“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.
Posted in 12. Effects of Development, 15. Misallocation of Resources, Uncategorized
Tagged Anecdotes, British Columbia, Bubble, Canada, Construction, Housing, Real Estate, sellers, Speculators, Vancouver
“I just found out my ex-girlfriend is now a mortgage broker.
I shudder to think that someone who was so financially irresponsible is now advising people on their biggest purchase in life.
I don’t know what you need for qualifications to become a mortgage broker these days, but she has no degree, worked pretty much in sales and call centers her whole working career, can barely manage her own finances.”
- 4SlicesOfCheese at VREAA 8 Mar 2012 5:14pm
[chart care of b5baxter at vancouverpeak.com 8 Mar 2012]
“Here it is dead. Dead. Dead. Remember 2008? It was the year where the spring never came, listings soared and sales evaporated. Vancouver is really trending down that 2008 line right now but stats in all areas are really worse than 2008. March is on pace to have sales down 30% at least over same month last year.”
- Vancouver Realtor ‘Darren’, as quoted at greaterfool.ca 8 Mar 2012
You only die once.
Perhaps this is it.
“During a lecture last fall, I asked my 200 undergraduate students to raise their hands if they believed they would someday own a home. Only about one in 10 thought they would.
My reaction at that moment was shame. I am one of the lucky ones. Born in the great baby boom glut of the ’50s and ’60s, I and most of my peers own a home.
But I fear this will not be the case for my students. Confronted with salaries that have stagnated for almost 20 years, they are faced with a housing market where the real cost of owning a home has increased by 300 per cent during the same time span.”
“Vancouver baby boomers are mostly sitting pretty. While our children struggle to pay high rents, never mind a mortgage, our net worth has risen to a million dollars or more just by sitting in our living rooms. And none of us want this gravy train to stop. City officials in Sydney, Australia, where similar price-to-earnings anomalies have emerged, recently clamped down on house purchases made by outside investors. In Vancouver, to even to mention such a thing is political suicide. Anyone who has bought into the system, however painful the entry fee and however long ago that payment was made, has a deep investment in ensuring that housing values continue their rapid rise.”
“Four units per typical lot. Under present economics, it is just barely possible for the average two-income family to purchase a million dollar home, but only if they have two units to rent out. In most parts of the city, current regulations prohibit subdividing these three units into strata units. This prevents two of the three families from sharing any equity benefits as home values rise. This should be changed as soon as possible. But this is only part of the solution. Given the average incomes in our city, the numbers work out much better if there could be four, not three, units per lot. Given current land prices, this would make it possible to purchase your own two or three bedroom home, with a small garden, in an established neighbourhood, close to schools, for under $500,000. There is a second important benefit as well. Permitting four strata units per lot would allow elderly single family home owners to stay in their home as it is renovated, while liquidating two-thirds or more of the equity they have accrued. Imagine what a benefit this could be to them or their children.”
- from ‘Vancouver’s Demographic Time Bomb’, Patrick Condon (“professor at the University of British Columbia; holds the James Taylor Chair in Landscape and Liveable Environments”), The Tyee, 8 Dec 2012 [hat-tip nonymouse]
1. 20 years in which wages are flat and housing prices are up 300%-real? Anybody really believe that is vaguely normal? Clearly a bubble.
2. The 4 unit standard lot idea is interesting, and this kind of densification has been suggested by some on these pages. Does the math work? At current prices, could you really get 4 townhouses/condos built on a standard lot for $2M ($500K each?)? I don’t think so; definitely not where lot prices are now in the $1M-$1.8M range. So, prices will be significantly more than $500K. Also, how much square footage are we talking about in those ‘two or three bedroom homes’? 1000? 1200? 1400? Lastly, how about build quality. Will you be living in a poorly-constructed wooden structure with two aspects of your home in direct contact with your neighbours? We suspect so. Essentially, all of these kinds of plans amount to people getting very poor value. Very modest digs at very high prices. It still amounts to asking them to accept far less and to pay more. Compare the units that would result from this densification with the recently featured $500K Seattle home, in a good part of town. No comparison.
Many current calls for densification amount to attempts at keeping prices for current product at high levels; if you can chop it up into four parts and sell each for ‘x’, then the current property must be worth at least ‘y’.
3. As regular readers know, we believe that housing is overvalued by a factor of 2 or 3 in Vancouver, and many of these ‘affordability’ issues will rearrange themselves once the speculative mania implodes. The challenges will look very different. If Patrick had asked his students “How many of you plan to own a home if they were selling for 33% of their current prices?”, he would have gotten a more robust response (and one more reflective of future reality).
