‘Frontier Centre’ Opinion – “High home prices can only be solved from the supply side. Open portions of the Agricultural Land Reserve, but only to high density development.”

“Vancouver is in desperate need of new solutions to ease its worsening housing affordability crisis. The 8th annual Demographia housing affordability survey released by the Frontier Centre found that Vancouver has the second least affordable housing market next to Hong Kong. On average, and assuming zero interest, a house in Vancouver would cost the median family more than ten years income. Three years is the threshold after which a market is considered unaffordable.
Mayor Robertson recently announced the launch of a new task force to tackle the housing affordability crisis. The only way to tackle this problem is to focus on getting more housing units on to the market.
Much of the debate around housing affordability descends into discussions about manipulating housing prices by freezing out market mechanisms.”

“In order to balance the concerns of housing affordability and urban sprawl, the city of Vancouver should strike a compromise: open portions of the ALR, but only to high density development. This may not be the optimum solution for families that would prefer to purchase single dwelling homes, but a significant influx of new units would be a countervailing force against runaway home prices. This would also put downwards pressure on housing in the rest of Greater Vancouver. Though opening up broad swaths of the ALR may be the ideal, this seems like a reasonable compromise.
This type of solution would rile people on both sides of the political spectrum, but it would be a dramatic improvement over the status quo. High home prices can only be solved from the supply side. The choice between maintaining the ALR as constituted or opening up portions should be obvious. Infill development can only go so far towards solving Vancouver’s housing crisis.”

– from ‘Time for Real Solutions to Vancouver’s Housing Affordability Crisis’, by Steve Lafleur, New Geography, 9 Mar 2012. Lafleur is a Policy Analyst with the Frontier Centre for Public Policy.

Assuming that “high home prices can only be solved from the supply side” leads most looking for a solution to consider ways of building new supply, and Lefleur offers a version of such a plan. But we note that, like almost every other commentator wrestling with Vancouver housing affordability, he leaves out the most obvious and necessary next step – an implosion of the bubble.
When the mania ends and prices begin their long descent, supply will come from what we’ve referred to as ‘speculative holders’ – not just the obvious flippers and developers, but all Vancouver owners who have been holding property because prices are rising. Most don’t even see themselves as speculators, but they are just that. And, when prices start their relentless decline, their reason for holding will evaporate and they will come to market. There will be lots and lots of supply, without any need to actually create more product. Seems counter-intuitive, but, there it is.
Vancouver will still have sore need for a sensible housing policy thereafter, but the milieu in which it will have to be made will be very different from that which faces us today.
– vreaa

62 responses to “‘Frontier Centre’ Opinion – “High home prices can only be solved from the supply side. Open portions of the Agricultural Land Reserve, but only to high density development.”

  1. High home prices can only be solved from the supply side

    Not if the demand is artificial (speculative) to begin with. If there are already reams of condos sitting vacant or being rented out at cash-flow-negative rates, it’s hard to see how increasing supply provides a long-term solution.

    Here in Toronto, where we have more high-rises under construction than anywhere else in the world (by far), people make the argument that this frenzied building is justified because new condo sales are brisk (which demonstrates strong demand). They somehow neglect to mention that 80% of downtown T.O. new condo sales go to investors, and new condo prices are increasing 7-8x faster than rents.

    • The bubble feeds itself. Artificial scarcity by specuvestors … raises prices … more specuvestors want to get into the game … snapping new developments as soon as they hit the ground … back to step 1. The cycle will quickly go the other way once panic sets in. Then there will be over supply.

  2. Supply side is a zombie theory, no matter how many times its arguments exposed it gets back up for another go.

    Debt. Duh!

    • The moral of that morsel being… In the realm of VooDoo economics – ‘tricklers’ are advantaged at the expense of those upon whom ‘trickle down’ is practiced.

      • The tricklers are steering the boat but unable to navigate the bureaucratic shallows. Imagine if the waters were deep.

  3. Suggesting that Supply is the only way to attack high prices reflects an implicit belief that demand (easy credit) will last indefinitely.

    I thought Canada was waking up to the issue?

    • Most don’t yet really understand, nor will they until the implosion gets underway.
      Heck, even some of those who use the word ‘bubble’ don’t really understand the implications of this being a speculative mania.

