The Vancouver Business Thread

[Alex Mackinnon]

Originally Posted by misher

I disagree. Price inflation is possibly 30% land inflation and 70% increase in costs/taxes/fees/requirements.

If prices go down we won't build at nearly the same rate. Anyone that says so is clueless. Even the city can't build a studio condo for less than 200k with free land. If land costs were the largest reason then units in high skinny towers would be much cheaper than we're seeing and it wouldn't cost nearly a mil to get a detached house built in Vancouver.

I didn't say construction rates would stay the same. Developers try to sell their projects when the market it hot, because they're using the appreciation on the land to pad their construction margins.

I said they can still make money on development even if the land isn't appreciating. If land stops appreciating significantly, land owners are still motivated to build.

If land lift wasn't significant, why are empty 25' lots in my neighbourhood usually around $1M, but a house is only $1.2-$1.8M? In the house I rent, the appraised value of the house is like 5% of the lot value, and where I lived at near UBC the house is worth maybe 2% of the lot value.

That's a huge portion of the cost of housing. It's obviously more of a factor for SFH, but it certainly factors for multi family. Look at how much money the Chevron and White Spot on Georgia went for.

[WarrenC12]

Originally Posted by misher

I disagree. Price inflation is possibly 30% land inflation and 70% increase in costs/taxes/fees/requirements.

Prove it.

[Changing City]

Originally Posted by Alex Mackinnon

I didn't say construction rates would stay the same. Developers try to sell their projects when the market it hot, because they're using the appreciation on the land to pad their construction margins.

I said they can still make money on development even if the land isn't appreciating. If land stops appreciating significantly, land owners are still motivated to build.

If land lift wasn't significant, why are empty 25' lots in my neighbourhood usually around $1M, but a house is only $1.2-$1.8M? In the house I rent, the appraised value of the house is like 5% of the lot value, and where I lived at near UBC the house is worth maybe 2% of the lot value.

That's a huge portion of the cost of housing. It's obviously more of a factor for SFH, but it certainly factors for multi family. Look at how much money the Chevron and White Spot on Georgia went for.

.

You're right that the land value is easily the largest part of appraised value of detached homes. It's not as much in the case of condos, especially high rises, but it's still a high proportion. What you're missing is that the land value is based on the market value of homes - the land value doesn't set the price in the market (although it obviously has an impact), but rather the market sets the land value. Chicken and egg?

As I noted on another thread; the market - what buyers will pay - determines the price that developers hope to achieve for new homes. The last few successfully sold projects tells the developers what they can ask. Taller buildings with great views can get higher prices for upper floors. They work out how much money they should get back by calculating the price per square foot they expect to sell at, multiplied by the total square feet they expect to sell. (The total they'll actually build will be more, as there are common areas, amenities, and maybe other elements like a church hall, or rental units to be given to the city as part of a CAC.)

The cost of the site is calculated as a residual. A developer works out what they can afford to pay by estimating how much they will be building in terms of total construction, and how much that should cost to construct. They add on soft costs - fees, holding costs for finance, lawyers, taxes, sales etc. They add any other site specific costs like CACs, if they apply. Then they add the profit they expect to make - generally around 15%, although some developers like a bit more. Then if they've got any sense, they add a generous contingency for all the things that might go wrong.

The difference between the cost estimate, and the anticipated income, tells them what they should pay for the site. The more density they can build; the more the land is worth. If the policy says there's a height limit, or they have to build 20% social housing, it's worth less. It's not complicated, although inexperienced developers can get the numbers wrong. Once an over optimistic land value has been paid, it can create a problem if a landowner thinks their site is worth more than developers are willing to pay. That almost always gets sorted out, but it can take years.

The big question is why have buyers been able, and willing to pay ever higher prices for houses, and condos; far more than wages have increased over the decade that prices took off. Partly it's availability of lower cost finance; mortgage rates have been low. Partly it's the range of other funders in the market - can't get a mortgage with a bank? Someone would loan you the money (at a multiplier of your salary that wasn't contemplated a few years ago) but it'll cost you more. Partly it's the willingness of parents to give or loan big chunks of cash (often associated with their paid-off homes) that allow new buyers to put a big chunk of change towards a purchase - the Bank of Mum & Dad. It's also a willingness to take a greater risk than earlier generations are willing to take. I've owned two properties in my life that have gone down in value, so I have that expectation in my calculations when buying more recently. For younger buyers 'house prices can only ever go up, right?'

