Peter Ladner interviewed by David Berner on Shaw cable television, 25 (?) May 2011. Thoroughly worth watching.
Excerpts from an early section of the interview:
Ladner: “Is it always a good thing that property values go up? The papers, the news: ‘Property values up – Good Thing; Property values down – Bad Thing’ … when you start to look though, at what happens in an ‘insanely hot market’ – which is how one real estate agent described this one – you can start to identify some bad things about property values being too high. … It erodes the economy of the city, because businesses can’t hire people. … Mining company CFO, six figure salary, cannot afford to buy a home in Vancouver. Another story about a couple, both surgeons, cannot afford to buy a home in Vancouver… Stories about companies that want to expand, they need workers, they can’t find them.. the young people can’t afford to live here… They recruit people from TO or Seattle or wherever, the people take one look at the housing market and say they can’t afford to move here, so now the company is thinking about moving to Waterloo… We have a declining number of head offices in Vancouver. …
You’ve also got a dividing rich and poor thing that destabilizes the society and leads to all kinds of unpleasant consequences… and new immigrants who want to move here, work hard, – it can’t happen…
If you’re in the market you are a multi-millionaire so there are a lot of people who love it this way and put a lot of pressure on to keep the ‘good things’ coming… but I think it’s time to look at the downside of it and say.. are we actually losing? … You get a resort town, it’s all hollowed out, there’s a few fancy people at the top, and a few serving them at the bottom, or a lot serving them at the bottom, coming in from Langley or wherever it is, crunched together in some little condo or basement suite, and you’ve got no real vibrant city… artists can’t live here, you don’t have a real community, and young people are leaving, and we spend all this money educating our kids and then they’ve gotta take off.. we lose all that money…”
A few thoughts:
Both Ladner and Berner raise some good general and specific points, and the whole interview is to be recommended to anybody concerned about the Vancouver RE market.
Most central to their discussion, Ladner expresses the desire to open a dialogue on possible restrictions to property ownership by off-shore buyers. He argues that lack of restrictions makes local RE a speculative asset for these investors and results in property being unaffordable to locals. He also emphasizes a “hollowing out” of communities that occurs with absentee owners.
Early in the interview, in the section excerpted above, Ladner also challenges the apparent broadly accepted wisdom that rising RE prices are a good thing, and he describes the dangers of becoming a “resort town”.
Later he makes excellent observations about the lack of dialogue on real estate issues being the result of so many vested interests. Both he and the interviewer point out that they are each sponsored, or have in the past been sponsored, by the RE industry! (“The biggest industry in this city is real estate.”)
Both Ladner and Berner agree in passing that even if foreign ownership was curtailed, they wouldn’t expect property prices to fall much at all, and that the city would still remain unaffordable to many. This is a very important point. It partly challenges the rationale behind Ladner’s concerns about foreign ownership in the first place. We think that it could be argued that both Ladner and Berner are avoiding the elephant in the room, namely the existence of a very broad and deep speculative mania, and the related very high risk of a price crash. It would be interesting to see either Ladner or Berner challenged on their price-resilience assumptions, and to be asked to consider the issue of local speculation. Ladner does at one point acknowledge that the source of the high prices may be related to interest rates.
So, we share Ladner’s concerns about the effects of overly expensive real estate on the community, he states many of them eloquently, and he should be applauded for publicly speaking out. We disagree with him, however, regarding the major cause of the insanely high prices: the cause of our housing bubble is inappropriately cheap financing/loose lending combined with local ‘speculative’ buying (a speculative component to almost every purchase), rather than off-shore ownership (which is important in its own right but far less so than local speculation).
- vreaa
Yes thanks for transcribing the salient points.
Ladner understands that high prices are becoming a net negative for the city, something that arguably shifted in earnest 5 years ago, but the chronic addiction to real estate speculation is nothing new.
