“My family is from Ireland and what happened there is no different from what is happening here in Vancouver, in that the psychology of real estate has permeated everything.”

“My family is from Ireland and what happened there is no different from what is happening here in Vancouver, in that the psychology of real estate has permeated everything. In both cases, greed has taken over, with people bidding up insane prices for houses that have no intrinsic worth. Platitudes such as “the land is what you’re buying” and “real estate is a great investment” overwhelm any rational discussion of what someone needs for shelter actually are. It’s all about ‘investment.’”
Sean at VREAA 5 Sept 2011 2:04pm

35 responses to ““My family is from Ireland and what happened there is no different from what is happening here in Vancouver, in that the psychology of real estate has permeated everything.”

  1. The Canadian RE market is often compared to that of the USA, but perhaps Ireland is a better comparison. The destruction of wealth that took place there when their RE bubble crashed was truly stunning.

  2. I work with someone from Ireland. She argued with me about how real estate isn’t inflated in Burnaby. Her particular story has something to do with the houses in her neighbourhood not being priced for first time home buyers because she moved up into it. So others will have to sell to move up into it. She misses the fact that she’s describing a pyramid scheme. But after a trip to Ireland recently she was less sure of herself. She conceeded that I might have a point after all. She saw homes skyrocket into the the 700-800 Euro range only to drop right back down to the 200-300 Euro range. Last time I spoke to her she was back to predicting a modest, 10-20% drop in local prices and then years of flat. I guess it doesn’t take long for the reality distortion field to kick back in once you get within the media bubble of BC.

    • Great point you’re making there, lex, regarding the effect that those around you have on your cognitive ‘set’. It’s at its most extreme in cults.

      Daily challenge:
      “The Vancouver RE market is a cult. Discuss.”

  3. BC and Ireland population is almost identical. BC net migration is +45,000 and Ireland net migration is -35,000. I think we’re now done with comparing Ireland to Vancouver.

  4. actually vancouver had a negative migration number in 2010 people are leaving in droves, been across canada and the united states in the last year and there are many great places to live and raise a family at a fraction of the cost of vancouver

    • Yes, housing is 2-3 times over-priced, and is causing some to leave, and others to avoid coming here in the first place.
      When the bubble bursts, the economy, being so overdependent on RE and related activities, will take a bad hit and probably eject even more folks.

      All part of the crippling misallocation of resources caused by a speculative mania in housing.

  5. post your stats sebastian.
    I see Vancouver gaining 45,000 in 2009/10 (year end is July 1).

    Click to access migrationcomponent.pdf


    If you have stats that show something different we’d like to see it.

    • Jesse, were you the one who had the outmigration stats in… was it 2010 Q4? Rollie, there were changes to the temporary worker program that caused a net-migration reversal, although I’m not sure where they are.

      • Bubble symptom: ignoring recent data because it conflicts with the conventional wisdom:

        from Stat Canada Quarterly Demographic Estimates:

        The population of British Columbia was estimated at 4,563,300 on April 1, 2011, an increase of slightly more than 9,200 (+0.2%) since January 1. This is the smallest population increase for a first quarter since 2005. In the first quarter of 2011, British Columbia posted net international migration slightly over 7,000, the lowest level for a first quarter since 1998. Additionally, the province’s net interprovincial migration was slightly negative. This is the first time since the second quarter of 2003 that British Columbia has registered a loss in its exchanges with other provinces. The province’s largest deficit was in its exchanges with Alberta (-900).

        from BC’s own central1 credit union

        Weak population growth through 2013 will be a
        limiting factor for housing over the forecast horizon.
        The provincial population is forecast to expand at a
        lackluster rate of 1.1% this year, and fare only slightly
        better in 2012 and 2013 with 1.2% growth.
        The slow pace of growth will refl ect a drop in the
        number of landed immigrants to B.C. from international
        markets this year and increased net outfl ow
        of residents to other provinces, primarily Alberta,
        in 2012 and 2013. This interprovincial net outfl ow
        refl ects the stronger rebound in Alberta’s economy
        and improved labour market conditions.

        What’s really interesting is that there were only 2900 BC births in Q1-11. Furthermore, BC will see international immigration cut in half this year compared to last and then in half again for 2012. Do you think it’s a coincidence that prices are down since June?