[misher]

Originally Posted by Alex Mackinnon

I didn't say construction rates would stay the same. Developers try to sell their projects when the market it hot, because they're using the appreciation on the land to pad their construction margins.

I said they can still make money on development even if the land isn't appreciating. If land stops appreciating significantly, land owners are still motivated to build.

If land lift wasn't significant, why are empty 25' lots in my neighbourhood usually around $1M, but a house is only $1.2-$1.8M? In the house I rent, the appraised value of the house is like 5% of the lot value, and where I lived at near UBC the house is worth maybe 2% of the lot value.

That's a huge portion of the cost of housing. It's obviously more of a factor for SFH, but it certainly factors for multi family. Look at how much money the Chevron and White Spot on Georgia went for.

Because buying land and hiring someone to build on it is more expensive than an already built house thats been used?

Brand new always comes with a premium which is why most of us buy used cars.

But yeah it costs $100's of thousands of dollars to build a detached house in Vancouver before actual construction costs due to regulation,taxes, and design costs. Most of the people who know in this forum will agree with me.

I even talked to a city development staff member who was talking about how he helped his friend spend more than $800k building a new house on his land.

[rofina]

Originally Posted by Alex Mackinnon

I didn't say construction rates would stay the same. Developers try to sell their projects when the market it hot, because they're using the appreciation on the land to pad their construction margins.

I said they can still make money on development even if the land isn't appreciating. If land stops appreciating significantly, land owners are still motivated to build.

If land lift wasn't significant, why are empty 25' lots in my neighbourhood usually around $1M, but a house is only $1.2-$1.8M? In the house I rent, the appraised value of the house is like 5% of the lot value, and where I lived at near UBC the house is worth maybe 2% of the lot value.

That's a huge portion of the cost of housing. It's obviously more of a factor for SFH, but it certainly factors for multi family. Look at how much money the Chevron and White Spot on Georgia went for.

Appraised values are somewhat illogical.

On many typical, older East Van bungalows or similar the replacement cost today would be an order of magnitude higher than the supposed assessed value. Even if you were able to build it back same condition, not to meet updated building codes, you would still triple or more the typical assessed value.

The houses are often valued at little over $100,000. That gets you permits, drawings, hole in the ground, and foundation walls. Basically missing everything above ground, let alone any finishes, etc.

[Alex Mackinnon]

Originally Posted by rofina

Appraised values are somewhat illogical.

On many typical, older East Van bungalows or similar the replacement cost today would be an order of magnitude higher than the supposed assessed value. Even if you were able to build it back same condition, not to meet updated building codes, you would still triple or more the typical assessed value.

The houses are often valued at little over $100,000. That gets you permits, drawings, hole in the ground, and foundation walls. Basically missing everything above ground, let alone any finishes, etc.

I know the replacement cost is much higher than the valuation of a fully depreciated asset. It's clearly not that far off if empty lots aren't selling for much cheaper though.

[s211]

Originally Posted by rofina

Appraised values are somewhat illogical.

On many typical, older East Van bungalows or similar the replacement cost today would be an order of magnitude higher than the supposed assessed value. Even if you were able to build it back same condition, not to meet updated building codes, you would still triple or more the typical assessed value.

The houses are often valued at little over $100,000. That gets you permits, drawings, hole in the ground, and foundation walls. Basically missing everything above ground, let alone any finishes, etc.

You might want to expand your understanding of what an appraisal comprises. The matter of land / building split is more complex than you purport.

[rofina]

Originally Posted by s211

You might want to expand your understanding of what an appraisal comprises. The matter of land / building split is more complex than you purport.

I would have to.

As it stands it makes no sense on the surface, where the lot is $1.2 and house is $150,000.

[misher]

Originally Posted by rofina

I would have to.

As it stands it makes no sense on the surface, where the lot is $1.2 and house is $150,000.

More based on what someone would pay for that house. Used houses drop in value slower than used cars (except Toyota's).

One reason we have such high average housing prices in Vancouver is because we have a lot newer houses on average than most cities. In Europe houses are hundreds of years old and thus worth squat.

[Sheba]

Development, investment projects key once B.C. starts lifting COVID-19 restrictions

The Business Council of B.C. says once it’s decided it is safe to start opening up again, first on the agenda will be to accelerate development and investment projects to kick-start economic and job growth.