    • as long as immigration is set at current levels demand will last indefinitely.

      • Demand from immigrants perhaps, but not aggregate demand. Look F1, the evidence is quite clear where housing bubbles are concerned. The outcome at the conclusion of a period of credit excess generally results in more supply than demand. This, despite immigration has been one of the hallmarks of the bursting US housing bubble. Take note that country also keeps a very high level of immigration and yet every single one of its key cities that attract foreigners has seen price declines, large numbers of foreclosures, increases in the unemployment rate and populations that have responded by sharing living space more efficiently.

        Every single one.

      • Immigration isn’t driving demand. Loose credit is. And that never continues indefinitely. If you address by injecting even more supply, it will crush real prices beyond recognition in the long run.

      • the argument I keep hearing is that, at prices that are 10.6 times avg income locals cannot afford to buy. So how does changing interest rates effect detached home value when locals aren’t buying them? Unless they are wealthy locals who are less effected by changing rates.
        Please clarify:
        -are locals able to afford detached homes at 10.6x avg income? How? (Please keep in mind bank do not lend money in excess of 32% gross income to service mortgage debt).
        or
        -if locals are not able to afford these detached homes then who are buying?
        have at ‘er Chubster

      • Growth in immigration has been trending down for decades, F1.

      • “Growth in immigration has been trending down for decades, F1″.

        wrong
        see blue line on this chart:

      • That’s the thing about F1… he/she ignores past threads (like the one in which I supplied concrete statistics showing a steady fall in immigration rates to B.C.) and keeps regurgitating the same comments.

  4. governments have at least some control over affordability. Use of land is discussed in this post regarding the ALR – but there are other ways local policy makers can effect pricing.
    So far municipal gov’t has not had the gumption for broad policy changes to make more efficient use of land. Hint to decision-makers…adding a 600 sqft laneway house won’t help a family of four afford to live in this city.
    We need a change in land use city wide. Any property over 5000sqft should be changed from RS to RT zoned immiediately – yes, this includes Shaugnessy. This would provide more options for families other than buying the detached home at avg of 11 times annual income

    here’s another comment about land use.

    http://www.fcpp.org/publication.php/4062

    “Local policies geared toward making buildable land available are the greatest factor that policy makers could change if they wanted to improve housing affordability. In markets where governments limit the use of new land for building, shortages occur and prices rise”.

    “Home owners are the majority of voters and it is not difficult to see why policies that limit the supply of new lots and push up the price housing are popular with them. However, prices cannot rise forever and the evidence from the Demographia survey suggests it is time to open up the land for a new generation”.

    • I think the problem we have here is that there are two dynamics playing out simultaneously. Land use is an issue and density makes a difference. It is difficult however to see past the impacts of this period of rising prices as we know they are linked primarily to the policies of the Federal Government, CMHC and the Bank of Canada. It would be more realistic to address land shortages after the current period of excess has worked its way through the system rather than now when poor decisions might be made under pressure. It seems to me that changing zoning now would just give further impetus to the growing bubble while delaying the inevitable correction.

  5. “High home prices can only be solved from the supply side.”

    That policy worked great in Las Vegas; let’s try it here too.

    • Oh yeah that. Well that’s different because Vegas had way more immigration as % of population.

      It might be crazy talk but land use restrictions might actually have saved Vancouver from an even worse fate.

      • “CrazyTalk”… I like that. Indeed, somewhere in the multiverse I like to think that I have a DoppelGanger… An ‘aboriginal’ patriarch named, “Chief CrazyTalk”… who, commanding an armada of birch bark canoes and fiercely painted tribal warriors, efficaciously repelled successive waves of would-be European conquistadors/colonists… and rewrote the history of North America.

        I digress… More germane to this thread is a savvy little ‘deconstruction’ of British ‘supply side solutions’ to the ‘housing dilemma’… DearReaders will be forgiven for experiencing a ‘heady’ and imminent ‘rush’ of déjà vu…

        [UK Guardian] – The newbuy scheme won’t save the housing market: A fall in house prices, not support to purchase overpriced new homes, is the only sustainable way to help first-time buyers

        “The return of the 95% or even 100% mortgage is imminent. Barratt Developments says nearly 20,000 potential homebuyers have pre-registered their interest on the company’s website with the weekly registration rate now hitting 1,500. A look at the construction sector shows it needs all the support it can get. Official figures paint a gloomy picture of declining orders and mounting job losses. The residential sector is particularly downbeat away from London and the M4 corridor.