  6. True population grew in 2010.

    What has amazed me in the past 10 years is how BC’s “manufacturing” base has deteriorated. This has been picked up by a boom in construction, in other words manufacturing jobs were lost and construction jobs gained almost 1 for 1. The problem should not be understated here: one activity is for investment the other is for production/consumption. One day I’ll elaborate on the difference in more detail but quickly, a focus on investment means that consumption needs to increase in the future. If that is not possible then that leads to a severe recession.

    BC has replaced production with investment, just like Ireland did, and that eventually comes home to roost. I agree with the comment above that Ireland and BC have much in common, though I don’t think BC will face the horrid economic conditions Ireland will be facing for the next few years; nonetheless it won’t be pretty. People need jobs; it’s worth asking where those jobs are going to come from.

    • Speaking of hi tech, here’s a recent report courtesy BC Stats

      Click to access bcbi1108.pdf

      The problem BC faces is it has proven difficult to produce a long-lasting tech infrastructure. Very few companies remain today as a blue-chip employer compared to 10-15 years ago. The turnover of companies is amazing. (Compare to even Seattle with several large firms like Tektronix or $MSFT, let alone San Francisco.)

      BC either absolves itself to be a niche player or asks some hard questions about its chronic mis-allocation of capital.

      • What kind of policy really exists here in BC to create a healthy economy? They have essentially gutted the forest industry, they should encourage logging AND upgrading, not just shipping the timber away.

        Likewise, the game industry, THE thing that put Vancouver on the map for many people in my generation / circle is bleeding people east, mainly Montreal but also Toronto (Ubisoft opened it’s new mega studio in Toronto, not Vancouver, they only have a studio here because they bought it).

        The reality is that the tech sector is made up of a handful of small companies, mostly clustered around Gastown, who are successful to a different degree but none of them really hires a lot of people or will hire a lot of people in the future because many are just one trick ponies.

        Go back to the BC Stats website btw and take a look at the GDP breakdown, you quickly realize that at least a quarter of the economic activity is directly related to residential real estate.

      • ” you quickly realize that at least a quarter of the economic activity is directly related to residential real estate.”

        http://www.bcstats.gov.bc.ca/data/bus_stat/bcea/BCEAchnd.asp

        I’m not seeing it. Can you explain how you make this claim?

      • “The reality is that the tech sector is made up of a handful of small companies, mostly clustered around Gastown”

        Care to back this up with data? Most tech jobs I’m aware of are in Burnaby and Richmond due to favourable tax and zoning regimes but that’s just anecdotal. If you want me to list the companies I can point you towards some online tech company directories and we can do a straw poll on location.

        I don’t disagree the BC tech sector struggles from time to time but it’s one area where the province has produced value, which is more than I can state for much of the real estate activity. In my view the province should continue to foster R&D, and that’s more than producing FPSs and iPhone games. In fact the province has several programs designed to foster certain sector-specific R&D ventures that put BC at a distinct advantage in terms of funding efficiency compared to other jurisdictions. Going out and hire the absolute best local employees (and there are some who are still around), treat them well, and BC has a good chance of producing some good results. I’m bearish in general on BC’s economy but that doesn’t mean the entire economy is a write off.

    • Well just in time to answer your question, premier Christy Clark has just announced her job creation plan! 🙂

    • Was Seattle always the hub of hi-tech or was it because Microsoft is based there and hence that started it all.

      Vancouver can’t match SF because there isn’t the quality of universities there like Berkeley, CalTech, and Stanford to pump the graduates here. I don’t see how Vancouver will become some sort of Hi-Tech hub even if we tried to align our policies. I just don’t see the quality graduates from UBC and SFU. Now, due to our immigration policies, what might happen is companies like MS, Google, IBM might want to immigrate potential engineers from India or China to Vancouver and then eventually to the US, that might work.

      • It would be a mistake to directly equate the quality of the school to the quality of the graduates. UBC/SFU may not have the lead on quality of its graduates but it does spit out a few gems from time to time, and some actually decide to stay in Vancouver. You just have to be able to find them and get them to work for you.

  7. Here are some links:

    Employment by sector. Notice how mfg decreased and construction increased.
    http://housing-analysis.blogspot.com/2011/07/bc-employment-by-sector.html

    Population growth
    http://housing-analysis.blogspot.com/2011/07/bc-population-growth-to-q1-2011.html

    Population grew in 2010 in net, Q4 2010 saw a net outflow, mostly due to a malaise in immigration and a (large) net outflow of non-permanent residents. This coincides with the government tightening its temporary visa program last year, one assumes in an effort to foster employment of permanent residents.

