capital gains are $0, and do not count as income so I'm pretty sure you can collect say $3M in capital gains and OAS cheques from the federal government in the same year.

[jigglysquishy]

Originally Posted by ssiguy

^^^ This is a good chunk of the reason why BC continually has a labour shortage. It's not so much that BC is creating that many more jobs but rather they can't attract nor keep the labour they need and it's almost always due to the cost of housing.

I received a job offer in Vancouver that was only ~$10k a year more than I make in Saskatchewan.

I told them what I was paying for housing, and I would not consider the offer unless they were willing to make up the difference.

I did not hear back from them.

[giallo]

Originally Posted by rofina

All right, all right.

Ill take your 4.5million and 65 acres.

And give you this building lot, but fear not, apparently the house is livable and even "updated."

https://www.realtor.ca/real-estate/22699919/2315-w-13th-avenue-vancouver

Once again, understandably you may want some land and privacy, being used to more space for the money on the east coast, you'll have to up your budget;

https://www.realtor.ca/real-estate/22699913/4208-w-9th-avenue-vancouver

9300 sq/ft corner lot! Act fast!

But you tell me you had an 8000sq/ft home with a pool and view for $1.7?

I understand, let me deliver similar;

https://www.realtor.ca/real-estate/22577148/7110-blenheim-street-vancouver

For a Beta + city, with an economy that under performs other cities like Cincinnati, to have prices like this is just....... so far beyond ludicrous. Vancouver and Metro Van really need to get their act together, remove SFHs from their inner cities, and start rezoning.
Land is Metro Vancouver has become a commodity to be bought and sold like stocks. It's a modern day gold rush

[rofina]

Originally Posted by jigglysquishy

I received a job offer in Vancouver that was only ~$10k a year more than I make in Saskatchewan.

I told them what I was paying for housing, and I would not consider the offer unless they were willing to make up the difference.

I did not hear back from them.

With the exception of a few narrow industries, that's the theme in Vancouver.

Its also very much a "who you know" city.

[milomilo]

Originally Posted by someone123

I'm not even sure we need a general wealth tax. A land tax would probably be sufficient for Vancouver and would get at the problem. If the land were taxed more its market value would be lower. If we taxed land instead of land plus improvements we'd discourage speculation a bit too, and encourage development of the highest and best use. People in condos would barely be hit while those occupying prime inner city detached houses would pay a higher bill. They could sell their properties and move into condos if they wanted. I'd suggest that the land tax be revenue neutral and returned through an income tax rebate.

If you own a $2,000,000 home in Vancouver you only pay $6,000 in annual property taxes. It is lower than this in practice because people 55 and older can defer their taxes and pay interest rates below inflation, regardless of how rich they are. Then on top of this of course capital gains are $0, and do not count as income so I'm pretty sure you can collect say $3M in capital gains and OAS cheques from the federal government in the same year.

Agreed. LVT seems like a "utopia" tax that makes perfect sense but no one ever seems to have any interest in implementing. It would have a pretty severe effect on people sitting on SFHs in high value areas so a phase in might make it more politically sensible but I feel like even if a government did want to put in a LVT they would botch the implementation somehow making it useless.

I like your rebate idea, essentially the beginnings of a UBI. I'm fairly confident these days that much of the issues we have are due to increasing inequality so there needs to be mechanisms to turn that around.

[Innsertnamehere]

The solution is supply. Lots of it. And doing that means deregulating the industry. I just don’t think there is political capital for that as NIMBYism is so strong and the previous solution to that of building where nobody lives (sprawl) isn’t acceptable anymore either.

If housing is deregulated on a scale that is actually notable, real affordability will increase slowly over time.

The most affordable housing markets in the world are ones that 1. Low/no growth or 2. Low regulation markets that allow the market to properly respond to demand.

Basically people hate suburbs, but at the same time if we can’t build low rise housing in large numbers anymore that type of housing is never going to be affordable again.

[csbvan]

The solution is not just supply. It's amazing how you can show the data pointing to problems with misplaced investment (too much being directed to housing at the expense of the economy) and people brush by it and just say "supply". Take off the blinders. It is also important for policymakers to attack investment demand. We see how much money is being diverted from more productive investments into housing. We need to make that less attractive so investment goes elsewhere.

Investment isn't pouring into real estate because there's not enough supply. That makes no sense.

We need to increase supply, especially in mid-range segments of the market (larger apartments, townhouses, etc), and we need to make investment in housing less attractive than investing in new startups, technological improvements, etc.