He floated the idea of regimenting multiplex development in low density units which I think is noble but will be unpopular, though not quite as unpopular when some residents find out their property tax assessment for next year! Ladner undoubtedly understands that property/construction interests heavily fund civic and provincial political campaigns.
The other things of note is that Ladner is personally effected, and despite his own local RE assets skyrocketing over 10 years he cares more about the next generation than he does about equity retention. He also correctly points out that not every immigrant benefits from the recent rise in prices.
It’s funny how David Berner continually identifies with the foreign buyers. He obviously has a lot of property himself. Just watch how quickly he confirms that he doesn’t think property would go down if ownership restrictions were implemented. Bought and paid for.
I can say I agree with every point made in the bold. I am glad we have people like Ladner who point out these flaws with the RE industry in Vancouver. Even these new laneway homes have to be rented out at $1500-2000 a month to recoup the costs in building them. Are people really interested in moving out to Langley etc and drive for 45 min to an hour for work?
“You’ve also got a dividing rich and poor thing that destabilizes the society and leads to all kinds of unpleasant consequences”
like this site for example
[If this was coming from anybody else, I'd call 'troll'. C'mon rusty! Seriously, what do you think of Ladner's extremely valid concerns about the consequences of Vancouver RE prices? -ed.]
Blame the serfs for being disenchanted… Rusty says enjoy your lot in life…
I also do not believe that the problem has to do with foreign ownership. Personally, I think these foreigners coming to the market and buying 8 properties each (as I heard this weekend) is pure speculation on their part. Just like a hot stock tip, these people have heard that Vancouver’s property market “never goes down” and they are seeking to make a profit. Nobody needs 8 houses and the rental rates they would achieve on these are less than what one could make with safer investments. Lots of people buy on the way up, few on the way down (as we can see in the US, or with Nortel shares).
Rather than worry about people “being priced out forever” from Vancouver’s real estate market, I’m more worried about those families who have believed the hype and who have overextended themselves with $700k mortgages on a family income of $120k (or less). These are the people who will be hurt the most when the market crashes (and I don’t see any way out of this, I know too many people who are currently drowning in debt). Even if we say that the property market will not go down, these people are going to be struggling when interest rates go up (and they will, no one can argue they will stay this low for the next 30 years).
People will return to Vancouver, head offices will return when property prices revert to what they should be. A property crash will be the best outcome for the future of our city (though admittedly, with a lot of pain).
“I’m more worried about those families who have believed the hype and who have overextended themselves with $700k mortgages on a family income of $120k (or less)”.
really pricedout, where is the proof of this? I’ve been looking for this exact stat for some time. I believe the opposite; that detached homebuyers in Vancouver are bringing lots of equity to each purchase.
I have acquaintances who (to get on the ladder) are in properties too small for their families, who are stretched, who have 95% loans, etc. I also have watched many of my friends-starting-families leave the city. I think, Rusty, that you & I are of different generations. This bubble looks sweet to boomers and older Xers who bought before 2000.
There have been plenty of anecdotes about these kind of people. I know quite a few of people like this – giant mortgage, little equity and income much less than $120k/yr. If you don’t believe it, that’s fine. Keep your head in the sand and GFY.
Believe me, I have proof…being in the financial industry I see direct evidence of people being overextended. I have all the relevant documents-tax returns, mortgage balance statements, property assessments etc. This is not something I would just make up off the top of my head. And unfortunately it’s not just one person either. It actually makes me feel sick when I see a guy walk in with a $900k mortgage balance and he’s never made more than $50k per year in his life. (And don’t harp about the underground economy, this definitely isn’t the case.) It’s actually quite disgusting…I wouldn’t make it up. Of course if I hadn’t seen it myself I might think it was exaggerated. Sad, but true.
speculative buying?
