Michael Goldberg, Sauder School of Business – “If it’s at the high end of the market, where much of this foreign stuff is, I don’t care. That’s not a social issue.”

From The Vancouver Sun, 20 Oct 2010, ‘World real estate as intertwined as financial markets’

Real estate markets have become just as interconnected as financial markets, so they can be equally vulnerable to volatile swings in global fortunes, argues Michael Goldberg, dean emeritus at the Sauder School of Business at the University of B.C.
“Local housing markets are certainly very open to invasions of capital from abroad, and these can be disruptive,” Goldberg said in an interview.
“When money flows in, people say, ‘Great, we’re on the world map, isn’t that terrific?’”
However, just as easily as it flows in, Goldberg noted that capital can flow out “as somebody finds the next hot place where you simply have to have a condo in the global marketplace.”

In the case of Metro Vancouver, Goldberg said he sides with those who do not believe the city is in a bubble, and he is doubtful that the capital flowing into B.C. from investors, such as wealthy buyers from Mainland China, is cause for concern.
“If it’s at the high end of the market, where much of this foreign stuff is, I don’t care,” Goldberg said. “That’s not a social issue.”

—-

VREAA thoughts:
1. We agree with Michael Goldberg regarding potential for foreign outflow. These foreign speculators are dumb momentum players (buy high, hope to sell higher) and they’ll bail as quickly as the local specs when prices start their inevitable plummet. And, yes, they’ll add to the volatility.
2. We disagree with Goldberg regarding side of the bubble divide. We are, most definitely, in a RE bubble. [We’ll list his assertion in the ‘What Bubble?’ sidebar, for future reference.]
3. We disagree, too, most strongly, regarding inflated prices at the high end of the market not being a social issue. Sure, nobody is out on the street because a home that should sell for $1M is selling for $3M, BUT there are social consequences, most importantly, that a whole segment of educated individuals are avoiding or leaving Vancouver because they are unable to afford housing commensurate with their income and educational level (whereas they can afford such housing, almost everywhere else in Canada and the US). The consequence of this drain is the dumbing down of our culture, the underdevelopment of our legitimate industry, and the conversion of our city into a centre for the fast-and-loose industries that include gambling, porn, tourism, the drug trade, and selling real estate to one another. And that is not even to start to describe the terrible social effects of the misallocation of resources that a RE bubble induces.
-vreaa

24 responses to “Michael Goldberg, Sauder School of Business – “If it’s at the high end of the market, where much of this foreign stuff is, I don’t care. That’s not a social issue.”

  1. What about the issue of facilitating money laundering? Mainland Chinese Nationals are limited to 50K of capital outflows from China, yet are able to buy 2M McMansions cash. Yet, there is little discussion about how this money is routed to bank accounts used to make such purchases.

  2. We have foreign ownership restrictions on Newspapers, Broadcasters and telecommunication companies. Why not have foreign ownership restrictions on bread and butter assets like residential homes? As fast as the hot money comes in, is as fast as it will leave. Do we really want our housing stock to become speculation vehicles for foreigners?

  3. Recent arrivals from Mainland China opened a brothel on West 10th in Pt. Grey about a year ago. The neighbours had it shut down though. There is still at least one brothel up and running in Kerrisdale.
    These places are usually run by criminal organizations and the women are not always there because they want to be.
    The westside has changed dramatically in the last year b/c of Mainland buyers and not for the better.
    At this point, new houses being built on the westside are for Mainland buyers almost exclusively. The only people who benefit are developers and RE agents.
    We need foreign ownweship restictions.

  4. Ok fun question that came up in a conversation a while ago. Say you were going to get your MBA and you felt that the city was in a bit of a delirious RE bubble but also the local university was very big about talking about real estate favorably. Would you go there or would you feel you’d be getting a worthless degree? I’m not even referring to education but in terms of appearance it feels as though they are attached in some ways.

    Put another way would you hire a University of Phoenix guy to manage the financial arm of your company? Obviously past experience holds way more valuable but there would likely be some effect.

  5. We are not in a bubble? You earn way more in Seattle for the same job and a house cost twice than in Vancouver. When Seattle is in a bubble, and Vancouver is not. That requires some high end level thinking.

    For sure that UBC guy must be living in a bubble.

    • Depends on your interpretation of a bubble. Note that recently the talk has shifted towards sales $$$ no longer units etc.

      What this masks is that the market below the ultra-rich seems to be crumbling, the only reason they can still announce big $$$$ is because of a few high ticket houses that have changed hands.

