[We have previously featured Sandy Garossino’s interview with The Mainlander as part 3a of this series. Here follows her specific response to our questions. -ed.]
Thanks for getting in contact. Here follow Sandy’s responses to your questions regarding her position on housing policy.
This is an important issue for Sandy and we appreciate being able to share her thoughts with your readers.
Sincerely,
Sandy and team
1. What do you see as the main housing challenges facing Vancouver?
Battling homelessness is a constant challenge. My worry is that a housing crisis has now spread into what is termed in Hong Kong as the Sandwich Class—those with incomes above subsistence levels but below the wealth required to buy medium level property. Excessive buying of residential property for investment, rather than shelter purposes has driven housing prices to stratospheric levels relative to local median incomes. A housing crisis for the middle class stresses the entire system including our ability to house the homeless.
The larger context is the challenge that faces all global investors. Apart from labouring for wages, the way to make money is to build or invest in a business, buy stocks and bonds, or speculate on assets like real estate or gold.
In the current climate of global uncertainty, almost nothing in the world is matching Vancouver real estate for return on investment, security, and long term value. My concern is that our real estate market has morphed into a stock market, and human beings who need affordable homes are being forced out of competition.
Vancouver’s future rests on a healthy knowledge economy as well as small and medium sized businesses that will provide long-term employment. Both these sectors need young people and immigrants with good prospects and disposable incomes. Because housing prices have now detached from the local economy, we cannot offer a promising future to the very people we need to build it.
2. What measures do you propose to address those challenges?
The most important thing is to recognize that we have a problem and we must commit to solving it. We have to gather critical data, including clear information on the extent of non-resident purchasing of investment properties. We can then have an informed discussion about solutions such as incentivizing capital toward rental properties or investment in local businesses, taxing unoccupied properties at the business rate, or considering innovative zoning options. This is a sensitive issue and we need a made in Vancouver solution. Lets bring experts together to generate savvy solves that turns this into an opportunity for Vancouverites.
3. What is your policy on housing densification?
My mind is not made up on density. We must take care to add density of residences for human beings as opposed to density of investment units. A second priority is that density should be absorbed by the City on terms that meet neighbourhood objectives.
Adding density in an attempt to moderate housing prices is unlikely to work. We have to look at the demand side. That said, there are many positive benefits of the right kind of density and I am open to those.
4. Would you support policies that would lead to a drop in real estate values?
This is a time for great care in policy development.
We may well be in a real estate bubble and a sharp drop in values for other reasons is not out of the question, regardless of government policies. However, government’s role should be to modulate severe market swings and not precipitate them. Shocking the market has potential to wreak havoc on households, especially those who may be over-leveraged or recent buyers.
I think we can be more surgical in our responses. Finding solutions that look at targeting specific real estate practices can help solve some of these problems while also encouraging investment in other asset classes.
5. What is your own family’s housing situation?
I have been a homeowner for 24 years. My first house was purchased in 1987 in Point Grey for $125,000, with parents and in-laws supplementing our down payment. The opportunities that created such security for our generation have vanished and it is vital that we stand up now for young people and families.
As a homeowner, I understand the concerns of Vancouverites about possible drops in real estate values and the risks associated with broad, generic approaches to housing policies. We need to find specific, pragmatic solutions tailored to the Vancouver market.
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[This post is not to be seen as a VREAA endorsement of any of the above positions. See ‘Policies On Housing’ – The Positions Of Local Entities On The Challenges Facing Vancouver Housing’ for an introduction/rationale for this series.]
Vancouver Real Estate Anecdote Archive 
Sandy has my vote, and my respect and admiration. What she did with Vancouver Not Vegas was phenomenal and her answers here are well thought out, practical, honest… she doesn’t have all the answers but she knows how to seek the best advice. She doesn’t provide empty/ party-line policy statements rather she appears to keep an open mind about things. I like her.
Sandy Garossino: “We may well be in a real estate bubble and a sharp drop in values for other reasons is not out of the question, regardless of government policies. “
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We’d agree (only we’d state that we very clearly are in a bubble).
This, for us, is the crux of it: when you’re in a speculative mania, government policy is usually beside the point.