“We had lived here in Squamish for about 14 years when we bought a townhouse at Highland Glen. Almost as soon as we bought, prices went down to the point where we had lost the deposit that we had paid and would have had to pay out of pocket for any realty fees if we had sold. I hated that feeling of having overpaid. Even though we had just bought and had no intention of selling it used to eat me up that we were for all intents and purposes underwater. Some people claim that they don’t care if prices go down since they are buying a “home” and not an investment, but I doubt they know what the reality feels like. Personally I’m glad that we had that experience, it gave me a short, sharp lesson in the fact that real estate can go down as well as up.
Five years later we saw that things were on the up swing and decided to buy a house. By this stage prices had recovered to the point that we would be able to sell for the price that we had bought five years earlier. By some stroke of brilliance/luck we decided to keep the townhouse and rent it out when we bought the house. That year house prices went up 28%, a very nice year to own two properties. A year later we sold the townhouse and reinvested in another property outside of Squamish that had a better cash flow. Renting the TH for 1 year resulted in a capital gain of $100k- Lesson number two: House prices can go up as well as down.
Over the next seven years the value of our house increased rapidly, more than doubling. Our investment property also doubled and I saw that we had likely maximised the short term capital and decided to sell- Lesson three – paper gains are just that until you sell. This set us up to being open to sell our principle residence when we saw that the market was declining. If we had got super lucky we could have made another 100k by selling a bit earlier.
Many of our friends thought we were mad selling the house, I think they are mad not crystallizing their once in a lifetime capital gains. What can’t continue won’t continue. Anyway we are happy renting for now and will continue until it makes sense to buy, which I don’t see happening any time soon.”
- <a href="http://vancouvercondo.info/2012/03/friday-free-for-all-195.html#comments”>Bailing in BC at VCI 4 Mar 2012 at 1:38am
[Part of Bailing's story has previously been told on this site. -ed.]
“The Bank of Montreal poured cold water on the idea Canada’s housing market could be headed for a crash” … “Expect the housing boom to cool rather than crash”…”While the housing boom is unlikely to continue unless mortgage rates drop much further, neither is it likely to bust.” … “In our view, the national housing market is more like a balloon than a bubble… While bubbles always burst, a balloon often deflates slowly in the absence of a pin.”
- BMO’s chief economist Sherry Cooper and senior economist Sal Guatieri, ‘No housing crash coming in Canada, BMO says’, CBC, 30 Jan 2012
“We’ve always said the market remains vulnerable to a correction in the face of a shock. It could also “pop” in the absence of a shock should current frothy trends persist.”
- Dr Sherry Cooper, Chief Economist, BMO Capital Markets 6 Mar 2012, on Toronto’s RE market
[hat-tip to Zerodown]
1. Something has changed in the last 35 days?
“I opened a copy of the [17 Feb 2012] ‘Delta Optimist’ today and ended up in the RE section [pA25], where I saw a big *half-page* ad that read thusly:
“My name is Ingrid – my husband and I live in Richmond and have 6 children. Late last year we bought a rancher in Boundary Bay from a lovely lady who moved to Vancouver Island.
Here’s our dilemma: We completely renovated this cozy rancher hoping to sell it as an investment. Now that it hasn’t sold, we are carrying more than one mortgage and would like to remain in Richmond. We are willing to sell far below market value because a similar renovated rancher sold for $949,000 on the same street and we are willing to sell for $729,000.
Our realtor will be holding an open house this Sunday at 2pm sharp. If you have any questions, please call…”
Now, this could be typical realtor bullshit, but I’d rather think it’s more anecdotal evidence that 1) People are taking on WAAAAAY more than they can handle because they’re told BPOE RE always goes up in value, and 2) This bloated pig is exploding…”
- posted by ‘gordholio’ at VCI 3 Mar 2012 10:10pm
Real brazenly obvious speculators, so the ‘spotting’ isn’t that difficult, or that much fun, in this case.
“Below Market Value” sales always make us laugh. Whatever this sells for is, of course, the market value.
Posted in 11. Regrets about Investing in RE, 15. Misallocation of Resources, 16. Missed The Boat?, 18. Spot The Speculator
Tagged Anecdotes, British Columbia, Bubble, Canada, Real Estate, sellers, Speculators, Vancouver
“Good little story about Kelowna. My buddy’s house has been on the market for a long time and out of the blue he got a bite. It sold for about 5% less than asking and when they were $4K apart he stood his ground and told his Realtor that if he wanted this to happen he and the the other Realtor would have to do something about their commission to make up the $4K because he wasn’t dropping anymore.
At first they said ok, then they said it couldn’t be done, then they said they needed an extra day and sure enough the two of them ate $2K each and the deal got done. Good for him for holding his ground as the realtors tried to wait him out and hoped he would cave.
Even better, he signed a 2 yr lease on a recently renovated 3 bedroom townhouse at the Lagoon’s on the lake for $2200 per month. He figures the place is worth $900K – $1 mil.”