      The question is why / how long this will last, rich people tend not to be too stupid with their money.

  6. @buff_butler
    If you had yourself an MBA from UBC, you would know that the students don’t give a sh.t whatsoever about real estate in Vancouver. More than half of the students come from around the world, and even more leave Vancouver upon graduation!

    “the local university was very big about talking about real estate favorably”. In every serious business school, there is a real estate department. Should they apologize for doing their job? Excuse them for not agreeing with you. It doesn’t mean you’re right and they’re wrong…

    Coming back to the MBA, there was only one optional real estate market (less than 1% of the total curriculum!). The professor was very knowledgeable and I really enjoyed his class. When he introduced himself during the first hour, he said something like: “I can’t predict what’s going to happen with the Vancouver market in the future, otherwise, I wouldn’t be teaching”. He agreed that the Vancouver market was “unusual” compared to other market he studied.

    “Would you go there or would you feel you’d be getting a worthless degree? I’m not even referring to education but in terms of appearance it feels as though they are attached in some ways.”
    That’s total nonsense. You live in such tiny little world… In choosing an MBA program, there are a lot of factors that students take into account. RE prices is definitely not one of them!
    For what rankings are worth, Sauder MBA has been constantly been ranked among the top 100 programs in the world for the past 10 years at least (http://rankings.ft.com/businessschoolrankings/global-mba-rankings)

    My classmates are now consultants, investment bankers, marketing managers, entrepreneurs etc. located around the world. Do you seriously think they care about the RE price in isolated Vancouver?

    Instead of whining, why don’t you start studying for your GMAT? If you get a decent score, you might be able to get in a good MBA program. You also need a good work experience though…

  7. “If you had yourself an MBA from UBC, you would know that the students don’t give a sh.t ”

    “Instead of whining, why don’t you start studying for your GMAT? If you get a decent score, you might be able to get in a good MBA ”

    How presumtuous 😛

  8. I think the question was misunderstood. The question wasn’t in terms of the students; the question was in terms of perception of the university. Instead let’s invert the argument. Robert Schiller boosted his institutions recognition for “correctly” calling the bubble. This is in quotes because there is some luck to it of course.

    Also sorry I clearly offended you. 😛 I’m not saying its a bad place to go by any means however attaching quotes like that to an instution is concerning.

  9. Mr. Poppinfresh

    @buff_butler

    Don’t bother apologizing to “El Magnifico”, he is faaaaar too magnificent with his shitburg UBC MBA degree to hear your mere-peasant words.

    God, what a jackass. I wonder how many of his genius classmates ended up bundling garbage CDOs and selling them to European municipalities and orphanages before the crash, based on some formulas cooked up from the Quant down the hall (you know, the only one in their office with an IQ over room temp). I’m sure they all got their bonuses anyway.

    ‘Magnifico’, indeed. Further proof of why an MBA is a garbage degree. Every few years the latest fad movement in management comes along and dislodges the previous terrible ideas, so that you probably didn’t study anything in common with your genius boss who learned all about how to build a conglomerate or some other outdated stupid bullshit.

    As far as I’m concerned, having an MBA is having a big sign around your neck that says, “I was too stupid and venal to get a Masters in Economics or Mathematics or my CGA/CFA”. I wouldn’t hire one to wash my fucking car.

  10. No worries. The thing is, it seems that bashing MBAs is becoming an increasingly popular sport and, because I’ve myself dedicated lots of time, energy and money into it, I think it’s totally unfair.
    The real problem is that the “MBA” is not a protected name. Whoever wants can open (no offense to the University of Phoenix…) an MBA program and that’s what is damaging its reputation.
    Sauder MBA is clearly a world-class MBA. Absolutely every professors had a Phd from the top Universities in the World (Harvard, Stanford, Columbia, Wharton, etc.). One of my module was even a dual module with Stanford MBA. Again, Real Estate represents almost nothing in the MBA curriculum.

    I’ve read a lot about Tsur Sommerville and now about Michael Goldberg and their analyses about the Real Estate Market in Vancouver. These guys don’t even teach in the MBA! They are part of the “Centre for Urban Economics and Real Estate”, a research centre within Sauder.
    While I’m also bearish on the real estate market in Vancouver and I truly believe that we are in a massive bubble, I also respect their work and opinions.
    I don’t think what they say is impacting in any way the reputation of the MBA program, the Business School or even the University. They might be proven wrong in the future (and I hope they will), it nonetheless doesn’t mean that they don’t genuinely believe in what they preach.