        But in a market that is missing around 50,000 transactions a month from the pre-crash peak, this scheme is not going to transform the housing scene. Several mortgage advisers have described the scheme as a drop in the ocean. There is also the question mark over government backing for high loan-to-values.

        We should start by asking why first-time buyers are being asked to pay so much for a boxy little house that contains some of the smallest bedrooms, bathrooms and living spaces in Europe. UK homes have always been small by continental standards and the modern standard semi-detached version changes very little. Loading first-time buyers with debt for a tiny plot with an identikit home seems to be for the benefit of existing homeowners, who want the government to support home prices at all costs, and the developers, who are sitting on huge landbanks.”…

        http://tinyurl.com/88v27rv

      • My oh my, feel that warm headless trickle down my throat.

        Nemesis: why to the British serve their beer warm? Because Lucas makes their fridges. The bears are reaping their revenge, but it’s probably not dished as cold as they’d like.

  6. Renters Revenge

    Highrise condos in farm fields. Brilliant. Just brilliant.

  7. In speculative markets, cheap and plentiful money trumps land availability.

  8. Basement Suite

    High home prices can only be solved from the interest rate side. So many people own 2, 3 and more “homes”, that is not a supply issue. Wake up, raise mortgage rates, bubble destroyed.

  9. Oh that report is just brilliant. What the city really needs is to build on its agricultural lands because obviously the reason prices are high is because of low supply. Interest rates have nothing to do with it. (Of course not). I wonder how those fools might explain why housing prices have rocketed up in places like Winnipeg, Regina and Saskatoon and Red Deer….

    Yup. Must be a land shortage there too.

    • craig sterling

      @farmer – whilst I agree with you, it’s always possible (if bogus) for those ramping real estate to make the argument that people want to live as close to conurbations as possible in Regina, Wpg etc al because there’s so much space. This stems from the theory that in Manhattan people want more space; in remote locations they want to be closer together. Nope, I don’t buy it either, but that’s what some might say…CS

      • Hi Craig. Good points. One of the problems facing prairie bubble cities as a result of a building-boom out of control is that cities are being badly stretched to provide services to all the new suburbs that are popping up.

        There is land here all right. Lots of it. When costly property close to the city center is not available the obvious choice is to build bedroom communities and plant row housing on wheat fields.

        Cities, always happy for the new revenue stream that will soon pour in then set about constructing new roads, sewer systems, water supply etc and all sorts of other engineering that is needed to support all those new big box houses (one day, those buyers will seriously regret having bought 3000 square foot homes with solid glass fronts…right after the next energy crisis when they are forced to move out due to the high cost of heating).

        Anyway….The burden on the city ledger grows pretty rapidly from there. You see, now you need fire halls, schools, lighting, traffic control, community centers, clinics and policing for those new areas too. Before you know it, a city council that has not been paying attention has bit off far more than it can chew.

        It is my contention that the prairie cities with the biggest property bubbles are going to be in line for one of the countries biggest shocks when this period of housing mania finally ends. Many of those cities have budgets that are already stretched to the breaking point. What will they do as the cities contract again and the revenues decline? Will they be able to service their debts, never mind complete projects that are commit already?

        I just find it beyond belief that almost every council is behaving the same way and using the same faulty reasoning premised on never ending growth. They cannot seem to see the danger and enlightening them with parallels from the experience of US cities does no good at all.

        The damn fools just won’t listen. But they will hear (eventually).

  10. I keep hearing stories about vast numbers of residences across the Best Rainforest on Earth sitting empty – purchased by “investors” or offshore interests or whatever. When I look at my own neighbourhood, there are indeed oodles of empty homes. But what about the heart of the bubble zone – downtown, the west side, Richmond, etc – is there truth to those stories?

    • @Gord — yes, on the west side, there are a significant number of unoccupied homes. I’ve certainly seen unoccupied homes in my own former and current neighbourhoods and have heard from others about many unoccupied houses elsewhere, so I don’t think it’s an urban legend.