    Q2 2011 stats are out in about 2-3 weeks. I’ll update the data, it will be interesting to see if population growth remained subdued as it did for the previous quarters; if it has, I might be prone to put more worthiness in the possibility that there is a new vector in migratory patterns that would, in time and after duly considering all the data as it becomes available, change expectations on future outlays of local and foreign derived capital.

    • Thanks, Jesse!

      And as per Ireland, here’s an interesting article on their migration patterns.
      http://www.migrationinformation.org/Feature/display.cfm?ID=740

      Net migration was highest in 2005, but just before the housing bust it was still positive at around 40K.

      • Absinthe, the peripheral EU countries are facing falling wages, high unemployment, and deflation. Their youth unemployment is high, I think in Greece and Spain it’s 30%+. At some point this is going to lead to an out-migration of workers, mostly those who are adaptive, highly-trained, and most capable of supporting a country’s aging and retiring population. Not good.

        Now it’s worthy of asking if BC could suffer a similar fate. I’m more optimistic but this does not preclude out-migration to where jobs (and houses…) are more plentiful. I might argue an exodus would be different from that of Ireland, in BC it could be trades-level workers leaving but knowledge sector workers stay. There are some good things Canada and BC does to foster small innovative businesses compared to most EU countries I’ve seen. Food for thought. (And no this does not mean I’m bullish on BC in net.)

  8. Joe Q.
    Our housing “crashed” in 2008 yet we maintained the same number of immigrants. I’d be willing to bet any housing correction would likely only effect our immigration by adding more (increased affordability being the incentive to move here)

    • Rollie -> I’d be willing to bet any housing correction would likely only effect our immigration by adding more (increased affordability being the incentive to move here)

      Interesting; we really see the dynamics here so differently…
      We’ve done this before but, again:
      You imagine hordes running in to snap up Vancouver RE at 10-15% off; I imagine a similar drop starting a price cascade as a substantial number of owners start coming to market in an attempt to realize precarious paper profits.
      The effect you describe may cause a bit of a bounce at 2009 lows, but no more than a bit, and once the 2009 lows go, 50%-off is the first support.

      • BTW, we anticipate we’ll get a chance to test these respective hypotheses at some point in the next couple of years.
        Will 10-15% off be the extent of the correction, or not?

    • @Rollie — you’re just reciting a variation of the “everyone wants to live here” argument. Nice thought but it just ain’t so.

    • Foreign immigration numbers are limited by the federal and Quebec governments not housing prices. It’s actually the other way around. Interprovincial migration is, for the most part, determined by economic activity – ie. jobs and high housing prices with low economic activity are generally a constraint on immigration while a postive factor for emigration.

      Furthermore, the 2008 drop in prices was due to the credit (ie. money) crisis which created a vaccum when international buyers were less able to move their cash. With emergency measure by the US to provide liquidity to the global financial markets, the free flow of credit was restored. If you don’t believe me, look up the Libor-OIS spread as an indicator of global credit conditions and look at the historical chart.

      Also, look at the huge increase in the spread over the past month and I wish you good luck if you are long Vancouver real estate.

  9. My opinion (uneducated, and without data to back it up) is that Canada is weathering the global recession well because of decent employment for unskilled workers. Some of those unskilled jobs are in construction, and some are in natural resources (oil, gas, mining, forestry, etc.), and a few in agriculture.

    In contrast, both Ireland and the USA had the construction jobs during the boom, but much fewer natural resource jobs. Once the construction jobs were gone, that meant skyrocketing unemployment, lower consumption, and an economic nightmare.

    Our risks for unemployment are either the RE bubble bursting on its own, or a bust in commodities. The commodities bust could also accelerate the RE bust.

    • Interestingly, BC’s resource-sector jobs are becoming a relatively small part of the economy. Construction jobs have filled the void and I’m far from convinced that a resource sector boom will be able to fill the void. Something to watch is the provincial government taking on more debt either on its books or carefully hidden. I hope the opposition figures this out; they should because they were quite the hands at fiddling with numbers in their day.

      • I think you really are on the right track. For instance, why is the BC government cutting employment and why was there a ministerial recommendation to cut roungly 15% of BC Hydro employees. I believe the numbers are expected to be 300 this year – mostly in Vancouver/Burnaby.

  10. BC (Vancouver) has decent jobs? Who knew? I thought the place subsisted on getting up and making each other breakfast.

    Sorry folks, you’ll need to go to Calgary or Toronto to find a city with a real economy and real prospects. This makes the current RE situation a real conundrum in my mind.

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