    Goldberg is aware that there is a problem with the Vancouver market: “However, he argued that public officials need to be wary of situations where international flows of foreign capital overtake local demand and create “a market that is overly hot.”

    His solution is to encourage the government to “ease supply”. It makes sense in a way, but I disagree with it. If you ease supply and prices start to decrease, the amount of foreign capital invested in Vancouver RE will vanish, then creating a dramatic housing crash. Vancouver will be left with “ghost neighborhoods” (think Phoenix, Vegas, etc, in the US) and a broke population (houses that are worth a lot less, and an unlimited inventory, i.e. no hope of price recovery). My opinion would be to restrict the possibility of buying a house in BC to only canadian citizens and permanent residents. In that way, you would somehow protect the RE market for dramatic swings caused by foreign investors.

    • The thing is, it seems that bashing MBAs is becoming an increasingly popular sport and, because I’ve myself dedicated lots of time, energy and money into it, I think it’s totally unfair.

      Gee, let me think there for a second. Your bunch created these wonderful “models” that are supposed to be water tight, will make everything bettter. Instead they have destroyed trillions and are still in the process to.

      You guys gave yourself a “Nobel Price” which isn’t one, but you like to think of yourself as scientists and as such you thought you deserve one, so much like a lot of “value” you created you plugged one out of thin air.

      Yeah, I see no real reason why somebody would have harsh words for economists and MBAs these days, you guys are completely unworthy of that kind of attention. After all, without all these “Financial Geniuses” we’d all be broke by now, right?

      • Gee, another frustrated comment. I’m no an MBA advocate, but I don’t see why everything has to be blame on “our bunch”.
        How about blaming it on the brightest mathematicians that indeed came up with these financial models?
        How about blaming it on the governments that have removed all the regulations that prevented banks to provide mortgage to people that had no income, no job and no assets?
        How about blaming those stupid and greedy people that borrow money they would never be able to pay back?

        There are a lot of people that are responsible of the current mess we are in, but it’s so easy and intellectually comfortable to blame it on the MBAs…

        By the way, less than half of MBA graduates are specialized in Finance.

  11. @Mr. Poppinfresh
    “I was too stupid and venal to get a Masters in Economics or Mathematics or my CGA/CFA”
    Are you frustrated because they didn’t admit you in the program or what?
    Almost 100% of the class also has another Master Degree (it’s an admission requirement). That includes myself (Electrical Engineering) and all kinds of other Masters, including mathematics, economics. There were even lawyers and doctors in my class . At Sauder, you can even have a double degree MBA/CMA or LLB/MBA. And most of the folks that specialized in Finance starting their CFA during or right after their MBA…
    Who is stupid?

    “God, what a jackass.” Thanks for the compliment. I return it to you 🙂

    “Further proof of why an MBA is a garbage degree. ”
    If you don’t know what is being taught in an MBA, how can you judge?

  12. Mr. Poppinfresh

    Well, I know for a fact that they don’t teach you how to use fucking Google, since thirty seconds with it taught me that you are full of shit and that having a MA/MS is not an entry requirement at Sauder, just a BA/BA, a 3.3 GPA, and a few years work experience.

    Of course, I’m sure lots of deluded eager beavers in your class has much higher qualifications than that… (though any doctor going back for his MBA probably accidentally transplanted a baboon rectum into somebody’s left vent). Lots of kids get one degree, have no idea how to get by in life beyond a vague sense of entitled ambition, and immediately climb back on the academia stairmaster. The way you talk, I am starting to suspect that’s you.

    As if that matters in the long run. A friend of mine did a JD/MBA at York, now works at Goldman Sachs, and hates his life. This is because he has more self-awareness than a staph colony on an agar tray.

    And if you insist on degenerating this into a pissing contest:

    London School of Economics, Masters in International Political Economy. Nobody fucking cares about mine, either, but at least I read some books that will still be in print in five years.

  13. One of the thing they teach you in an MBA during HR classes is anger management. I don’t have my notes in hand, but I indeed know how to use google. May I suggest you to visit this site? http://www.apa.org/topics/anger/control.aspx

    “Lots of kids get one degree, have no idea how to get by in life beyond a vague sense of entitled ambition, and immediately climb back on the academia stairmaster. The way you talk, I am starting to suspect that’s you.”