Regardless, as we’ve said elsewhere, we haven’t seen any other candidate state the challenges as clearly as Garossino has.
“This, for us, is the crux of it: when you’re in a speculative mania, government policy is usually beside the point.”
Can CMHC mortgage insurance threshold be conflated with price movements?
Okay, agreed, I made too much of a blanket statement: government policy can definitely lay the foundations for a bubble (CMHC, low interest rates) and can, at times, avert a price drop (2008-2009 emergency interest rates).
However, a bubble can’t be legislated away… once it’s present, the only ultimate resolution is its deflation/implosion. There aren’t any credible counter-examples; not one.
So some policy change or other may ‘kick the can down the road’ but ultimately we’ll deflate.
The sandwich class does not want to live in condos when raising a family, and Vancouver, whether we like it or not, is competing on lifestyle with other cities in NA and the rest of the world.
The value proposition Vancouver offers for these families is eroding.
Well put.
jesse, we recall that at times you lean towards suggesting increased densification with families adapting to living in condos/townhomes; at the same time you acknowledge that many won’t go for that. Are we reading you correctly?
Personally, we can see the logic in a family sacrificing the SFH to live in a real humming metropolis like NYC or Paris or Tokyo. In Vancouver, not so much.
Families in other parts of the world like Barcelona and Madrid do live in condos/townhomes. The difference is they’re built to be 900-1,000 sq ft with 2-3 bed rooms. This means fewer units per floor.
Look at a floor plan of developments in Vancouver and you see over half a dozen units per floor. All 1 bedroom.
There’s obviously room for increased density in the lower density areas. I’d like to see more frank and open discussion around the costs of keeping low density housing near a city’s core. It’s a wee bit unusual when comparing to other cities around the world is all.
I’m hearing conflicting arguments, one that increasing density away from transit increases traffic burden. The other is more insidious: families moving farther afield and commuting into the city. I would argue increasing density closer to the core, even if it adds short-term stress before Translink can adapt to increased ridership, is more desirable than adding stents to major clogged arteries.
The cynic in me thinks that the “density close to transit” argument is playing to NIMBYs. In future debates on planning I think the best angle to take is to ask about the environmental costs of low density at metropolitan cores and put neighbourhoods to task on accepting these costs should they want to keep density low.
Durr – I’m with you on square foot per unit size. I’m a fan of densification myself, but that shouldn’t need to mean, in Vancouver, micro-mini solutions in family dwellings. Rowhomes, condos of 1000-1400 square feet and 3-4 beds, etc.- there’s no profit in them, so they say, but it would keep more families downtown.
“In the current climate of global uncertainty, almost nothing in the world is matching Vancouver real estate for return on investment, security, and long term value.”
Um, cap rates are horrible. Let’s just say I’ll reserve judgment. I agree they are currently perceived as having those traits but the emotionless quant in me says the numbers don’t work in the long run. FWIW Mark Carney thinks so, but he’s part of the 1% so whateverz.
Seems like an easy zoning tweak – insist on more 3 and 4 bedroom units in proposed developments. It is a little silly right now. Funny though that the market doesn’t fix this itself (that would be a good conversation). I recently sold a one-bedroom (because, I concluded, it was uselessly small). I talked to a lot of people who viewed it and loved it but had one of the following complaints: too expensive; too small. To the ones who wished it were two bedroom I asked, “how much would that have to cost?” So yes, the imagined three bedrooms would be scary expensive.
Right now you can buy old, not-that-nice townhouses in out-of-the-way parts of North Vancouver for 750k (but value at $350/sqft!). These have lots of living space and bedrooms for a family…kind of makes you go hmmmm. Anyway we all know the prices are silly right now, the point is to imagine what the sensible mix of properties should be at normalized prices.
Several city of North Van councilor candidates mention affordable housing in their blurbs. I haven’t seen any ideas though. I’ll keep looking.
Family dwellings are being built, we can look at permits issued to see that, but most of the new stock is multifamily and the vast majority of that is 2 or less bedrooms. Problem is that most detached have basement suites so have large carrying costs and risks that reduce desirability for many families.
