Canada's 'housing bubble' deemed close to bursting

[milomilo]

Originally Posted by whatnext

We've been building more housing units than population for several years. Time to retire that tired "more supply" myth.

Just stop. You don't have a Nobel prize, you can't make your own economic theories upending everything we've ever observed about markets.

And no Vancouver (or anywhere) hasn't built more supply than demand. I'll dig it up if you want, not that facts will change your opinion.

[WarrenC12]

Originally Posted by whatnext

If you look it is clear the Foreign Buyers Tax took the wind out of the sails of Vancouver's real estate market when implemented. It wasn't until the BoC's ill-considered emergency rate cuts last year that the market took off again.

So why are rents still high? You have no logical thesis that explains what we're seeing in the market.

[whatnext]

Originally Posted by milomilo

Just stop. You don't have a Nobel prize, you can't make your own economic theories upending everything we've ever observed about markets.

And no Vancouver (or anywhere) hasn't built more supply than demand. I'll dig it up if you want, not that facts will change your opinion.

Nope.

Lack Of Supply Driving Canadian Real Estate Prices Higher? “Puhleeze”, Says BMO
APRIL 7, 2021

One of the country’s top economists is calling bullsh*t on the supply-price narrative. BMO chief economist Douglas Porter sent a client note disputing an inventory shortage. He thinks it’s important to “crush” two myths about Greater Toronto’s blowout home sales in March. Let’s dive into that take...

Supply and demand-driven price growth only works with rational players. Currently, market mechanics are broken due to panic-driven purchasing. Fear is not a fundamental. “The only way in which supply is weak is in comparison to white-hot demand,” says Porter.

Before the complaints about Porter being anti-supply, he’s been very pro-supply. He has been banging on the supply drum for the past decade, especially in Greater Toronto. He has on many occasions said real estate price growth has been driven by a supply shortage. This time is different.

The economist is joining others in saying this is exuberance driven. In an exuberant market, it doesn’t matter how much supply appears. It will be crushed by the fear of missing out on price gains or being locked out of the market. This is a panic-driven hoarding spree, started by the Bank of Canada. It’s more like toilet-paper hoarding than it is an issue of a supply shortage.

https://betterdwelling.com/lack-of-suppl...-estate-prices-higher-puhleeze-says-bmo/

[rofina]

I think both sides can be right; devil is in the details.

If we, in theory, overbuild studio apartments and skew the stats to show a housing unit has been built for every Canadian, then that's what the stats will show.

What this ignores, is that the supply is not adequate for 70% of end users.

Its why SFH and townhomes are appreciating at a faster clip than condos, its a reaction to the type of housing stock we supply.

We can be "overbuilding" and undersupplying at the same time, which very much appears to be the case at the moment.

[milomilo]

Originally Posted by whatnext

Nope.

Lack Of Supply Driving Canadian Real Estate Prices Higher? “Puhleeze”, Says BMO
APRIL 7, 2021

One of the country’s top economists is calling bullsh*t on the supply-price narrative. BMO chief economist Douglas Porter sent a client note disputing an inventory shortage. He thinks it’s important to “crush” two myths about Greater Toronto’s blowout home sales in March. Let’s dive into that take...

Supply and demand-driven price growth only works with rational players. Currently, market mechanics are broken due to panic-driven purchasing. Fear is not a fundamental. “The only way in which supply is weak is in comparison to white-hot demand,” says Porter.

Before the complaints about Porter being anti-supply, he’s been very pro-supply. He has been banging on the supply drum for the past decade, especially in Greater Toronto. He has on many occasions said real estate price growth has been driven by a supply shortage. This time is different.

The economist is joining others in saying this is exuberance driven. In an exuberant market, it doesn’t matter how much supply appears. It will be crushed by the fear of missing out on price gains or being locked out of the market. This is a panic-driven hoarding spree, started by the Bank of Canada. It’s more like toilet-paper hoarding than it is an issue of a supply shortage.

https://betterdwelling.com/lack-of-suppl...-estate-prices-higher-puhleeze-says-bmo/

Wow, yeah I guess we should throw out all we know about markets based on a short, poorly argued article about a short term market event in Toronto during a massive market shock. When are you getting that Nobel prize?

[milomilo]

Originally Posted by milomilo

He was probably responding to me but yes, the sources cited appear to prove the opposite of what is claimed.

Average population growth of Vancouver over last 5 years = 38,750/year

Housing starts:

2016 - 27,914
2017 - 26,204
2018 - 23,404
2019 - 28,141
2020 - 22,371

Of course more than one person lives in a house, but it would appear that Vancouver is at best keeping up.

Here we go - whatnext, can you please show how these numbers show Vancouver building more supply than population growth?