I only hear this from sour renters. In fact, buyers are in the market for a principal residence and there is no evidence of high volume of resales 1-2 years after purchase. And to say buyers are counting on future appreciation is simply laughable – as if you’ve individually polled each buyers as to their thoughts on the matter lol
Your comments are just a rehash of the same arguments renters make time and time again, all the while Vancouver real estate gets further and further from your grasp.
Typical poster profile: renter, white, male, 30-45 years old, unmarried, no children, 40-60K income, migrated from a district with much more affordable housing, loan on status car (compensatory vehicle) is the biggest lien on credit they’ve ever had.
Sound about right?
Now really VREAA. Do you think spending your time combing each bear site and real estate forum collecting comments that suit your position is the most productive use of your time? This is what panhandlers do. They spend hours and hours of wasted time begging for pocket change that they could have earned in 1/2 and hour of real work.
“Sound about right?”
No. Just people who question “it’s different here”.
lol common, just ban him already.
He has no clue how to get a new IP or even what an IP is.
rusty -> Stick to discussing content, and quit shaking the cage ad hominem, which are pathetic attempts to distract us. We won’t be distracted from the meat of the matter.
Agreed. Ban that rusty clown.
lol our mortgaged masters
Idiot.
but don’t ban him for heaven’s sake. He’s far too entertaining and makes me feel good that I’m not him.
[hahaha -ed.]
each of his posts should come with a little icon of a clown giving you a thumbs up, so that you know before you read it that you are about to have a good laugh.
[hahahahahaha. Yeah, a thumbs up and a big stage 'wink'. -ed.]
If there was a movie about Real Estate Speculation in Vancouver, Rusty would be the caricature trotted out from Central Casting to play the part of the greedy landowner trying to cash in on others’ stupidity…
“Your comments are just a rehash of the same arguments renters make time and time again, all the while Vancouver real estate gets further and further from your grasp.”
Something I love about this site is how it documents the cultural and social effects of the housing market. It’s interesting to me how much I see this sort of a thing — the display of ownership and de-facto wealth (considering the sale price of houses) and the taunting of people who are not owners of real estate.
I think people are a bit more concerned about not acting “nouveau riche” in places like Manhattan. (not that you don’t see it in other ways in NYC.) I know upper-middle class professionals who raised their children in co-ops and rent-controlled apartments on the upper-west side, and they never seemed to deal with this sort of status nonsense.
I didn’t see this attempt to shame renters during the US housing boom, but maybe I wasn’t paying attention in the right places. This sort of castigating of renters and social status of owning is particularly bad in Vancouver, from what I see.
In England they’re known as ‘social climbers’, or, if you’ve had a couple pints, simply ‘cunts’.
not even close
I think Rusty is obtuse. But then I also think VREA is the former VHB-so what do I know?
HAM is all hype. It only takes a car load to stimulate hundreds of GVRD buyers to over bid, over pay , and over leverage.
You are very kind; to be mistaken for VHB is an honour for me.
We started VREAA partly in response to VHBlog’s demise; we were always conscious that this was not a replacement to VHBlog, but something different (more anecdote, less data analysis). VCI became the major debate forum replacement for VHBlog.
The way things are going, we suspect that VREAA is going to make for very interesting review reading by mid-decade.
hes a good troll, subtle (and not so subtle) putdows with some decent contrairian (for this site) arguments which normally are always a good thing and really suck people in.
speaking of ad hominem.. ahhhhhh the sad life of a troll… breakfast cerial, non-stop MMORPGs, hanging out in ones ‘ginch’ allll day, lol.
Regarding ‘Speculation’:
Question: What percentage of current buyers of personal residences would hesitate to sign that 800K, or $1.2M, or $1.8M mortgage if they knew that there was a very real possibility of price drops of 20% or 30% or 40%? Or if they even thought that prices would stay flat?
Answer: Very, very few. A steady flow of local buyers have overextended themselves based on the conscious or unconscious belief that prices always go up. That’s the ‘shadow’ speculation that is part of each and every purchase, it is the only reason that prices have become so far removed from fundamentals. Local buyers are taking cheap financing, stretching it to its very limit to over-bid on properties. In some cases they are also taking advantage of loose lending practices to stretch to the stratosphere.
