“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.”

“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]

Thoughts:
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).
– vreaa

47 responses to ““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.”

  1. If this professor is at UBC, all I can say is good luck trying to densify close to campus. A noble goal, won’t get past well-organized and well-connected neighbourhood groups. Enjoy the commute if you want to own.

  2. He should have also asked his students “How many of you are planning to move out of BC so that you can someday own a home?”.

  3. Aldus Huxtable

    The two universities in Sheffield, England have the highest retention rate of students who stay in the city after they study and settle there. I wonder what UBC/SFU numbers are in comparison to other universities in the country. I recently learned from a foreign student at UBC that upon graduating he is granted a three year visa within the country. However, had chosen to return back to his country of residence due to the cost of living in Vancouver.

    • “However, had chosen to return back to his country of residence due to the cost of living in Vancouver.”

      I employ 2 people with that same visa – both of them graduated from comp sci and elected to stay in Vancouver – because their job prospects and pay were higher here than in their home countries. Both of them have since bought places in Vancouver – albeit with help from family.

  4. LS in Arbutus

    This just shows simply how far out of reach RE is to anyone NOT in the market.

    The thing is that it’s now ALSO out of reach even for those IN the market.

    It costs $500,000+ to upgrade from an apt to a “starter (knock down SFH)” and from a “knock down SFH” to a “nice SFH”, and from “nice SFH” to a “very nice SFH.” Who has an extra $500k to a $1 million to do this? And if you do, you question seriously whether it’s really worth it!

    My 2 bedroom apt is small, but do I really want to spend $500,000 more to move into a knock down? My knock down is a dump, but livable, but is it worth it to to spend $700,000 to move into a “avg SFH?” My “avg SFH” is comfortable, I really want a “very nice” home, but is it worth the $3 million?

    This is why the market’s slowing, people can’t afford it and they question whether it’s worth it.

  5. Basement Suite

    Raise interest rates. Problem solved.

    • Even better: tighten lending requirement (10% down payment minimum, 25 years amortization max) and put a cap on house values CMHC can insure (let say $400K).
      Right there, you have enough to cool the market and make it go back to sustainable levels, without hurting business borrowing needs.

      • Basement Suite

        I don’t see how a .25% hike NOW would ruin businesses, then over time, keep going, to 1%, and don’t take 20 years to do it, then keep going, back to something reasonable, like 3%, over a few SHORT years, I know that seems like 300000% to folks who are so used to free candy. Without free money forever the world falls apart? That’s crap. Some pain, yes, too f**king bad. Enough with the free damn money. Pay the piper everyone, and lets get responsible. Bubble ended, as a bonus.

  6. Vreaa host, excellent points.

    Jesse, I still worry you’re too pessimistic about densification in Point Grey, in terms of opposition by neighbourhood groups, though I’m also sure you’re right that many people will protest. I belonged to a CityPlan Vision Implementation Committee in Dunbar for a year, and I still think the strong advocacy of laneway housing by some members of that group is part of what got that passed. Condos and social housing also went up in that area in the last five years.

    Who knows how involved homeowners in these areas will be in the coming years, but let’s hope there’s a Council that has the will to tax single-family homeowners much more highly if there’s resistance to densification.

    I’m sure some readers will object to my saying this, but I think parts of the UEL/Pacific Spirit Park are underused, given the housing crisis, and could be used for housing.

    • ” but let’s hope there’s a Council that has the will to tax single-family homeowners much more highly if there’s resistance to densification”

      Strictly they don’t have much choice. BC Assessment determines the relative taxation levels. From what I’m seeing there is continued price separation between detached and attached/condo and this will only become more evident in the next 2-3 years with the 3 year assessment averaging that determines tax rates. To wit look at how much pressure Vision is under to keep headline tax rates down. Don’t think that a 2.8% raise means an owner’s bill increases by 2.8%. On average 2.8%, for specific properties, ones in areas Vision is likely looking at as marginal polling districts, the hit will be higher.

      • “From what I’m seeing there is continued price separation between detached and attached/condo and this will only become more evident in the next 2-3 years”

        The moment you buy your condo you lose ground to the detached market. Affordability keeps getting further and further away. Worse if you decide to rent as your savings lose ground to the attached/condo market too.