Sources:

https://www03.cmhc-schl.gc.ca/hmip-pimh/...&DisplayAs=Table&GeograghyName=Vancouver
https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=1710013501

[WarrenC12]

Originally Posted by rofina

I think both sides can be right; devil is in the details.

If we, in theory, overbuild studio apartments and skew the stats to show a housing unit has been built for every Canadian, then that's what the stats will show.

What this ignores, is that the supply is not adequate for 70% of end users.

Its why SFH and townhomes are appreciating at a faster clip than condos, its a reaction to the type of housing stock we supply.

We can be "overbuilding" and undersupplying at the same time, which very much appears to be the case at the moment.

Wouldn't we see the results of this overbuilding in prices, and definitely in rents. If nobody wants these units, they'd sit empty.

The benefit of the empty homes tax is not only the incentive to put the asset into productive use, but we get to see the statistics on how many are out there. The narrative of the "we have enough supply" crowd has always been that there are huge volumes of empty homes out there being used as wealth storage for offshore money.

The stats show there is some of that, but not much. The EHT has pushed some owners to rent their suites out, the rest (along with AirBNB) don't exist in big enough numbers to justify what the market is doing.

[milomilo]

Originally Posted by WarrenC12

Wouldn't we see the results of this overbuilding in prices, and definitely in rents. If nobody wants these units, they'd sit empty.

The benefit of the empty homes tax is not only the incentive to put the asset into productive use, but we get to see the statistics on how many are out there. The narrative of the "we have enough supply" crowd has always been that there are huge volumes of empty homes out there being used as wealth storage for offshore money.

The stats show there is some of that, but not much. The EHT has pushed some owners to rent their suites out, the rest (along with AirBNB) don't exist in big enough numbers to justify what the market is doing.

I'm all for banning foreign ownership, taxing empty homes etc. They give the economy little and as you say, we then have data. Closedown the loopholes and make sure we know everything we need to know.

But I don't think it will help much. BC has had policy like this in place for years now, and it was not the magic bullet. But if you can keep ticking off the list of bogeymen, perhaps eventually people will come around to the fact that if you want people to live somewhere there needs to enough buildings to live in.

[WarrenC12]

Originally Posted by milomilo

I'm all for banning foreign ownership, taxing empty homes etc. They give the economy little and as you say, we then have data. Closedown the loopholes and make sure we know everything we need to know.

But I don't think it will help much. BC has had policy like this in place for years now, and it was not the magic bullet. But if you can keep ticking off the list of bogeymen, perhaps eventually people will come around to the fact that if you want people to live somewhere there needs to enough buildings to live in.

Yes, for Vancouver in particular, zoning and various red tape are the problem. Red tape in the form of over-regulation, not so much fees and taxes, though they can add up.

[milomilo]

Canadaland actually just released a very good podcast on this, which was surprisingly accurate in its finger pointing, given the overly lefty nature of the broadcaster:

https://www.canadaland.com/podcast/real-estate-4-city-of-glass/

[rofina]

Originally Posted by WarrenC12

Wouldn't we see the results of this overbuilding in prices, and definitely in rents. If nobody wants these units, they'd sit empty.

I don't think that's an issue because of temporary visas and amount of international students we receive in a normal year. In a sense a lot of these condos are really "medium" term hotels.

The benefit of the empty homes tax is not only the incentive to put the asset into productive use, but we get to see the statistics on how many are out there. The narrative of the "we have enough supply" crowd has always been that there are huge volumes of empty homes out there being used as wealth storage for offshore money.

Definitely a non zero amount of housing will stay vacant. Many people with luxury units wont bother renting for the headache of it all, and relatively low rents for top end properties.

The stats show there is some of that, but not much. The EHT has pushed some owners to rent their suites out, the rest (along with AirBNB) don't exist in big enough numbers to justify what the market is doing.

Agreed.

I didn't mean to imply were overbuilding, I don't think that's the case at all.

But one could make an argument that were probably oversupplying units preferred by investors, vs units preferred by end users, while increasing housing completions stats that don't do anything to mitigate the demand for larger format housing.

[milomilo]

Originally Posted by rofina

But one could make an argument that were probably oversupplying units preferred by investors, vs units preferred by end users.

Perhaps, but that's just the result of supply being so scarce and having so many restrictions on development. The harder you make it for developers to build, the more they have to squeeze every last penny out.

[rofina]

Originally Posted by milomilo

Canadaland actually just released a very good podcast on this, which was surprisingly accurate in its finger pointing, given the overly lefty nature of the broadcaster:

https://www.canadaland.com/podcast/real-estate-4-city-of-glass/

This is a great link! Thanks!

[rofina]

Originally Posted by milomilo

Perhaps, but that's just the result of supply being so scarce and having so many restrictions on development. The harder you make it for developers to build, the more they have to squeeze every last penny out.