- McLovin at VCI 24 Feb 2012 7:46pm
Mike Shedlock, blogger at ‘Global Economic Trend Analysis’ [3 Mar 2012 2:16pm], consistently rated one of the top financial blogs in the US, writes: “Inquiring minds seeing new data on Vancouver’s massively overpriced real estate just might be seeking new comparisons to other places. First, Let’s take a look at what $890,000+- will buy in Vancouver:”
2119 East 3rd Ave, Vancouver
MLS® Number V934050
Listing Price: $899,500
Description: “This 1 ? story home has been extensively renovated over the last few years. The spacious kitchen has birch cabinets and Soapstone counters and opens to a 20×12′ deck. On this level are 2 B/Rs and a modern 4pce bath. Upstairs has an office/den area, a 4pce bath and a big master B/R with a W/I closet and 12×8 view deck. The bsmt has a 1 B/R suite rented at $960 P.M. and the attached garage has been converted to a workshop with French doors opening to the fenced garden, with B/I bench, a patio and a kid’s sandbox.”
Mish comments “That creative listing puts a new meaning to the the word “upstairs”. Is the number of stories listed at “1?” really in question?”, and then gives two other similar Vancouver examples, one with touted “amazing views”, before continuing:
“With those bargain listings in hand, let’s consider a single property sale that just took place in Ireland. The previous price for the Sandhouse Hotel located in Donegal, Ireland sold at auction was $6 million.”
“Paul Diver has purchased a spectacular 55 bedroom hotel overlooking the Donegal coastline for a mere $860,000, down from the $6 million price the original owners sought for the Sandhouse Hotel three years ago.”- msnbc.com 2 Mar 2012
“There you have it: “amazing views” in Vancouver for $899,000 vs. “amazing views” in Donegal for $860,000.
It is indeed “different” in Canada.” (- Mish)
A comparison to make even Vancouver bears feel sheepish.
“My parents live in South Surrey and my dad is a former contractor. They toured a show home in a recently constructed, $1 million+ development, and my dad was shocked at the shoddy construction and low-quality building materials.
My spouse and I have been looking at condo rentals in Vancouver and we would not even rent, let alone buy, most of the newer ones. I can’t tell you the number of doors askew, floorboards creaking on uneven floors, and paper thin walls we have encountered.
Not to mention the ridiculous floor plans–why do people need 2.5 bathrooms when there no space for a kitchen table? The condos seem to be designed for roommates or childless couples, not families.”
- Sheesh at VREAA 2 Mar 2012 9:52am and 12:28pm
“I am back in Vancouver from California today to take care of some more moving out business.
It feels like the permafrost here, pouring rain, traffic jams everywhere you go, and the teachers are on strike…Hahaaa!
I am supposed to be here for a week but I feel like going back tomorrow.
This place looks and feels like the @hole of the world on a rainy day. And it rains forever.
Moving to California seems to be going smoothly, got my social insurance number, had to get my drivers licence and found a nice rental house with swimming pool for $2000 / month. Car insurance is about 35% cheaper than what I pay here and private healthcare insurance costs me $430/month for a family of 4. I have yet to try it to see how efficient it is compared to the 6 month wait for a CT scan in BC.
Like it or not, sunshine brings a completely new dimension to quality of life. I only regret that I did not leave before.
This place is a dump. Absolutely.
I can’t wait to go back to California. I don’t think I will ever come to live here, even if RE crashed by 60%. The grass is greener on the other side, really.”
“Real estate is still expensive here, I agree. But here is a house about 1 mile from where I live selling for $1.3m.”
7209 Sanderling Ct, Carlsbad, CA 92011, 3700sqft SFH, $1.38M
“Compare that with almost any house in Vancouver selling for $1.5m.
And the saddest part is that the idiocy and pain will continue in Vancouver for a long time until the city is completely stripped of its character (whatever is left) and middle class. Those things don’t happen overnight, it takes time for people to notice it on a daily basis.”
- paradox at VCI 2 Mar 2012 5:29pm & 8:13pm
“Dude, the economic freak show is now a big *part* of the city’s character. Come to Vancouver to see 18 year olds racing Maseratis and welfare moms living in 2 million dollar shacks. The guy collecting pop cans is a millionaire. It rains all the time and people say its great. Both newspapers and the main tv channel assure us this is paradise, and you should be happy paying a lifetime’s worth of earnings or even more to live in a coffin with a kitchenette. And people walk around repeating this shit like they have brain-slugs attached to their heads. BPOE!”
- rp1 at VCI 2 Mar 2012 11:18pm
Some strong words. These posts recorded here because they do reflect the degree of disillusionment that some are experiencing.
We’d agree that there are many fine places to live, but we also believe that Vancouver is still one of those fine places.