    • Yeah, I would be one of the people to object to any more intrusions into Pacific Spirit Park. God only knows how much more of the Endowment Lands will be turned into housing before it is all over. I bet if minds get focused they could make the place look like Singapore but lets hope sanity prevails. Are we prepared to pave Stanley Park now too?

      • Nobody needs to pave Stanley Park, or knock down every last tree in PSPark. And (rhetorical question coming up, no need to reply), what’s saner, preserving acres and acres of land where in some months there aren’t that many people in there walking their dogs, jogging, or riding mountainbikes, or building more housing for people who need to live here? I love the UEL and the park too, believe me, and wouldn’t want to see them leveled.

      • I’d be a huge proponent of infill first. Any look to Europe shows what’s possible in a large metro area without many freeways. UEL IMO should be used almost exclusively for facilitating a healthy academic environment, one made primarily of the people who live and work there and only secondarily the edifices. But what do I know.

      • Joggers dogs and mountain bikes? Maybe what needs to be done is the trails should be torn up and access restricted. Sounds to me like the place has become far too populated. It used to be an actual parkland with skunks and deer and coyote……figures it is wrecked. Just like everything else in that city of yours.

  7. granite countertop

    Yeah, I saw this article.
    It really hit me that the prof couldn’t imagine price declines. He holds a chair in “Landscape and Liveable Environments”, shouldn’t he know about the experiences of other cities where prices take off like this?

    The prof talks about homes as a source of equity as much as a source of shelter. This attitude doesn’t lead to a city that’s a “liveable environment”.

    But my strongest disagreement is that he is “one of the lucky ones”. My generation will have decades of salary to earn after the bubble bursts. Declaring bankruptcy in your 20s or 30s isn’t the end of the world. His generation will be wiped out just as they’re planning to retire.

  8. So are we really buying homes in this country or have we all been hoodwinked into merely purchasing the right to service a massive debt? You have got to wonder. I came across a bit from the Canadian press today discussing HELOCS. In it they state

    “…many Canadians are unaware of the implications of this cheap borrowing. Nearly 60 per cent of respondents in a recent poll…..did not know that taking out a HELOC amounts to a mortgage or a second mortgage.The trend has left Canadians with an average 34 per cent of equity in their home, the lowest level in two decades and a 20 per cent drop in four years”.

    Now I have to be honest. My jaw dropped when I read that. Does anyone know if that figure of 34% equity is accurate? I have seen a few numbers bandied about, some reaching as high as 66% but never one this low.

    An average of 34% equity makes this whole country a slave to debt. I don’t even need to mention that it is far below the number that wrecked the US and spiraled the country into a epic foreclosure crisis.
    http://money.ca.msn.com/savings-debt/yourmoney/home-equity-lines-not-a-personal-bank-machine

    • Just replying to myself now…I am thinking that figure must be wrong. Where would this country be if it ever faced an average price decline of 35% for example like experienced in the States?

      That math is just crazy. It leaves the incredible suggestion that virtually everyone who held a mortgage (on average) might be close to being underwater on that bad day. No way it is correct.

      We would become a country of debt-renters.

      • We are currently a country of debt renters. In the -35% case there would be less debt (and less debt service) because some of it would have to “go away”. More national debt (CMHC), less personal debt, small mess for some banks, large mess for some owners.

        Hard-to-imagine is not the same as hard-to-happen: Normalcy bias.

      • Ok. Now I have to reply to myself again since my comment has been in moderation pretty much all day. Here it is a second time…..
        [Apologies. Nothing to do with content. -ed.]

        Your comment is awaiting moderation.

        So are we really buying homes in this country or have we all been hoodwinked into merely purchasing the right to service a massive debt? You have got to wonder. I came across a bit from the Canadian press today discussing HELOCS. In it they state

        “…many Canadians are unaware of the implications of this cheap borrowing. Nearly 60 per cent of respondents in a recent poll…..did not know that taking out a HELOC amounts to a mortgage or a second mortgage.The trend has left Canadians with an average 34 per cent of equity in their home, the lowest level in two decades and a 20 per cent drop in four years”.

        Now I have to be honest. My jaw dropped when I read that. Does anyone know if that figure of 34% equity is accurate? I have seen a few numbers bandied about, some reaching as high as 66% but never one this low.