3 br condos are harder to rent out in my experience so I can understand why developers/investors don’t want them. We likely have examples of demand when lots are rezoned RSn to whatever. Right now we don’t really know, the “markets know best” mantra is odd given the City has a board of variance. Just sayin’
I think some type of business tax rate on non-resident / non-citizen owend and empty properties sounds like a relatively fair solution. The housing stock needs to be available for people to live in one way or another and this should not be a vacation desitination. This is not a beach resort – this is a functioning city and economy with a scare amount of land resource. It must be encouraged to be used for people who are in the local economy. She has my vote
we have a magazine called ‘the mainlander’, now??
its about freakin’ time!
It’s the [lower] mainlander. Upper mainlanders hire workers to do the reading for them.
@ jesse: You are right that cap rates on rental properties are dreadful, but the growth in equity more than offsets this. Realtors at the high end are already drawing attention to the rapid recycling of high end properties in the marketplace–resales within a year for dramatically increased prices.
Curious to hear your take on this.
The international investor seems to have a markedly different profile and expectation than the local investor. Most local investors finance in some way, and they rent the properties to recover financing expense. So cap rates matter to this investor class.
The international investor typically buys with all cash, and with very high frequency does not rent the property at all but leaves it empty. Interestingly when they do rent out, they often rent at below market rates. But in underlying value they are seeing exceptional y/o/y returns. Cap rates are not a motivator for them.
This may, by the way, present an interesting opportunity in our rental housing market.
One worry I have about the bubble theory is that some of our source capital comes from regions in Asia with a high investor tolerance for risk and bubbles. If you look at the Hang Seng index for instance, the p/e ratios are very high relative to other major international markets.
My concern, when reviewing much of the writing about Vancouver housing prices, is that we are possibly being too restrictive in our analysis–largely confining ourselves to property issues. The influences here are global, complex and powerful.
Most sophisticated Asian financial and legal experts I consult with do not see a disruptive major correction in our real estate, though there may be blips of up to 10% here and there over time. They project increasing international capital inflows into this market over the long term and paint a very different picture from what I hear from local experts.
Thanks for the comment, Sandy.
How do you anticipate international investors “seeing exceptional y/o/y returns” will respond to drops (“blips”) of 10% YOY loss (or more)?
It seems you’re saying that sophisticated Asian experts are anticipating demand for Vancouver RE even in the face of price drops.
Our opinion differs from theirs: we believe that such investors are momentum players, drawn to Vancouver by price strength, and that they will evaporate (and even become supply (sellers)) with any convincing price pullback.
In addition, a falling loonie (that is highly likely to accompany a Canadian housing deflation), will make price drops look even worse to these investors.
So, we anticipate cascading price drops. Are foreign investors really going to buy into a falling Vancouver RE market?
You mean sophisticated Asian investors like the Japanese in 1989 who would arrogantly brag that the sky was the limit and that you couldn’t stack $1000 US bills in Ginza to cover the value of land beneath. Nothing like a credit bubble popping to dash all forecasts for Vancouver SFH’s reaching an average price of $10 million because that’s still pretty reasonable to people who have no concept of the fundamentals of capitalism. Sophisticated investors indeed!
When the Chinese economy crashes over the next two years so will Vancouver’s. Healthy functioning economies are not built on asset-price speculation: pyramid schemes might be however but they all eventually collapse with no exceptions. Vancouver’s fate is sealed at this point as there can be no soft landing for something as insane as Vancouver RE. Therefore, don’t worry about doing something that will have downward pressure on prices because you will soon be doing everything possible in an attempt to unsuccessfully prop prices up! Policy discussion on RE is hopeless at this point in time – you are about 20 years late. Anything done now will just be wasted capital as the crash picks up steam.
“Anything done now will just be wasted capital as the crash picks up steam.”
Now is not a bad time to attempt to recognise and acknowledge chronic speculative asset bubbles are an ill imposed on the city and lobby for and instigate measures to ensure future bouts of asset price bubbles become less common. This is akin to measures BIS is advocating for the banking sector. I see Vancouver as a microcosm of more macro issues, with a solution set that has much in common.
My (and vreaa’s) thesis is that the roots of speculation are deeper than the foreign capital flow component. I agree with Sandy that we don’t have a good handle on the capital flow component, in part because foreign flows do not always flow through easy-to-trace channels and are not necessarily exclusively through those who are fresh to Canada.
