In other times, and other places, renting was and is the norm. But during the kind of runaway real estate boom that Vancouver has experienced, just about everybody who can buy, eventually does. The cheap loans and social forces are irresistible. Ownership rates rise to record highs. The renter pool becomes more highly concentrated with vagabonds and the indigent. Renters become an underclass, targets of derision and subjects of pity. As with all things human and economic, however, once this process has moved as far as it can in one direction, the only way forward is for it to come back. There may well come a time when the renters rise up out of their basement suites; a time when renting comes to be seen as prudent, as sensible, as responsible, as trendy, as wise. -vreaa
Part 3: Priced Out Forever? Vancouver Renters and Basement Suites
Reality and fantasy
In the latter half of the 1980s I was a student at the University of British Columbia, augmenting my student loans by working part time as a bartender in one of the student bars. Behind the bar was also a food preparation area, where workers on the food side of the operation assembled light appetizers for the patrons. When business was slow, the bartenders and the food prep staff would chat, and over time we all got to know one another. One evening Mike, one of the food prep guys, told me that he and his mother had just bought a house on the East Side, traditionally the working class area of Vancouver. The house was close to the two-bedroom apartment I shared on East Broadway near Fraser, so when Mike described the house — two-storey, wood frame, peaked roof, about eighty years old — I could picture it exactly. I might even have seen the actual house with the For Sale sign on my walks through the neighbourhood.
…..Mike was a full-time employee, not a student earning a few extra dollars like most of us working in the bar, which meant that his path through life was set at a different tangent than ours. He probably made eight or nine bucks an hour, which wasn’t bad given that the minimum wage at the time was $3.65 an hour. The house he’d just purchased needed work, but Mike had some of the skills required to do it himself, and could learn more as he went. I remember the price he and his mother paid: $90,000. The rent for the two-bedroom apartment I shared — ironically, or portentously, above a realtor’s office in a building owned by the realtor — was $400 a month, utilities included. The view of the mountains from the high landing at the back of the building was stunning.
My old digs on East Broadway
…Twenty-two or twenty-three years later, in 2010, the anecdote I’ve just related would be pure fantasy. Someone doing the job Mike was doing might still be making only eight or nine bucks an hour. Minimum wage in BC has stagnated at $8.00 an hour since 2001 — a period of almost ten years without an increase, which also happens to coincide with the real estate boom. During that same time period, the price for a two-storey, wood frame “character house” on the East Side, even if it’s falling into ruin, has inflated to at least $600,000, and closer to $800,000, or more, if it’s in good shape or renovated. If someone working for minimum wage were magically able to bank every cent they earned toward buying that house, and assuming there was no mortgage interest, they’d need to work 100,000 hours, or 50 years, to pay for it.
…..If Mike and his mother held on to their house they will have done well. And perhaps Mike went on to a career in one of the construction trades, in which case he may have done very well for himself.
…..In the previous episode I shared some of the experiences and emotions associated with being a homeowner during the first few years of Vancouver’s real estate boom — a real estate lottery winner. Well, what about all those people who didn’t, or couldn’t, buy a ticket?
The basement dwellers
For a sampling of Vancouver renters, I don’t have to look any farther than the people beneath the floorboards I’m standing on. When my wife and I buy our house in the fall of 2003, we inherit tenants — a single mother and her teenaged son. So we become small-time landlords without really worrying too much about what being a landlord might entail. We want the rental income to help with the mortgage, and we’ve bought a house with everything, including tenants, already in place. The rent charged by the previous owners is $560 a month, plus 40% of the utilities, and we leave it unchanged for the year and a half that mother and son continue to live in our suite. They are quiet and always pay the rent on time. On Sundays, when they return from Mass, the sound of the mother singing Catholic hymns, inexpertly accompanied by a small electronic keyboard, drifts upstairs. Not unpleasant. In hindsight, I realize we must have been a lot louder for them. At the time, the floor between the two units has no soundproofing. And I tend to be a bit loud.