      Recent data I saw on this indicated, IIRC, that 7% of SFHs in Vancouver are unoccupied, but let me doublecheck on this. I think the number of unoccupied condos was estimated at 15 %, but again let me check.

      • @Gord — yes, here’s the reference:
        “up to 14 per cent of our downtown condos and seven per cent of other city homes sit empty, according to BC Hydro records and Statistics Canada data.”
        From an article by Patrick Condon entitled “Vancouver’s Demographic Time Bomb,” March 8, The Tyee.

        Sorry I can’t provide the link directly. (F1, it’s because I was mostly educated in the U.S., where of course no one knows anything about computers.)

  11. If supply was an issue – rents would have shot up as fast and furiously as prices over the last 10 years.

    This is a demand side problem – and if anything there is an over supply of housing, which will lead to a big drop in eq price when demand re-coils. Which it will (or
    Is already).

    • “If supply was an issue – rents would have shot up as fast and furiously as prices over the last 10 years”.

      how? We have rent controls

      • Rent controls have nothing to do with average rental market rates. Rental rates are actually a true reflection of the supply/demand balance.

        Rent controls only apply to current tenants (once they leave a place, the owner is free to charge whatever he wants to the next tenant) and, as you may not know, very few landlords apply the maximum allowable rent increase every year.

      • You really don’t have an understanding of the rental market, do you formula1?

        Makaya is correct.

      • let’s make this simple.
        Yr 1 Rent =$1000/mth
        Yr 2 Rent Control = $1000 + small increase
        Yr 3 Rent Control = $1000 + small increase
        Renter leaves.
        New Lease
        Yr 4 Rent = $2000/mth. Whoah, where did that come from? What about rent control????

  12. At The Tyee, a new seres begins today on local real estate lunacy. I wonder what conclusions it will reach…

    http://thetyee.ca/News/2012/03/12/Want_To_Stay/

  13. Immigration supporting housing demand argument like saying the tide is rising because it’s raining.

    • “Immigration supporting housing demand argument like saying the tide is rising because it’s raining”.

      no, it’s like trying to solve an overflowing bathtub problem by increasing the water flow instead of pulling the plug.

      • Told-you-so-in-2007

        “no, it’s like trying to solve an overflowing bathtub problem by increasing the water flow instead of pulling the plug.”

        Actually, a more accurate analogy would be that it’s like trying to solve the problem of the overflowing bathtub by increasing the size of the bathtub instead of pulling the plug. Pretty stupid, huh?

        You’re so great when you make the bears’ arguments for them. :)

    • May be this will keep Clark’s cup runneth over.

      Desperate for workers, West seeks immigration powers
      VICTORIA AND CALGARY— From Monday’s Globe and Mail
      Published Sunday, Mar. 11, 2012
      Canada’s Western premiers are seeking to wrest control over immigration away from Ottawa to help the West manage its growing skills shortage.

      • Yeah we saw this.
        Is this a way of ensuring as much demand/economic stimulus as possible, in the guise of “need for skilled workers”?

      • when it comes to “skills shortages” it’s never about this country, or this region, or this city needing more people, it’s always about this or that industry or company needing more workers (ie. keeping labour price supply/demand in their favour)

        shame on the country/region/city that is willing to hand over it’s fate to a company.

  14. southseacompany

    There’s lots of land supply out there, but it’s held by a small oligopoly of developers. Concord Pacific still has land to develop on False Creek, plus they, and others, have invested heavily in Richmond and Surrey centres. British Pacific Properties still owns all of the slope of Hollyburn from the existing Brit Properties to Horseshoe Bay, Wesbild owns large tracts of land on Burke Mountain. Many others have invested in industrial areas. None of these developers want to see a lot of supply hit the market and only release small amounts at a time so as not to flood the market and put downward pressure on prices. I’ve heard P*t*r W*bb of C*nc*rd describe this strategy. So, supply cannot be dismissed as having some effect on prices, as these developers do strategize to control it. I doubt that the ALR would ever be opened up, unless these developers have invested in it, and I haven’t heard that they have.