It helps to take a broader look at similarities to other experiences of asset price booms and busts, past and present, as much as what might make Vancouver “unique”. We should ask, given there is necessary uncertainty surrounding how likely a house price crash is in the future, whether the “solutions” envisioned to deal with the range of house price futures are compatible.
Another thing I should note here is that based on some cursory searches of suites and condo units for rent, I haven’t seen much change in about 20 years on an inflation-adjusted basis. This comes back to a central question: how are we defining “affordability”? If it’s a belief that both prices and rents are high, that is a much more expensive problem to solve for taxpayers — market rents are a difficult thing to suppress and I would argue would be unprecedented for anything but a relatively small segment of sector support. Tim Louis thinks different; I’m willing to listen, and I expect others running for council would listen thoughtfully as well.
“but the growth in equity more than offsets this”
That’s the crux of what a “speculative bubble” is. If earnings, future and present do not support valuations this is simply a cash transfer from buyer to seller, producing no net beneficial economic activity. That someone with a different investment bias will underpay vis-a-vis other investments doesn’t sound like a winning business model to me, just irrational bias without looking at the earnings potential.
I can’t find the direct quote but one of the Li family (Li Ka Shing) once opined about Vancouver he could only make money developing and punting units to investors, he would never hold them for income. That was a giant red flag for me.
“But in underlying value they are seeing exceptional y/o/y returns. Cap rates are not a motivator for them.”
Yes this seems obvious that a marginal investor is not looking much at cap rates, they have other concerns. I’m still suspicious that they will be able to reap capital gains going forward. It reeks of Ponzi economics; real rents are barely moving from the data I’ve seen.
“Most sophisticated Asian financial and legal experts I consult with do not see a disruptive major correction in our real estate, though there may be blips of up to 10% here and there over time. They project increasing international capital inflows into this market over the long term and paint a very different picture from what I hear from local experts.”
Ask an expert in Japan the same thing in 1987. From some solid accounts-based macro analysis I’ve seen, China is on a runaway investment train, pouring way too much capital into low-earning investments. That comes back to bite eventually. One potential outcome, one Michael Pettis subscribes to, is that China will hit lower GDP growth for close to a decade to properly book its recent investment GDP and transfer investment to consumption. He’s calling for a reversion sometime in the middle of this decade.
“One worry I have about the bubble theory is that some of our source capital comes from regions in Asia with a high investor tolerance for risk and bubbles.”
That is in part because their earnings growth is higher, being closer to faster-growing countries. That shouldn’t be a surprise, nor should it be a surprise that many wealthy foreigners are buying property in relatively stable countries like Canada, Australia, the US, and Hong Kong; what is a surprise is how 45,000 repeat sale purchases, plus new stock presale purchases, in the Greater Vancouver area — mostly by locals earning locally-derived incomes — are willing to compete with foreign investors. Nobody is holding a gun to their heads. I agree foreign/immigrant investment is contributing to the boom but locals are willing to go along for the ride; in some neighbourhoods in Vancouver this is more prevalent but the region is well over 2MM people now so I’m finding it strange how a reasonably small foreign tail can wag the local dog. JMHO, of course, but I see expectations of future price stability/growth and liquidity of property ingrained in local psyches as well. The “foreign investment” angle is an excuse to drive the market up. Again, this reeks of a speculative bubble.
Every bubble needs a narrative, a story the participants can tell themselves when facing moments of doubt. I hope you get a chance to browse this blog for some alternative stories.
For example, ask yourself whether you would / could buy your own house today without winning some kind of lottery. Then extrapolate…
Thanks to Sandy and other candidates for responding so thoughtfully to the VREEA’s questions, and thanks again to the VREEA host and Jesse for creating and posting the questions. Let’s hope many other candidates answer them as well. I couldn’t believe it when I saw a video of the Vancouver Sun’s City Editor interviewing Suzanne Anton and the words “affordable housing” NEVER CAME UP. I felt Sandy’s answers were excellent and she is definitely one candidate I’ll be voting for.