…..The suite is 750 square feet, has two bedrooms, and isn’t really a basement, it’s ground level, or “garden level” as they’re called on Craigslist or in the classifieds, even if your house is surrounded by a smoldering junkyard. The city calls rental units in houses “secondary suites,” and generally turns a blind eye to the fact that the vast majority of them are put in without permits, which means they’re illegal. Ours falls into that vast majority.
…..When it isn’t raining, sunlight pours through the large, south-facing living room and master bedroom windows. It’s a decent, livable space, or potentially is. On the downside, the ceiling height is less than seven feet, heating ducts and a central supporting beam drop even lower in a couple of locations, the layout is terrible, the kitchen and bathroom are a garish mishmash of pink, white, and harvest gold appliances and fixtures, obviously salvaged from elsewhere, or like the rickety 1940s kitchen cupboards, moved piecemeal from upstairs.
…..These are details that somehow didn’t really register during our initial, somewhat anxiety filled walk-though prior to putting in an offer.
…..I learn from our neighbour that two brothers owned the house in succession in the 1980s, and these brothers put in the suite themselves. This is the classic East Vancouver way, because working class homeowners usually have limited amounts of disposable income, and often balk at the prices charged by professional contractors. But they’re willing to roll up their sleeves and do things themselves, and perhaps not be too fussy about the results.
…..In the suite, these do-it-yourself aspects are everywhere. One end of the kitchen cupboards is supported by bare 2x4s running from beneath the cupboards to the floor. Although quite the eyesore, I know better than to disturb these. The outer wall of the shared laundry room tilts at a bizarre angle. The furnace and hot water tank are in a makeshift utility room with flimsy walls made of that dark, ugly, 1970s fake wood paneling. In the bedrooms, lurid red and black carpet is stitched together in places like a mask worn by some horror movie killer. One entire half of the suite is served by a single heating register, so it’s always cold. The electrical panel is a Medusa’s head of snaking wires, making me shudder and mentally cross my fingers every time I see it. Frankenstein plumbing connects the laundry sink. And perhaps most strangely, the bathroom, which requires a step up — in the words of one contractor we’ll later hire, “a bathroom for dwarfs” — has walls entirely covered with full-length mirrors. This final detail I can’t fathom. Like a funhouse at the midway, or a brothel bathroom specially equipped for fetishists.
The laundry room
…..So, yeah, the suite is a dump. Which is why, although we could probably squeeze $800 or $900 a month, we keep the rent low. It’s the right thing to do. And gouging can on occasion come back to haunt the gougers.
…..Romance enters the life of our single mother. She meets a man and after a few months of being wooed, gives notice and moves in with him. He owns his place, so our mother, assuming things work out, has left behind the life of the renter.
Saving for a downpayment — frustration, expense, and exhaustion
Our next tenants are a couple, Amir and Sarah, who also stay for about a year and a half. We work hard to paint the entire suite before they move in, and get the living room carpet steam-cleaned, but there’s no redeeming the main traffic area, which stubbornly remains grey. Amir is pretty straightforward about the place and their motivations. He tells us that the suite “isn’t great,” but they’re willing to accept it in exchange for a lower rent because they’re saving for a downpayment on a place of their own. Amir is a bit of a negotiator. He doesn’t like the arrangement that involves paying a percentage of the utilities. He wants a fixed monthly amount that they can budget around. By this point, we have a pretty good idea of what the utilities cost over the course of a year, and after some thought propose a rent of $600 a month, everything included. It’s only later we realize Amir and Sarah run electric space heaters throughout the winter to make up for the deficit of heat. But I don’t begrudge them. The suite is cold. My only worry is fire.