    As buff_buttler said: “How presumtuous :)”

    “having a MA/MS is not an entry requirement at Sauder, just a BA/BA, a 3.3 GPA, and a few years work experience.” My mistake. However, from what I’ve seen, most had one. And for those who hadn’t, they had great work experience or excellent GMAT score (except one that was really dumb and I couldn’t figure out how she got in, she was a great artist though).

    “though any doctor going back for his MBA probably accidentally transplanted a baboon rectum into somebody’s left vent”
    How about a doctor that created a promising device and went into an MBA to learn more about Business and get exposure to Venture Capitalists?

    “A friend of mine did a JD/MBA at York, now works at Goldman Sachs, and hates his life.”
    Be a good friend, tell him to quit and find happiness elsewhere. I would be depressed in his position too.

    Anyway, enough time spent on this blog. Have a good sunny evening 🙂

  14. Vancouver has been nominated the most livable city in the world by the Economist Intelligence Unity survey. The survey said “In the current global political climate, it is no surprise that the most desirable destinations are those with a lower perceived threat of terrorism. With this peace of mind, who would not want to live in Vancouver, even for a higher price…The survey also posted that Vancouver scored 98 out of 100 on a comparison of stability, healthcare, education, infrastructure, culture and environment…The prices of homes in Vanouver deserve to be higher then in many other cities…”Everything worthwhile, everything of any value, has its price”… Loretta Young…Please visit http://www.bc-homes.net to find your perfect home and Realtor in Vancouver…

    • [This breathless puff-piece left up, for the record. -ed.]

    • The survey also posted that Vancouver scored 98 out of 100 on a comparison of stability, healthcare, education, infrastructure, culture and environment…

      Culture? Environment? Infrastructure? Education? Healthcare?

      Let me guess, they had a statistical model running with data input from El Gordo which spit out that score.

      But hey, if in doubt: Play the Terror Card. After all, we’re all going to die tomorrow in a fiery anthrax shoe explosion, unless of course, you’re in Vancouver.

    • Ah Renata, a quote by Loretta Young, isn’t that just ducky, not to mention a marker for your intellectual depth. What you need is a walking tour through the Downtown Eastside then a hike through the British Properties followed by taking the exam with this question: “Which is worse?” Hint: it’s the one with all the fat cats running around.

  15. Good grief – where do these surveys come up with this stuff? Just this week, West Vancouver High School had a terroristic threat graffitied on the South Campus wall threatening to kill 12 students. It caused 1/2 the student body at all 3 high schools in W. Van to stay home on Tuesday while police and private security patrolled all schools. This last summer a bomb was detonated at W. Van High. Maybe not the terrorist threats the survey refers to, but terrorist threats nonetheless. And this week, my 12 year old suffered a dislocated knee. We were told she needed an MRI but the wait is a year and a half. Some medical system – it is broken. I paid $700 for a private MRI instead and got in the next day. Thought we didn’t have a two tier system here. And my last nugget of the day? Today Marine Drive was shut down for 2 hours as the police investigated an abandoned briefcase – there was concern it was bomb. Feels like a flashback to the 70s in London. Most liveable city? Questionable.

  16. For some reason I can’t “reply” to the original one, so I have to do it this way.
    ——

    Gee, another frustrated comment. I’m no an MBA advocate, but I don’t see why everything has to be blame on “our bunch”.

    Oh no worries, politicians get blame too, but it started with those fancy economic models after all, then the political process followed. I like to go to the root of the problem.

    How about blaming it on the brightest mathematicians that indeed came up with these financial models?

    They didn’t come up with these models on their own though, much less did they advocate using them in the real world. That was some smarty MBA / Economist who looked at it and said: “Oh, numbers, ohhhh, big numbers…. Oohhh, very big numbers and they are all MINE. WANT!”

    How about blaming it on the governments that have removed all the regulations that prevented banks to provide mortgage to people that had no income, no job and no assets?

    Oh trust me, I blame those too and I have voiced my distaste for what goes as “public policy” these days for a good 15 years. But we’re back at who cooked up the ideas and that wasn’t done by the politicians.

    How about blaming those stupid and greedy people that borrow money they would never be able to pay back?

    Oh I do. But guess what, they aren’t the one that are getting bailed out, it’s the banks and “financial experts”.

    Besides, riddle me this: How can all these vaunted MBAs with their models NOT have seen what was coming? Why are they STILL getting on their soapbox telling us that “everything will be alright” while the real world numbers don’t even remotely show this (unless you squint very hard until they are closed and then imagine things)?