With respect to what Sandy said above about investors’ renting out their homes — in my experience and other potential renters’, many local and offshore investors are *not* renting longterm, but waiting to see what the market does, which doesn’t create any stability for renters here. As I mentioned in a post earlier this summer while my husband and I were searching for rental accommodation, 9 times out of 10 when we asked how long we might stay in a particular rental, the landlord or property manager’s answer was “Depends on the market.” We saw places advertised for rent that were just a few weeks later advertised for sale.
It’s been argued that investor ownership helps the rental market here (because otherwise there wouldn’t be as many places available for rent), but in the midst of this speculative mania, these arguments may have to be reconsidered.
vreaa created the questions, I emailed the candidates. Creativity is not my long suit.
jesse e-mailed the candidates, I created the questions. Having faith in groups; trying to motivate people to do something, hopefully the right thing; attempting to get the group to come up with answers where most see no solution; are all jesse’s long suits.
I usually claw my way through partscores. I never could get anyone to agree on convention, let alone remember how to follow it. But hey, it’s a living. 🙂
“We have to look at the demand side” BUT overseas demand is apparently infinite and possesses infinite resources, according to those “sophisticated” advisors. (I agree, by the way, that we have to look at the demand side and can’t build our way out of this crisis without restrictions on who can buy or how they can manage what is built.)
That some of these investors involved have a high tolerance for risk and bubbles doesn’t mean it’s not a bubble.
In Sandy’s view the “security” achieved by those of an older generation who bought earlier on the west side is a given — a fact and, apparently, an entitlement. But a market’s a market — a decision by any level of government to protect those who have most benefited from the market is indefensible. Those making policy should imagine any scenario, and think carefully about what the collective consequences really would be if the market changed; Sandy’s responses still reflect a certain “recentism.” I don’t believe that if the “value” of a war-era bungalow on a standard 33′ lot on the west side falls from $1.5 million to $800,000 or even $600,000, the entire local economy will be simply RUINED. Policymakers need to imagine that happening, then ask, so . . . then what?
Canis: “a decision by any level of government to protect those who have most benefited from the market is indefensible.”
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Well, so far it seems that all candidates have defended that “indefensible” position: the intention to avoid any policy that would lead to price drops.
Canis writes above: “But a market’s a market — a decision by any level of government to protect those who have most benefited from the market is indefensible.”
zrh2yvr writes above: “I think some type of business tax rate on non-resident / non-citizen owend and empty properties sounds like a relatively fair solution. The housing stock needs to be available for people to live in one way or another and this should not be a vacation desitination. This is not a beach resort – this is a functioning city and economy with a scare amount of land resource. It must be encouraged to be used for people who are in the local economy.”
Couldn’t have said these things better myself. Vancouver needs to take a look in the mirror and decide what kind of place it wants to be. Canada prides itself on its fairness. Is what is happening to Vancouver fair? And if you think it is, for whom is it fair? Is Vancouver becoming another plutocracy?
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I do appreciate someone dealing with high prices head-on, even if we disagree with the endgame of where prices will end up. It’s worth asking what council can do, many of the solutions more ideal require provincial or federal assistance. Not to get anyone’s hopes too high, but IMO we have to start somewhere!
Why is it that the only time I hear phrases like “sophisticated investors”, as well as anything that has the prefix of “executive”, it is said only to pad the listener/reader/viewer’s ego that they are something greater than the mob?
A sophisticated investor is generally someone with a bankroll that they can afford to lose. I don’t think these Asian immigrants are terribly sophisticated. If I could get away with exploiting my countrymen, ravaging the environment, and thieving away resources and money without penalty, I could be a sophisticated investor with lots of money too.
There’s no doubt that Sandy gets in. She has my vote. And if she doesn’t follow through with her words there will certainly be someone younger right behind her who doesn’t have a $125k 1988 house who will be looking to change policy and normalize pricing for his/her generation. You have your chance, don’t waste it.
I agree with Sandy that foreign ownership should be restricted to people that ‘live’ in Vancouver. The housing supply should not be tied up by super rich Asians who are speculating and do not intend to live in the properties.Some buy several properties – lock the door and wait for the price to go up!
Paul
youre a racist!
Note to Paul: keeperofthederp is town poet: see his interjection in that light.
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