…..Amir and Sarah are also quiet and always pay the rent on time. The only problem that arises is when the son of the woman across the street, someone who doesn’t even live in the neighbourhood, tells Amir not to park in front of his mother’s house. His mother is housebound and doesn’t own a car. Some homeowners, or relatives of homeowners, seem to view tenants of basement suites as second-class citizens who must always defer in matters such as parking. The city’s bylaw is pretty clear. Non-residents are prohibited from parking for more than three hours in front of any property, but residents are allowed to park “on their own street.”
…..From time to time, Amir and I talk about Vancouver real estate, and politics. He comes from a country where repression of personal freedom is standard practice. About a year after Amir and Sarah move in, in early 2006, they begin the search for a house. Their timing is somewhat unfortunate. The average price of a house in Greater Vancouver, driven by voracious demand, has just increased $100,000 in the past three months, to around $700,000.
…..Amir and Sarah get themselves a buyer’s realtor. Amir tells me that they like the neighbourhood, the location works well for both of them, and they are interested in a new, heritage-style house that is being built, and nearing completion, on the next block. Amir asks me what I think the list price might be. At least $600,000, I answer. A few days later Amir tells me that their realtor confirmed the asking price is going to be in the mid 600s. So the dream of buying in the neighbourhood is quickly extinguished.
…..What follows for Amir and Sarah is six months of frustration, expense, and exhaustion. Almost daily after work they spend two to three hours touring properties, prices and bidding wars forcing their search farther and farther east. Amir tells me that he’s unwilling to pay $40,000 over asking price — an amount by which they were recently outbid — for “an apartment.” I don’t blame him. And they don’t even really want a condo, they want a house. Amir tells me they’re spending a ton of money on gas to make these daily runs to the suburbs and back, and food, because they’re now eating dinner in restaurants along the way. And each additional month they continue to live in our suite is another $600 that could be going toward paying down a mortgage.
…..In June they finally manage to purchase a house — in Coquitlam, a suburb ten miles farther east than they wanted to be. Their first order of business is to spend more money and quickly make some modifications to the lower level of the house so they can use it as a rental suite.
…..And so ends the first era of our rental suite. August 2006. We’ve decided to leave the suite vacant for a while, so we can make some improvements. Amir and Sarah have been gone for only a couple of hours when I put on my work clothes, a dust mask, and a pair of heavy work gloves. I go into the suite and rip out the skanky wall-to-wall carpeting in the living room. I confirm that a soft spot I felt underfoot while painting is a rotten patch in the subfloor. Several of the vinyl floor tiles lift away easily, and beneath them the floorboards, and chunks of the underlying 2×4 sleepers, break apart and disintegrate in my fingers. Rot. Although dry now, there has obviously been significant moisture. I investigate further, and find that I can easily peel away the cheap vinyl baseboard, the underlying glue compromised by dampness. The wall behind the baseboard is speckled with black mold. The house inspector’s caution about his elevated moisture reading comes back to me. I don’t know it at the time, but this is Day 1 of what will be three years of an often difficult, often painful, and always expensive renovation of the suite and various aspects of the house in general. Three years before we will again see tenants, or a single penny of rental revenue. Had I known what lay ahead, I would have left that carpet exactly where it was. And perhaps suggested to my wife that we put a For Sale sign in front of the house.
Four generations under one roof
Around the time that our rental suite becomes vacant I’m at a garage sale up the block from our place. I get chatting with the owners, Joe and Grazia, a retired couple who tell me they’ve lived in their house since the mid-1960s. The subject turns to real estate and the recent increase in the number of people living in their house. Joe and Grazia, and Grazia’s mother, have been joined by the couple’s son, his wife, and their young daughter. Six people. Four generations under one roof. And like our house, it’s a modestly sized roof. Their house is probably 1750 square feet, top and bottom. And like us, they have only a small, single-car garage.