Thus, rising prices have begat further rising prices; the very essence of a speculative mania.
Speculation doesn’t mean buying to flip, it means buying something where price has removed itself from fundamental value, solely because you believe that prices will continue to go up. Almost all local buyers are speculators, whether they know it or not.
[The only buyers who aren't speculators are those buying PRs with a relatively small percentage of their net worth (25-40%) knowing full well that the prices could drop by 50%, but factoring in that the inconvenience of such a drop in net-worth is less intense than the inconvenience of renting. All othe PR purchasers are gambling with their financial futures.]
vreaa,
Please show me the proof that people are buying because they think the value will rise. For proof of the opposite, check home sales in Vancouver when interest rates were much higher and prices were flat for years (1996-2001). Your contention is that there should have been zero home sales during this period. lol
If there was \”very real possibility\” of price losses no-one would buy. This statement is inane. There is a very real probability that 99% of buyers don\’t care if real estate follows a conservative path of 5% appreciation/year.
The only speculation I see is that buyers are speculating on starting a family, raising their kids with a secure home location, ensuring their future. Not a horrible thing to speculate on, is it.
What proof do you want? These are anecdotes, people reporting their own experiences or what others have told them. You can choose not to believe what other people report. That will not change the reality people are reporting. Get over it.
rusty -> Okay, let’s see how it plays out, that will give us the answer as to who is correct here.
The real test will be to see how buyers and sellers respond to a pullback, say 10% or 12%, which has to happen at some point in all markets, no matter how bullish. Our contention is that such a pullback will dry up demand and add sellers, and be the start of sustained price drops, yours is that it won’t have that effect.
So, let’s see what happens.
The ultimate beauty of the markets, is that you put your money where your mouth is, you take a position, and then the market holds you too that. You can fudge with others, if you like, but you can’t fudge with the market.
Let’s watch the story that the market tells us over the next 1, 2, 3 years.
rusty -> In 1996-2001, prices were far closer to fundamental value, so it made sense to buy without speculative intent… we would not argue that buying then was driven by expectations of price increases. Prices diverged from fundamentals in the early 2000′s, sped up in 2003 (check out the Canadian household debt charts at that time), and then got really silly from 2006 onwards. Buying as early as 2006 (and arguably as far back as 2003) has had the strong shadow speculative component that we describe.
see:
Two Charts: All You Need To Know About Canada’s Housing Bubble
VREAA, 26 Aug 2010
if it drops by 8% then HAM will have no choice but to jump all in, its lucky, right?
seriously, it’s never going down – get a clue, losers.
[note to new readers: the reason we let Polly's chiding ride is because it is sarcasm. - ed.]
Agreed VREAA,
we almost jumped in at a ridiculous level, only because we believed the prices would run away if we did not.
[There we go. At least one example. I know of others, and I have little doubt there are many, many more. Why else would anyone buy at nosebleed levels so far above the cost of renting? Only because they believe prices will remain strong. -vreaa]
Rusty, in terms of living-space-for-housing-money, my parents bought something close to what they’d been renting for a 20%-ish “ownership premium” in the 80s in Vancouver. I remember them discussing this ownership premium, whether it made sense or whether buying elsewhere with more land for the same as renting would make more sense – driving wasn’t so costly, then.
To buy the space I’m renting – a SFH in Vancouver – with a generous DP (although not 25%, because I have no post 2002 inflated equity, and would be a FTB saving through work), I would be paying three times more to live in the same space.
