One Chart – Canada is “a country where house prices still haven’t found fair value.”

“A chart that shows those countries where housing prices still haven’t found ‘fair value’.”

- chart and excerpt from ‘Of housing booms and busts’, David Keohane, ftalphaville.ft.com, 26 Jun 2012 [hat-tip Ralph Cramdown and JS]

[If you find charts eloquent, see also this post from two years back: 'Two Charts: All You Need To Know About Canada's Housing Bubble', VREAA, 26 Aug 2010]

29 responses to “One Chart – Canada is “a country where house prices still haven’t found fair value.”

  1. where’s van on the chart? … pffft!

  2. Whuddup, Belgium?

  3. Interesting that Ireland is back to trend. From analysis I’d seen it looked like there was lots of room left between prices and long-term rent/income ratios.

  4. Renters Revenge

    Great post by Village Whisper about government interference in response to Randal Denley’s recent gibberish in the Ottawa Citizen:
    “If “buying a house is our risk”, why are you arguing against the government withdrawing from what they will cover with CMHC insurance?”
    http://whispersfromtheedgeoftherainforest.blogspot.ca/2012/06/huh.html

  5. Price to rent ratio is 160. I will buy three, if 160 becomes a reality here in Vancouver.

    • It’s not the actual price to rent ratio. They’ve normalized it so 100 is the long term average of each country.

      • If the normalized price-rent goes to 100 I’d buy 3. Of course I won’t have any capital but I would if I could.

  6. http://www.straight.com/article-721466/vancouver/land-trusts-may-cap-prices
    “Author and community-development consultant Michael Lewis says human nature is an often underappreciated factor driving the housing-affordability crisis.

    People like to make a lot of money when they sell their homes in a dramatically rising market. So they’ll take the cash and put it in their pockets rather than offer a discount to the purchaser. And over time, rising prices make it increasingly difficult for middle-income first-time buyers to purchase a home. Here in the Lower Mainland, this cycle of rising prices has dealt large numbers of people out of the housing market.

    Lewis, a member of the Mayor’s Task Force on Housing Affordability, has proposed a way around this. The East Vancouver–based executive director of the Canadian Centre for Community Renewal told the Georgia Straight that community land trusts in other cities and towns have kept the price of housing down by limiting the financial return for sellers. For this to work, a nonprofit corporation acquires and holds the land over the long term. Anyone who buys a home on the property must agree to a covenant setting rules about future sale prices.”

    I doubt this will get much traction but is an interesting way of producing stable house prices.

    • pricedoutfornow

      That sounds like a co-op….

      People in Vancouver would be outraged that they couldn’t make money from buying and selling houses. Don’t be absurd! There’s no other way to make money in Vancouver! (until now, hehe) ;p

      • Similar to a cooperative, but it can support free title individually-lotted leaseholds. The legal structure is there to support this; it’s not popular because, well, you know…

        With a little bit of pro bono work by a lawyer with some vested interests it could be possible to set up a framework to covenant a freehold property with the same stipulations, in a creative form, for anyone who wants to “give a little back” to the community.

        Just thinking outside the box a little so forgive me. It would work roughly like this. A homeowner could bequeath the land of a property to a trust. Buyers would be required to return all capital gains (above CPI inflation) on land to the trust upon sale. This covenant would carry over to subsequent owners. Capital losses are uncovered. This property may sell at a discount to market because of the limitation of upside potential, but the seller can sleep at night knowing he “gave a little back”; the trust could be set up to fund various community based improvements. (And yes, astute readers, this trust may be worth zero.)

        Or something like that. Probably riddled with holes but that’s the concept. I think it’s generally possible to do this but would need to be pored over by lawyers. Would anyone do it? Only the benevolent! The door’s open; any guesses if there would be any takers?

      • Ralph Cramdown

        I thought there were already houses on leased land? Works about the same way, except for the bit about people being surprised, come lease renewal time, that they couldn’t renew on the exceedingly favourable terms they thought they were entitled to.

      • Leasehold isn’t the same because of the fixed term. A covenant wouldbe perpetual and the value wouldn’t degrade near the lease end.

        The reason a CPI deflated price is so powerful is that it capures land lift premiums built into SFH pricing. That is, as neighbourhoods anticipate future density increases land will rise faster than inflation; a clawback towards a trust captures this almost fully. What it wouldn’t capture well is rising incomes, but so what: new buyers will pay what it’s worth to them and pay more; the trust captures gentrification premiums too.

        I know– socialist bunk. But hey everything for consideration :)

      • jesse ->
        Are you suggesting that this system would depend on philanthropy to get started?
        People would have to give their Vancouver land to the trust?