…..Apparently Joe and Grazia’s son and his wife had been sharing a house in the suburbs that they co-owned with the wife’s brother, but the brother had wanted to sell because with the huge run-up in prices, and the favourable interest rates, he and his wife now had enough equity and additional financing that they could afford a place of their own. The finances of Joe and Grazia’s son and his wife still aren’t sufficient to do the same, so they’re moving in with the parents/in-laws while saving for a downpayment.
…..At this point, it’s been over two years since The Province’s hysterical headline about house prices going up by $222 a day. Except for a brief respite in the second half of 2004, the rate of increase hasn’t let up, and it won’t until the global financial implosion of 2008 — and then for only a year before rebounding at a similar rate. $222 a day is $80,000 a year. So Joe and Grazia’s son and his wife will have to save $80,000 each year just to keep up with the rate of increase. Each year, they’ll need to add that much additional money to their downpayment nest egg just to keep a mortgage at the same amount it would have been if they had bought the year before. The only people in Vancouver who can sock away $80,000 a year are the best paid C-level executives, financial elites who hail from elsewhere, or high-ranking gangsters or marijuana grow operators. At the beginning of 2010, I’m not sure exactly how long it’s been since Joe and Grazia’s household increased in size, but I notice that its youngest member is significantly taller than when I first saw her at the garage sale.
It was all kids
One day I’m chatting with Grazia, out sweeping her walkway, and she tells me that years ago the street was “All kids. All kids running up and down every day.” The mature trees were recently planted saplings, and the sidewalks hadn’t yet been installed. She points to a large Vancouver Special nearby. “That house there, they had twelve kids.” Well, the neighbourhood certainly isn’t all kids now. There are a few around, but not many. Now it’s retired people like Joe and Grazia, Italians, and Portuguese, and Chinese who bought into the neighbourhood thirty and forty years ago, a few widows, or newcomers like us, professional couples without children, or with teenagers or adult children who’ve already left home. There are exceptions, but generally speaking the economics of the neighbourhood no longer support families just starting out — and definitely not large, working class families. The same thing is happening in all the old central neighbourhoods of Vancouver — in Strathcona, in Mount Pleasant, in Fairview, in Kitsilano. I wonder what it feels like for Grazia’s son to be priced out of the neighbourhood he was brought to as a baby, and in which he spent his entire childhood, and teenage years, like the trees, growing up. To perhaps be thought of by some as a second-class citizen in the neighbourhood with which his personal history is intimately connected.
So I don’t have to look far to find people whose dreams and aspirations have been seriously curtailed by Vancouver’s real estate boom. It’s not much fun being on the outside looking in. And then there are the marginalized inhabitants of the Downtown Eastside, and Vancouver’s homeless, whose dreams and aspirations aren’t just being curtailed, in many cases they’re being crushed.
…..During the mayoral campaign of 2002, Jennifer Clarke, the candidate for the Right, vows to retake the Downtown Eastside — which she inaccurately describes as an American-style “ghetto” — “one block at a time.” The image her rhetoric conjures is of a phalanx of developers and well-heeled West Siders, gentrifying stormtroopers, marching on the country’s poorest urban neighbourhood. The block-by-block rallying cry backfires. Instead of galvanizing voters it repels a lot of them, and is quite possibly the phrase that loses her the election. Left-leaning Larry Campbell, with his more nuanced approach to the Downtown Eastside’s undeniably severe social problems, wins the election in a landslide. But Campbell doesn’t last long. After a fractious three years marked by in-fighting and warring cliques within his own party, he pulls the plug on his tenure as mayor, announcing he won’t run again. A little over seven years after Campbell’s victory, to my eyes anyway, it’s Clarke’s vision that seems to be progressively winning out — one towering condo block at a time — even if Clarke herself didn’t win.