  15. Don’t know much about the economics. But I can say that as soon as I hear “open up the ALR” I tune out whoever is saying it. It’s completely and utterly shortsighted.

  16. What EG said. Developers are always after the ALR. WTF? There is plenty of vacant/ underused land in the city that can be rezoned for high density without forever destroying already rare, productive agricultural land.

    • Dave on VanCondo managed to convince me that developers are greedy, selfish, and a little bit slow. Although I don’t know that he’s a developer, to be fair.
      Still, “Give us the ALR” and “make sure we’re not paying any taxes”: that appears to be the depth of the thinking.

      For a closed group that regularly gets government handouts or other support, who are working in an asset bubble and are allowed crazy Strata-robbing rules (like payment for use of the elevator), and who are asked for very little long term accountability to the quality of the crap they are building – well, I must admit it’s developers rather than realtors or even mortgage brokers that irritate me most. They just don’t appear to stop whining, lobbying, demanding.

      If you can’t win when the deck is stacked in your favor, I think maybe instead of whining, you should *stop playing*.

  17. Many blame the HAM for the ever rising house price. Well, I say we can learn from China on heading off the speculation too.

    75% down payment for loans to purchase of 2nd property and no loan whatsoever to 3rd property and beyond.
    1st property must be the residence, set criteria like physically living in the house for at least 6 months each calendar year.

  18. “High home prices can only be solved from the supply side.”

    Well, if they were talking about the money supply, they’d be right. A prolonged easy money policy of record low interest rates guarantees an asset price bubble somewhere. Couple that easy money policy with CMHC-guaranteed mortgages to minimize bank risks, and that asset bubble will be in real estate. Every time.

    New houses are more important than growing food anyway. Don’t you guys ever watch HGTV? Agriculture. Pffffffffft. Farming is for losers.

    • Basement Suite

      “A prolonged easy money policy of record low interest rates guarantees an asset price bubble somewhere.”

      Correct. Raise mortgage rates, bubble obliterated.

    • “can only be solved” reminds me of the statements made by my older cousin at Thanksgiving. So sure of himself, so black and white his thoughts, nobody had the heart to tell him. Nor should we, the lad was born with it and he couldn’t help it.

    • Farming is for losers? Most think that way. Right up until they start asking the tough questions like “who exactly are those people that are earning incomes in the top 10% of all Canadians”? Or this one…..who are the big landholders in Canada…….. or even, who gets the best tax breaks just for being part of an occupational group.

      And you thought is was doctors and lawyers.

  19. It’s OT, but related to our local economy. Richmond Tourism is hiring a food blogger and will pay $50k + free accommodation + all daily expenses at local restaurants for 365 days.

    My family and I have been noticing the state of affairs at local restaurants in the lower mainland after the Christmas-NY season. The traffic has dropped, much worst than the 2008-2009 period, almost approaching the level during the late 90s. Are you seeing similar in your neck of woods?

    • Yes, down here in south Surrey/WR I’m seeing a lot of near-empty restaurants. But (and I know I’m repetitive here), I also see gobs of traffic all day long every day headed over the border, presumably for affordable gas/groceries. I have no hard stats to back it up, but it *seems* like there’s at least double the traffic now than a year ago.

      Gotta get a break from the madness wherever you can.

    • Let’s see, ToL… In the HillBillyRiviera the King’sGarden has recently barricaded its doors… (albeit they have posted some optimisitic signage to the effect that “new management” may yet salvage the operation)…

      The “Chinese Laundry” recently burned to the ground (together with its companion building and former Bordello, the notorious “SlackAlices”)…

      Prior to that, the WhiteSpot became a TarSpot…

      Then there was Earls. It ‘tried’ to burn to the ground – but the Brigade either arrived too soon and/or they were so ‘pumped’ at the thought of their collective hoses making a special impression on the GirlzOfEarlz they ‘tried harder’….

      And of course, there was the notorious FusionRestaurant… which, predictably enough, lived up to it’s name and became indistinguishable from its molten ashphalt parking lot faster than you can say, “accelerant”.

      Apparently the Hortons of T are faring reasonably well (there are 3 here, in close proximity, which should tell you everything you need to know about the HillBillyRiviera) .