    There are a lot of people that are responsible of the current mess we are in, but it’s so easy and intellectually comfortable to blame it on the MBAs…

    Has nothing to do with being comfortable. I have had issues with the way MBAs and Econonmists see the world for quite a while I have read dozens of books on the subject way before the crisis came to pass and 9 years ago I actually DID realize where we were going but until a few years later I still thought I must be wrong because all these smart people with their MBAs and PhD couldn’t really be that blind and stupid.

    Alas, I was wrong.

    It is also a rather convenient way for the finance industry now to blame the borrowers (and it goes way beyond the housing market btw) and say: “Hey, we just provide a service, don’t blame us.”

    Well yeah, we all can blame you guys because you are the one who cooked the whole thing up. 20 years ago NONE of the “subprime” Mortgages or 0/40 schemes would have flown, but then along come a bunch of MBAs with some impressive numbers and computer models promising everybody to be able to get rich and the politicians, never hesitating when they see a good chance to get re-elected, fell for it hook line and sinker.

    By the way, less than half of MBA graduates are specialized in Finance.

    Yeah, the other half is trying to profit maximize etc.

    I have little love for a lot of lawyers, but at least I understand why we need them, MBAs? Not so much.

    • @Michael

      I can see that we can have a decent conversation, so let me give you my opinion on what you said.
      “it started with those fancy economic models after all, then the political process followed. I like to go to the root of the problem.”
      Well, I disagree with that. Sure, the mathematicians/economists/MBAs (whatever you want to call them) came up with these models, but, in my opinion, the root of the problem is the deregulation that ended up allowing these models to be implemented.
      To make an analogy, nobody blames Ferrari to build fancy cars that can go as fast as 300km/h. There are speed limits on the road to prevent owners of these car to drive dangerously with them (like going at 150km/h in downtown Vancouver). Now, if you remove all speed limits, what will happen? It is the duty of the government to set up rules to prevent people to do stupid things and protect the general population.
      What allowed these financial models to be implemented is the deregulation. If banking used to be a highly regulated industry, there was a good reason for that.

      “Besides, riddle me this: How can all these vaunted MBAs with their models NOT have seen what was coming?”
      I’m pretty sure some, if not a lot, of them did. The problem is their compensations. If they were rewarded with big bonuses to build and sell toxic financial instruments, they would do it regardless of the consequences. It’s greed, it’s disgusting, but it’s the world we live in. The people that speculated with RE in the US or in Vancouver were/are as greedy as them.

      “20 years ago NONE of the “subprime” Mortgages or 0/40 schemes would have flown, but then along come a bunch of MBAs with some impressive numbers and computer models promising everybody to be able to get rich and the politicians, never hesitating when they see a good chance to get re-elected, fell for it hook line and sinker.”
      Good point, but let me ask you something: why did the subprime mortgage crisis didn’t hit Europe as hard as the US? As far as I know, they have brilliant economists and MBAs over there too… The difference between the two? regulations!
      In my opinion, politicians are much more to blame than MBAs, or even the banks (we all know they are greedy and dangerous, but we can’t do without them and they can be kept under control). There is something broken with the US political system. Isn’t it crazy that political parties are funded by private corporations? Isn’t it fundamentally wrong?
      Since you seem to read a lot, I would strongly advise you to read “The Corporation” by Joel Bakan if you haven’t. This is the only book we were required to read before the MBA even started. This book had quite a lot of success around the world. Joel Bakan is a law professor at UBC, he came to talk to us during the first week of our MBA. He is very articulate and says the following:
      -“The Corporation’s legally defined mandate is to pursue relentlessly and without exception its own economic self-interest, regardless of the harmful consequences it might cause to other”
      -“The corporation’s unbridled self-interest victimizes individuals, society, and, when it goes awry, even shareholders and can cause corporations to self-destruct, as recent Wall Street scandals reveal”
      -“Governments have freed the corporation, despite its flawed character, from legal constraints through deregulation and granted it ever greater authority over society through privatization.”

      If you don’t have time to read the book, maybe you can watch the movie made from the book (not as good, but you’ll get the point). You can find it here legally for free: http://torrentfreak.com/sundance-winner-the-corporation-released-for-free-on-bittorrent/

      “Yeah, the other half is trying to profit maximize etc.”
      From the carpenter to the barista to the accountant to the engineer to the CEO, that’s what everybody does when working for a company (see comment above).

      “I have little love for a lot of lawyers, but at least I understand why we need them, MBAs?”
      That’s because you don’t know what they do in the real life. Perception is not always the reality…

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