      • Not thinking too much about it, yes that would be the way it would most likely be started. Any imposed decision is likely a non-starter, it would need to be grassroots. In short you would find owners who are concerned about continued speculation and that land values are distorting overall economic viability. They would still be able to sell for a substantial profit, perhaps not the maximum, and they decide how future profits are directed.

        This is just expanding on Lewis’s ideas, extending it away from the institutional sphere into the hands of those who are land rich and want to consider — and act on — externalities. It’s also an intriguing model because, if a viable alternative, it highlights the prevalence of self interest and greed as what’s really going on with the current market.

      • Any system that removes the possibility of future land price increase (over and above headline inflation) would immediately drop the ‘value’ of said land to prices determined by fundamentals. (It would remove the speculative component of the price.)

        Any system dependent on private citizens giving away land will either be a complete non-starter, or will end up affecting so few properties as to be insignificant. You likely know that I agree with your inference that greed has played a large role in our current bubble. But Altruism is not the only alternative to Greed… they may sit at opposite ends of a spectrum, but there are lots of intermediate positions/behaviours in-between. So your logic doesn’t really follow… if people are reluctant to give away their land, you can’t conclude that they are greedy.

        For any system to have a chance of working it has to take into account the natural tendency for many/most humans to try to benefit themselves and those close to them over and above the group; it has to have checks on those group members who try to take advantage of the group.
        It also has to take into account good old fashioned property law. People should get to keep that which they have worked for and purchased.
        It also has to be as fair as possible.
        Perhaps certain regulations could discourage buying for anticipated price gains and encourage purchases for personal use (we’ve seen these suggested previously: provisions like capital gains taxes on properties sold in less than 5 years, etc). Bringing in any such regulations should immediately drop prices closer to fundamental values, as it would decrease the speculative component of the price.
        We’ve commented before, at length, that we don’t foresee any regulations being voluntarily brought in by government to set up any system that would result in falling prices. Remember how we couldn’t get local politicians to say they’d endorse any plan that led to falling prices! So, we foresee a price collapse and THEN, perhaps, opportunities for government to put some checks in place to prevent future speculation. That’s what usually happens in the aftermath of specualtive collapses. There will be ‘Commissions’ to determine ‘what went wrong’. Perhaps there will be real opportunities at that point.

        But any regulation change would have to be very well thought out and it’d have to be simple. It’d be best if it applied some very straightforward pressure on the way citizens approach the market, such that there is less speculation and more actual use of land/RE. There is a strong argument that government ‘irregulation’ [haha] (cheap finance; easy mortgages; mispriced lending risk) has facilitated/caused the current problematic market situation.

      • Some heavy lifting… but illuminating in the context of Dr. J’s modest proposal…

        [CounterPunch] – The Economy of Blood: What the Market Does to Our Souls by ALAN NASSER [Professor Emeritus of Political Economy at The Evergreen State College in Olympia, Washington]

        …”We are witnessing the transition from a market economy to a thoroughgoing market society. A certain kind of society tends to produce a certain kind of person. More precisely, it discourages the development certain human capacities and fosters the development of others. Aristotle, Rousseau, Marx and Dewey were the philosophers who were most illuminating on this. They argued that the postures required by successful functioning in a market economy tend to insinuate themselves into those areas of social intercourse which take place outside of the realm of the market proper. The result, they claimed, was that the arena for potentially altruistic and sympathetic behavior shrinks over time as society is gradually transformed into a huge marketplace.”…

        http://tinyurl.com/dx5qxsm

      • ” if people are reluctant to give away their land, you can’t conclude that they are greedy”

        Indeed, though they are not “giving away” their land, merely giving away the gains reaped from speculative excesses. I could quote Carnegie here but will refrain; the fellow was more concerned with pursuits of competence and value in the hands of a few, not speculative excesses. Not that I disagree with you, just that we should acknowledge that if one sells to a greater fool, one gets money more by happenstance than effort, that comes at the expense of another.

        As I mentioned this only works if people who have the ability to return earnings to their community and are willing to do so; it provides an enduring legacy that captures significant amounts of capital for charitable purposes should things go off the rails next time. And yes I would think the better of someone for doing that, but acknowledge there are other fair uses of capital besides charity and cannot claim to know better.

        Nonetheless, the real solutions, if they are ever found, are likely more than one; this is merely a method not suiting all but suiting some, and should be there for consideration. I maintain that if done in the private sphere it provides additional intrigue compared to those ordained by states.

  7. A 30% correction is implied if Vancouver is at a 160/100 price to rent ratio, and a price to income is about 135/100.

  8. Oh Canada …

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s