…..Along with the adjacent Gastown and Chinatown, the Downtown Eastside, with its hundred-year-old brick buildings, is the oldest part of Vancouver, and was once the hub of the city, but is now home to a large population of urban poor. It’s a political battleground for just about everybody, and reams have been and are being written about it, so I won’t go into great detail here (although I may in a future episode). The only point I want to make is that in the two years my wife and I lived in a brick loft on the border between Gastown and the Downtown Eastside, and in the six years since, an increasing number of large mid-rise and high-rise condo buildings have been getting built on the periphery of the area. These buildings I imagine as giants looming over the neighbourhood, or as those massive slab walls in 1960s cartoons or action movies, slowing moving inward, threatening to crush the trapped hero. Downtown Eastside residents and poverty activists are doing what they can to resist, but when I see what’s happening, quite literally, on the ground, I feel there’s a certain inevitability about the outcome.
Are people really priced out forever?
Among Vancouver residents, only a recently awoken Rip Van Winkle could fail to understand that we’ve been experiencing the mother of all real estate and construction booms for the last decade — really, on and off since Expo 86, almost 25 years ago, the world’s fair that achieved its purpose of providing a giant, live-action, promotional brochure for the city. Expo 86 actually started out with something less than a world’s fair designation, but that little detail was brushed under the carpet by boosters at the time, and now seems largely forgotten. Living in the city, it’s possible to become oblivious to the growth and development, because it’s everywhere and it’s gone on for so long. Rapid change has become the norm, although for many of us it’s a disorienting and even upsetting norm. For many years, whenever my father visits Vancouver from Victoria, he always remarks on the number of construction cranes, and the number of expensive automobiles. The obvious money. (Or, perhaps, the less obvious debt.) These things leap out at him, and he’s coming from Victoria, the provincial capital, an affluent city of over 300,000 just across the water on Vancouver Island, with a pretty significant real estate boom of its own — not exactly a poor cousin.
…..I think the most pertinent question at the moment is this: Are we in a boom, or a bubble? Your answer to that question probably defines you as a real estate bull or a real estate bear. And the current gap in sentiment between the two is rather wide. It sometimes spoils family dinners.
…..To my mind, a boom is a period of intense growth, activity, and price escalation, with people falling over themselves to get a piece of the action, but it doesn’t necessarily entail a subsequent collapse, or bust. Booms are perhaps periods when rates of growth are warranted by underlying conditions or fundamentals (I’m not saying those necessarily exist in Vancouver). When the underlying conditions or fundamentals alter, the boom levels out, but it doesn’t collapse because the initial and ongoing reasons for the boom were legitimate. Think of New York City in the late 19th and early 20th centuries.
…..Bubbles on the other hand, by their very nature, containing the ingredients for their collapse. They may look exactly like booms, with all the same frenzied activity, but ultimately they aren’t warranted by underlying conditions or fundamentals. Perhaps they start as booms, but for a host of reasons mutate into something wildly inappropriate. I’m not even an armchair economist, but from just a casual perusal of charts of stocks and real estate values, the most likely outcome of a bubble is that values return — collapse rapidly — to more or less where they were before the bubble, or where they would have been had a more natural rate of growth obtained during the period in question. They do so because there is no underlying support for the level that values achieve during the bubble. At some point, everybody suddenly realizes that the emperor has no clothes. What precipitates this mass realization is perhaps a little mysterious. Like the signal telegraphed through a flock of roosting birds causing them all to take flight simultaneously. On the West Side of Vancouver, perhaps the emperor is any of the small, dilapidated, eighty-year-old houses on thirty-three-foot lots currently listed for 1.2 or 1.3 million dollars. Or the same sorts of houses on the East Side listed for $800,000.
…..If there is a bubble in Vancouver, when it pops the average house price could collapse, or perhaps slowly deflate, from its current level of $950,000 to something around $550,000 or $600,000, assuming a return to a support point implied by a more natural rate of growth. That’s a decrease of about 35% or 40%. An average house price of $600,000 is still very expensive, but townhouses, condos, the discount for living on the East Side, or the even greater discount for living in the suburbs, would all be subject to the same general decrease in price, to a greater or lesser extent. The result would be that large numbers of people who are currently priced out of the particular form of housing to which they aspire would be priced back in. No longer would young couples lusting for home ownership in Kitsilano have to make do with a neighbourhood like Grandview. And renters in the burbs could once again legitimately dream of a condo in the city. There are plenty of people sitting on the sidelines, gathering cash, hoping this is exactly what happens. I work with two of them.