In a report to the Surrey Board of Trade, Jock Finlayson with the B.C. Business Council says residential development projects, maintenance and repair of public sector capital assets and infrastructure and investments across all industries will be key to getting the economy moving again.

Finlayson also says B.C. looks to be in a better position than some other provinces and U.S. states based on infection rates and the extent of business closures.

However, he says years of job growth in B.C. will be “erased” this year.

Last month, the B.C. economy lost 132,000 jobs, sending the unemployment rate up to 7.2 per cent. The business council forecasts perhaps twice that much in April.

Globally, Finlayson says, the economy is headed for a sharp, but hopefully temporary, recession.

Looking at business-support measures once restrictions start lifting, Finlayson’s report found that businesses want reduced tax rates in order to help them stay open and profitable.

Close second, businesses want to see a deferment, delay or cancellation of planned legislative and regulatory changes, followed by direct support to B.C.’s hardest-hit industries.

Those include air transportation, accommodation facilities, retail, film and television production and entertainment, leisure and recreation services.

[rofina]

Originally Posted by Sheba

Development, investment projects key once B.C. starts lifting COVID-19 restrictions

It makes sense to pause new regulations and overhauls.

Let business focus on core competencies and not dedicate efforts to meeting new regulations.

Also definitely agree that we need to double down on infrastructure projects province wide. By far the easiest and most beneficial long term solution to keeping people working and money flowing.

[misher]

Although its not the lower mainland, I want to post my thoughts and expectations regarding gold in BC below. I'm expecting a gold rush in BC.

Canada likely has many undiscovered deposits. BC, Ontario, Quebec, and the far North will do well.



https://www.ourcommons.ca/DocumentViewer/en/42-1/RNNR/report-3/page-21


https://www.mining-technology.com/comment/canadas-gold-production/

BC especially has a lot of potential as the "Golden Triangle" is estimated to have billions in deposits yet has not been actively exploited due to logistics and low gold prices when the discoveries were made.

Billions of dollars of gold and silver sit in Canada's 'Golden Triangle'...Why did these three rich mines shut down?

Despite the gold in the Triangle being extremely high grade, lower gold prices in the late 90s made the economics challenging. Meanwhile, the lack of infrastructure in this remote area of Canada meant that power, labor, and logistics costs were sky high.

Both of these things have changed today, and activity at the Golden Triangle is now fast and furious...Yet, despite this track record of new discoveries and mines being built in the area, a British Columbia government report estimates that only 0.0006% of the Golden Triangle has been mined to date.

https://www.businessinsider.com/billions-dollars-gold-and-silver-remote-area-of-canada-2016-7



BC's gold deposits have huge potential for exploitation now that infrastructure is in place to support development and gold prices are high.

Not to mention that its estimated that we've already reached peak production, reserves will decline as we've already mined most gold. If gold prices were rising while we were increasing production, can you imagine whats going to happen once production decreases and mines shut down? Once gold becomes a resource with a fixed quantity in 2035, prices will go insane. This will mean that many projects that were previously uneconomical in Canada will become so. And exploration of the interior of Canada will pick up.

In 2015, investment bankers at Goldman Sachs speculated that the world’s mineable reserves of gold would run out by 2035. In fact, some experts believe the global supply of mineable gold will hit its peak in 2019 and trail off after that. Over the past three decades, the rate of gold mine discoveries around the world has tapered off.

https://www.usmoneyreserve.com/blog/how-much-gold-is-in-the-world/

[Changing City]

Originally Posted by misher

Although its not the lower mainland, I want to post my thoughts and expectations regarding gold in BC below. I'm expecting a gold rush in BC.

Please don't post. It won't make much difference to Vancouver Business, even if you were correct.

[rofina]

Originally Posted by Changing City

Please don't post. It won't make much difference to Vancouver Business, even if you were correct.

I'm not sure that's true.

Most new companies, pump or dump or not, are likely to be headquartered in Vancouver. Could be a positive boost.

[Alex Mackinnon]

Originally Posted by misher

Not to mention that its estimated that we've already reached peak production, reserves will decline as we've already mined most gold. If gold prices were rising while we were increasing production, can you imagine whats going to happen once production decreases and mines shut down? Once gold becomes a resource with a fixed quantity in 2035, prices will go insane. This will mean that many projects that were previously uneconomical in Canada will become so. And exploration of the interior of Canada will pick up.