Vancouver RE is, however, very, very overvalued, and this is crippling the city. We are locked in a speculative mania. Housing would have to drop 50%-66% for it to be even vaguely competitively priced, when compared to viable alternatives. And even after such drops it would still carry a ‘Vancouver premium’.
Until prices revert, osmotic pressure will force many sensible folks away.
This pressure is profoundly deleterious for Vancouver and the area.
Take a look at this post at Mike Shedlock’s very popular US-based ‘Global Economic Analyst’ blog, comparing East Van $900K SFHs with what the same gets you in Ireland. It’s beyond bizarre. As Mish says “It is indeed “different” in Canada.” (We’ll headline his article later).
The Financial Post publishes an article titled ‘Why we’re in trouble if housing craters’, by Tim Shufeldt, FP, 23 Feb 2012.
The ensuing comments:
“Real estate prices in Canada have to come down, because it’s not different here…” – Rafinator
“It’s bad enough that the market can create bubbles on its own. It’s much worse when the government creates bubbles.” – NewWorldPartDotOrg
“Housing bubble is there in Canada and will collapse soon.” – Nickk
“In my experience, many foreclosures are the result of divorces and not just job losses while prices rise since two houses are now needed instead of one.” – Green is the Colour
“As was the case in the United States, certain of Canada’s real estate markets are becoming increasingly less affordable by average families. As shown in this article, out of 35 major real estate markets in Canada, only 9 are considered affordable with 6 being considered severely unaffordable when measured in terms of median price to median household income.” – Georgiaorwell84
“It’s too late….we’ve already passed the point of no return a long time ago. Everyone who’s in debt may as well borrow the rest of their margin and throw a big party. Go out with a big bang…….” – TOC
“Tell us something we don’t know.” – Mithan
That’s it. That’s all the comments.
At FP, not some loonie bear blog.
We know what’s up folks.
All it’s going to take is a price move to the down-side, a decent shove, and we’re off down the bobsled run.
Everybody, out of the pool!
“In Vancouver, for example, listings are running 20% ahead of last year while sales sag by the same amount. Richmond’s sinking. Condos have turned turgid and illiquid. But the real news is what’s being heard on the street.
“People now think it’s a bubble,” our well-connected realtor source reports, “and so they are hesitant to buy. The main change now is that people actually think this is over and the only ones here buying are the few remaining Chinese and those who just can’t avoid a transaction (or whose fortunes do not depend on it). Looking forward to the month-end stats – they will be brutal with (again) only 2009 being worse in the past decade.”
- Garth Turner at greaterfool.ca 29 Feb 2012
“My wife and I bought a two bedroom condo (Vancouver suburbs) when we had our first child. Had a second child, things were fine. Had a third child, and things went off the rails. The third ended up having a laundry/pantry room as a nursery with a portable crib. At the same time the condo (our building, but not our unit) sprung a massive multi-million dollar leak.
We bought a house with some family help and moved out, but decided to keep the condo because we couldn’t sell it while it was tarped up. We rented it out (for less than the mortgage payment) to a family that burned every countertop, the carpet and the vinyl balcony deck with a hot pot. They moved out and another family moved in – with a cat, and with a kid that drew on walls. All while we were paying out an ever growing series of special assessments for the building repairs.
We finally decided to cut our losses and sold the condo for half of what we paid for it. Net net we LOST an amount equivalent to the original purchase price.
Moral of the story: Don’t buy a home that doesn’t match your stage of life and that you don’t plan to be in for a good 10-15 years. And don’t buy a leaky condo.”
- Leaky Condo Hell at VREAA, 29 Feb 2012 at 7:59am
“This Macleans article is all about predictions.. no difference than economist, fortune tellers, mayans
The fact is that Toronto and Vancouver are the most attractive cities in the world and foreigners are trying to bust down barriers to enter these two cities to lay their roots. Here’s why the RE boom will continue:
- Lots of immigration coming in; esp professionals and high net worth families
- Best banking system and excellent government policies in place
- Very competitive in the resources/oil/financial sectors
- Consistently ranked by all financial publications as the best cities to live in the world
- Best educational system in the world
- Diverse, multi-cultural, polite population that are always welcome to foreigners
- Interest rates will stay low for a very long time (think Japan)
- The Conservatives show us that time and time again that they are pro-RE and will not let prices fall at all
Here are the prices for Toronto and Vancouver in 2030:
Vancouver -> [see chart above]
Stop throwing rent down the rent [sic] and filling your landlords shorts with money bags, stop dumping money into risky and volatile stocks or savings account yield negative interest rates..
Be an OWNER and not a renter and GET RICH”
- BobJJones commenting at Macleans 28 Feb 2012
Saved here for the (somewhat broken) record.
“Yes, Virginia, there were people who were still this bullish on Vancouver RE, circa 2012.”