…..I should mention that feeling oneself to be priced out also requires that you’re someone who wants to buy in. And there are various reasons why people may prefer to rent and not buy real estate at all. A footloose life style with the freedom to pick up and leave on short notice. The wish to avoid the never-ending expense and responsibility of home ownership. A dislike of strata council politics and the problem personalities who often seem to dominate. Or exorbitant condo fees. The conviction that your money can be better invested elsewhere. Or maybe you’re not paying rent at all. You’re an adult child living at home.
Froogle calls a definite maybe
I don’t know what the hell’s going to happen. I hear interesting arguments on both sides. One thing that’s often absent from the arguments, however, is a time horizon. Maybe the bulls and bears will both be right. In the short to medium term, I wouldn’t be surprised by a fairly epic collapse of real estate prices in Vancouver, or a long grind downward over a decade. Goodbye paper equity. But what about in twenty or thirty years? Isn’t it possible that as power centers shift in the world, that as China perhaps surpasses the United States as the world’s economic behemoth, and other Asian countries continue to increase in economic clout, Vancouver, because of its geographic location and immigration patterns, might be hugely affected to the upside — that it could become an increasingly important player as the 21st century progresses? Manhattan was once an island covered with trees. Expo 86 and the 2010 Olympics notwithstanding, Vancouver is not yet a major player, as much as some locals fervently wish it were. But will that always be the case?
…..I don’t think any of us really knows whether Vancouver is experiencing a boom, a bubble, or a boom become a bubble. Having a strong opinion, and knowing, are not the same thing. If it’s a boom become a bubble, maybe values will only shrink to a support level warranted by an underlying legitimate boom, and who knows what that might be. But not as much of a collapse as an all-out bubble bursting. We will all find out at some point, maybe fairly soon, maybe not until a number of years down the road, where values really belong, and the answer could be surprising — for the real estate bulls, the real estate bears, or maybe both.
Part 4: “Raise or Raze”
I walk around my neighbourhood taking inventory: renovation, renovation, that house raised and a new foundation poured, that one with a second storey added, and there, a house demolished — razed with a “z” — and a new house built in its place.
From 2004 onward, all mortgage and LOC balances are as of 31 December of the year in question.
Asking Price: $355,000
Sale Price: $355,000
Down payment: $88,750 (25%, ergo, no CMHC insurance, representing thousands of dollars of additional cost)
Mortgage (at purchase, Sep 2003): $266,250
Terms: 3 year fixed at 4.00%, 18 year amortization, bi-weekly payments
2003 Property Assessment (estimate of market value on July 1, 2002): $260,600
2004 Property Assessment (estimate of market value on July 1, 2003): $330,500
Equity based on assessment: $64,250
Mortgage principal: $247,330
Terms: 3 year fixed at 4.00%, 18 year amortization, bi-weekly payments
2005 Property Assessment (estimate of market value on July 1, 2004): $420,000
Equity based on assessment: $172,670
Mortgage principal: $201,829
Terms: 3 year fixed at 4.00%, 18 year amortization, bi-weekly payments
2006 Property Assessment (estimate of market value on July 1, 2005): $461,000
Equity based on assessment: $259,171
Mortgage principal: $191,884
Terms: 5 year variable at Prime minus .75%, 25 year amortization, bi-weekly payments
HELOC balance: $4,291
HELOC interest rate: variable, at Prime.
2007 Property Assessment (estimate of market value on July 1, 2006): $570,000
Equity based on assessment: $373,825