Yeah, that's not really how reserves work. As someone in Mining, I also can't say that I've heard of anyone saying that were in a "peak gold" scenario.

The reserves continually get mined out, but new reserves are typically found or proven typically just as quickly. That's basically what geologists do in a mining exploration role. Occasionally there are some changes in the balance of capital spending in the industry. Mining companies like to cut exploration costs when downturns happen, but in the long run they have to spend on exploration to keep operating.

[misher]

Originally Posted by Alex Mackinnon

Yeah, that's not really how reserves work. As someone in Mining, I also can't say that I've heard of anyone saying that were in a "peak gold" scenario.

The reserves continually get mined out, but new reserves are typically found or proven typically just as quickly. That's basically what geologists do in a mining exploration role. Occasionally there are some changes in the balance of capital spending in the industry. Mining companies like to cut exploration costs when downturns happen, but in the long run they have to spend on exploration to keep operating.

I was surprised to see Goldman Sachs stating that mineable reserves will run out by 2035 too. My uncle had a small gold mine so I know a little but definitely not an expert.

Do you think gold mining may boom in BC? To me it seems like there is a lot of potential given that we have discovered several high grade sites.

[Changing City]

Originally Posted by rofina

I'm not sure that's true.

Most new companies, pump or dump or not, are likely to be headquartered in Vancouver. Could be a positive boost.

Even if they were, it's a tiny number. In 2016 the census showed 3,060 jobs with a usual place of work in Greater Vancouver in the Mining, quarrying and oil and gas extraction industries. There are 180,000 jobs in those industries in Canada - so we have a tiny proportion of the total. Obviously a lot are in Alberta in oil and gas - or were in 2016. Only 900 of the jobs were in the City of Vancouver. Of those 900, a third were managers, a third had finance and administration occupations, and a third 'natural and applied science' occupations - so they were presumably the lab and assay staff.

It was once an important sector with a fair number of jobs, but not so much these days.

[Migrant_Coconut]

Wake me up when BC talks about asteroid mining. That's where the real money is.

[Alex Mackinnon]

Originally Posted by Changing City

Even if they were, it's a tiny number. In 2016 the census showed 3,060 jobs with a usual place of work in Greater Vancouver in the Mining, quarrying and oil and gas extraction industries. There are 180,000 jobs in those industries in Canada - so we have a tiny proportion of the total. Obviously a lot are in Alberta in oil and gas - or were in 2016. Only 900 of the jobs were in the City of Vancouver. Of those 900, a third were managers, a third had finance and administration occupations, and a third 'natural and applied science' occupations - so they were presumably the lab and assay staff.

It was once an important sector with a fair number of jobs, but not so much these days.

Only 900 mining jobs in Vancouver? Not even close my man. Heck, UBC trains somewhere around 80 mining engineers (like me) each year. Then there's geologists, geophysicists, etc. A lot of them also stay put in the city.

There's a huge number of junior mining companies based here, as well as service providers, financiers, laboratories, equipment suppliers, software vendors etc. There's a reason why Vancouver and Toronto are two of the main global hubs for mineral activities, and it's largely because there's a large specialized workforce here.

[Changing City]

Originally Posted by Alex Mackinnon

Only 900 mining jobs in Vancouver? Not even close my man. Heck, UBC trains somewhere around 80 mining engineers (like me) each year. Then there's geologists, geophysicists, etc. A lot of them also stay put in the city.

There's a huge number of junior mining companies based here, as well as service providers, financiers, laboratories, equipment suppliers, software vendors etc. There's a reason why Vancouver and Toronto are two of the main global hubs for mineral activities, and it's largely because there's a large specialized workforce here.

Not my numbers - Statistics Canada. There are a couple of hundred more people involved in mining, gas & oil who live in the city, but have 'no fixed workplace', so don't show up in the number I quoted. I guess that's the geologists etc. Here's the profile of residents (not jobs) that confirms the 4,000 people in Metro Vancouver in the mining, oil and gas sectors of industry. If you want the location of the jobs it's a bit more complex to find on the Stats Can website, but available.

My very limited understanding of the junior mining companies is that many of them are 'on paper' (with an office address) but not necessarily actually employing anyone until and unless they develop their claim.