3 times more is a lot of money. It is much, much more money than makes sense for finding room to house my family, because for the next many years, my interest payments to the bank + taxes are going to be a good deal greater than what I’m putting into rent. My family would have assumed a lot more risk for very little payoff. Therefore, to buy, I have to assume that somewhere down the road when rents are up and my percentage to interest/taxes/repair is down, I’ll be making up the difference in equity … and that will require capital gains to catch up to all the money I’ve been throwing at the bank/government/depreciation/wear & tear … rather than investments. Even if I paid cash on this place, I’m earning my monthly rent minus my newly minted expenses, unless I’m betting on selling for gain … and I don’t pay very much in rent! I’d be making something like $1300/month on an investment of a million-something. Without the idea this place’d be worth substantially more than I paid for it, that would be pathetic returns, yeah?
Rusty, I bought my first condo in 1997 in Burnaby. Back then, it seemed that Vancouver was a bit overpriced, but it wasn’t anything like what it is now. I bought my second condo in 2003 and within a month the price went up 20k and by the time I sold it last year it was doubled. I am not single, I have a family (wife, kid, the whole nine yard). I am renting right now and I think you are kind of out of line, and you need to check your data.
Here is Housing Price Index (HPI) from Real Estate Board of Vancouver:
http://www.rebgv.org/housing-price-index?region=all&type=all&date=2011-04-01
I believe their benchmark starts at 100 in 2001. The HPI benchmark for a median property is a bit higher than 236 (2.36 times 2001 prices). If you look at the graph from 2008 to today (that’s the longest interval their stupid graph spans), you will see that the inflation adjusted prices are relatively stable except for the dip in 2008-2009 and the sudden surge at the beginning of this year.
The prices in Richmond and Vancouver West have gone up 77% in 5 years, while compound inflation in 5 years (assuming 3% inflation rate) is only 16%.
Compound inflation over 10 years (at 3%) is 34%, and we are looking at 77% price increase in select areas, and 41.6% across all areas of GVRD.
I am not an expert in economy or psychology of finance, but Robert J. Shiller is, and he believes that we are in bubble territory. I am sure speculative mania has something to do with it, but looking at the shifting demographic of Richmond and Vancouver West I speculate that affluent immigrants and foreign ownership has something to do with it, as well.
Reminder
Re: Vancouver- 31 may
http://www.villagevancouver.ca/events/stoneleigh-lecture-aka-nicole
See you there
That talk could be interesting, thanks for the heads-up.
Nicole Foss’ views have been featured in a post here before, 22 Dec 2010.
She is remarkably bearish on RE, with predictions of price drops that would make the most bearish reader here look like a bull.
vreaa,
Yes, I’ve seen how it’s played out over my 25 years of ownership. We might get a slight correction from time to time but don’t get all giddy about it when it happens, it’ll be short lived and 5 years later you’ll be wishing for 5 year old pricing.
1) Not everybody wants to stay in the same place for years. The advantage of labor mobility is taken away if the house doesn’t increase enough for a buyer to get out of a mortgage without writing a check or losing the downpayment.
2) I know a family that bought recently in Vancouver at the height and moved back to another Canadian city after the short drop (in ’08 I believe) because of job reasons. They lost about 50K on the sale of their home.
3) I look at rent multiples to judge a market. Generally I’m reluctant to buy when it’s cheaper to rent the same property.
… and your 25 years of ownership have coincided with a secular decline in short-term and 10 year interest rates… Your abilities of linear extrapolation are amazing…
Rusty …
Every region is different and has different dynamics. Always be ready for what might be coming.
See you at the talk.
jal
Do not feed the trolls.
no doubt
Yep the RE market in Van has turned into a classic ponzi scheme of epic proportions. Anyone who knows anyone wealthy knows that they’re always looking for a place to park their cash.
Canada is one of the only safe countries with such a timid government. China would never tolerate this kind of exploitation of it’s own resources, hence the must live locally rule to own RE over there.
I think a strong economy should be based on PRODUCTION not consumption of foreign money. This can’t end well for Vancouver in the long run (and by Vancouver I mean the people that actually live in Vancouver).