Agreed.

Personally, I think this is a problem mostly of our own making as a country.

It takes way too long to bring housing to market, and it costs too much to build.

Both factors can be blamed on over regulation.

[WarrenC12]

Originally Posted by rofina

But one could make an argument that were probably oversupplying units preferred by investors, vs units preferred by end users, while increasing housing completions stats that don't do anything to mitigate the demand for larger format housing.

Possibly, but depends on the investor. Those looking for huge capital gains should still seek SFH in the City of Vancouver. The stock is in very high demand and literally dwindling every year.

For me, rents are the key. If they are declining and reasonable relative to income, we don't have a housing shortage. If the RE market is going wild at the same time, we have a bubble and/or an issue with monetary policy.

I don't care if you can't afford to buy something. If you can't rent a shared basement suite at low wages, then we have an issue.

[rofina]

Originally Posted by WarrenC12

Possibly, but depends on the investor. Those looking for huge capital gains should still seek SFH in the City of Vancouver. The stock is in very high demand and literally dwindling every year.

For me, rents are the key. If they are declining and reasonable relative to income, we don't have a housing shortage. If the RE market is going wild at the same time, we have a bubble and/or an issue with monetary policy.

I don't care if you can't afford to buy something. If you can't rent a shared basement suite at low wages, then we have an issue.

I don't necessarily disagree, this has been a reality in many older cities. My cousins lived 6 to a flat in London to afford something, in London. Nobody cared because that is a common reality unless one is a high income earner.

The question for me would be if its a reasonable problem to have in a new city like Vancouver? With a little bit of better planning this could be avoided with relative ease compared to a London, Paris, or Dublin.

And what does "shared" and "low wage" actually mean for this City, that can be a tricky definition. Lots of rooming houses in Kits that make the west side rather "affordable."

[MonkeyRonin]

The absurdity of Toronto's planning regime, as illustrated in real life: an older, 12-storey, 130-unit apartment tower is slated to be demolished for a 29-storey, 341-unit condo/rental tower.

It's easier to redevelop an existing high-rise in a mid-density neighbourhood with an even taller high-rise than it is to redevelop a single-family home. It's completely backwards and inefficient and we lose hundreds of existing affordable units, but scarcity of land zoned for high density uses is so extreme that this is actually financially viable.






https://urbantoronto.ca/news/2021/06/pro...ntal-tower-near-st-george-subway-station

[WarrenC12]

Originally Posted by rofina

I don't necessarily disagree, this has been a reality in many older cities. My cousins lived 6 to a flat in London to afford something, in London. Nobody cared because that is a common reality unless one is a high income earner.

The question for me would be if its a reasonable problem to have in a new city like Vancouver? With a little bit of better planning this could be avoided with relative ease compared to a London, Paris, or Dublin.

And what does "shared" and "low wage" actually mean for this City, that can be a tricky definition. Lots of rooming houses in Kits that make the west side rather "affordable."

Yeah I was trying to pick a target that seemed reasonable. If you work at Starbucks, you can't have your own apartment in Yaletown. But you should be able to squeeze into a shared space in Kits if you really want to.

London is a different situation, we can't compare ourselves with that, or Manhattan, etc. If we are in the same league, we have a problem (and we are!)

[rofina]

Originally Posted by MonkeyRonin

The absurdity of Toronto's planning regime, as illustrated in real life: an older, 12-storey, 130-unit apartment tower is slated to be demolished for a 29-storey, 341-unit condo/rental tower.

It's easier to redevelop an existing high-rise in a mid-density neighbourhood with an even taller high-rise than it is to redevelop a single-family home. It's completely backwards and inefficient and we lose hundreds of existing affordable units, but scarcity of land zoned for high density uses is so extreme that this is actually financially viable.






https://urbantoronto.ca/news/2021/06/pro...ntal-tower-near-st-george-subway-station

Perfect example of what I speak about when I say our problems are nearly entirely self imposed.

The amount of time wasted taking down the old, the fact we only have a 50ish% gain in units. The fact there is houses all around.

The whole thing is silly. No other way to put it. Were not serious about solving this problem, that's the only reasonable conclusion.

[rofina]

Originally Posted by WarrenC12

Yeah I was trying to pick a target that seemed reasonable. If you work at Starbucks, you can't have your own apartment in Yaletown. But you should be able to squeeze into a shared space in Kits if you really want to.

London is a different situation, we can't compare ourselves with that, or Manhattan, etc. If we are in the same league, we have a problem (and we are!)

Same page.

Where we go from here though, is a tough one. Especially if we are to stick to realistic solutions, or at least ones with some likelihood of implementation in any of our life times.