      In other news economic/quantitative, 3 years ago aspirant OkiMallRats only had to contend with 2 vacant storefronts – whereas today… 7 unoccupied premises in the CherryLaneMall are definitely crimping their public displays of adolescent consumerist ‘tude…

      In what passes for the local ‘HighStreet’ there have been numerous business closures and only two new ‘enterprises’ that I am aware of (one a PawnBroker and the other a PayDayLoan emporium).

      Speaking of PayDayEmporiums, StockWellDay has yet to remove his signage from the once GrandOld PostOffice… and the local offices of the national ConservativeParty share premises with a Tattoo parlour (not to be confused with RicardoMontalban’s PetMidget). The TattooParlour, predictably, is more popular.

      In more jovial news, a HighStreet RetailJeezus storefront ministry recently rebranded itself as “Cheers!” and removed the intimidating signage that had once proudly proclaimed, “Here to set God’sPeople Free!” [while forgetting to eradicate the steel security grilles which either 'protect' their premises from GodLessPagans and other patrons of Hortons 'o T or otherwise contain the CheersCongregration during their more boisterous celebrations].

      While not an econometrician, random micro surveys indicate local employment opportunities running at less than a quarter of what I would normatively expect for a community of this size in a ‘healthy’ economy.

  20. “The 8th annual Demographia housing affordability survey released by the Frontier Centre found that Vancouver has the second least affordable housing market next to Hong Kong.”

    .. out of the 7 English-speaking countries it studied.

  21. “In order to balance the concerns of housing affordability and urban sprawl, the city of Vancouver should strike a compromise: open portions of the ALR, but only to high density development. ” <<< I didn't know that the city of Vancouver had 40 Acre lots of planted potatoes, corn or peas.

    What are they going to do?? muscle Chilliwack into compromising 'high' density buildings on corn fields?

    Keep taking away farm land and expect all fresh vegetables to be imported from mex-cali? I live on ALR land and wouldn't give it up for anything, keep destroying to become dependent on others makes 100% perfect logic.

    these problems will sort them selves out soon enough, but not by sticking fingers where they don't belong.

    • and then a little boy asked: “it there is demand for more housing, why don’t they put the high density development where people want to live?”

  22. As other posters have mentioned, it’s the supply of cheap easy money that is the supply problem in this equation of sky-high housing prices. Taking away the low interest rates will have the same effect as heroin withdrawal on a junkie. One has to go through withdrawal at some point to get better though.

    At least heroin junkies shoot themselves up, and they have to deal with the direct effects of the drug. We’ve had central banks giving the equivalent of heroin injections for the world economy with low rates for almost 12 years now with all kinds of direct and collateral damage.

    Using up agricultural land (ie productive land) to try to increase the supply of needless housing is probably the stupidest thing one could do in this situation.

  23. F1, people buy more than they can afford all the time. That is one of the things that makes a CREDIT BUBBLE.

  24. Yet another FAIL from an Vancouver intellectual. I wasn’t aware that Vancouver had a lot of farmland. And it’s a little annoying that Vancouver assumes it’s issues exist in every borough. There’s lots of commercial land available for density in the Tri-Cities. Coquitlam is building unsold houses up Burke Mtn. And the urban joggers and cyclists consistently vote down any changes to their green escape. The last vote was a moratorium for 15 years, from primarily urban voters. There’s lots of places for sale out here. One developer has put a phase of mega townhouses on hold near Pitt River bridge. Some areas did open up ten years ago and that went to big, sprawling suburban homes.

    “open portions of the ALR, but only to high density development. …..High home prices can only be solved from the supply side.”

    I read Frontier Lafleur’s theoretical quackery as a desperate enticement to the development lobby. The ‘analyst’ is yet another urbanization addict. The goal of the semaphore commentary isn’t residential occupation—it’s actually a secret message to promote construction enthusiasm, an illusion of growth and last ditch land grab directed at other jurisdictions. Lafleur’s Keynesian supply dogma is unraveling worldwide in bailouts. Lower housing cost? Reduce the borrowed margin, the debt leveraged growth, reduce the fraudulent liquidity insured by my tax dollars.

    Vancouver has countless issues, but one of their biggest is myopia. Oh my, look at all the housing vacancies in the valley…

    Have a happy crash :)

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