        An average of 34% equity makes this whole country a slave to debt. I don’t even need to mention that it is far below the number that wrecked the US and spiraled the country into a epic foreclosure crisis.
        http://money.ca.msn.com/savings-debt/yourmoney/home-equity-lines-not-a-personal-bank-machine

      • I seriously do not appreciate almost all of my comments getting moderated. Obviously they are not welcome and it has nothing to do with Fred

        [“Obviously they are not welcome” is simply incorrect. The vast majority of all comments don’t go into the mod queue; that includes your posts, farmer… Almost all of fred’s DO. Ever since we started screening for fred’s comments, there are one or two regular poster comments per day going into mod queue.. They are always released the moment they are noted. The mod filter is automatic, and we suspect that the filter is now more sensitive now that we are filtering out one commenter… It is not perfect. If your comment is held up, assume the reason is mechanical and innocuous. We’ll let you know if we’ve censored out any comments. Don’t assume a devious hand behind the moderation: there is none.
        Market lesson in here somewhere.
        – ed.
        ]

      • No, only people who paid too much for their houses or borrowed against inflated valuations would be underwater. People who bought at a fair price and paid down their debts should be fine. Unfortunately, the last time this country saw fair value was something like 2005. The government and banks keep extending and inflating this bubble, as if spreading the damage far and wide is somehow preferable.

        The problem is that people in this country do not have a liquidity preference. They have a preference for houses. A house in my town rents for $1500. Net is less than $15000 per year. How much should this house cost? It seems that some geniuses out there just divide by the interest rate, i.e. 15000/0.035 = $430000. So maybe if the rate is 2% they will pay $750000? And if it is 1% will they pay $1.5 million? In any case, this is not a calculation that a sane investor would do.

      • Thank you, ed. Just had a testy moment. Maybe it is only long posts that get hung up and those with links. Short posts almost always go through. Like this one.

        This post is being held in moderation.

        [Just kiddin’. -ed.]

  9. darn. If you want affordable housing in Vancouver. There is a very simple solution.

    Put a limit on tax exemption on profit from selling houses. If you do not live in the same house for more than 7 yr, it is not your primary resident, sorry.

    It would make flipping house a 7 yr process.

  10. VREAA Host: Agreed that to move forward on a plan like this would be to extend (in time and space) the pathology that currently, but inevitably temporarily, reigns. This long-term distortion for short-term profit is already occurring, of course, with the replacement of older houses that might have been suitable for FTB families with palaces that only an upper end of the market will ever be able to buy. (And which they are, at the moment at least, reluctant to buy, so we’ll have to see where that leads us — a dozen frat boys sharing rent on a West Side new build with marble columns and a home theatre?)

  11. Vancouver Sun is running a wide ranging Bloomberg story on CMHC and some housing forecasts. Interesting that the editors are choose to print this article.

    http://www.vancouversun.com/business/CMHC+exposure+default+risk+rises/6277484/story.html

    • What is even more interesting is that they did not write it themselves. That should tell you how light-weight the sun really is. Now we really do have to go abroad to get news about our own country.

      Thank goodness for Bloomberg.

      Meanwhile, I loved this line from the article. “You can’t rule out the possibility of a significant correction in Canadian real estate because there is overvalution, but I just don’t see the catalyst to cause it to happen in the near term,” said Craig Alexander, chief economist of Toronto-Dominion Bank”.

      What a relief. Craig can’t see it. We are saved!

  12. That is just part of the problem when people are moving so frequently from one place to another attempting to flip or move up the property ladder. All the hype up HGTV and realtors etc only exacerbate the problem. Most of the boomers probably only moved once or twice in their lifetime because single family homes were affordable. I have a hard time finding young people ‘content’ on staying in one house for a long time.

  13. These are university students, not just random youth, but they must be wondering about the value of education. I can’t see that being a good thing from any perspective.

  14. nobody you know

    “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.”

    Gah.

    You can be the best place on earth or the most expensive but you can’t be both.

  15. This may seem counterintuitive but densification only exacerbates the affordability problem. If the city enacted a moratorium on any kind of densification I think that you would see prices for stand-alone housing immediately begin to decline. I know a moratorium is a little far-fetched but think like a property speculator. What could possibly drive the value of a property up more than the fact where the property used to be home to 4 to 6 people, it now could be inhabited by dozens or hundreds ( in the case of a condo tower). To buy a property with the only hope that someone with a little more money will come along would not be a very good basis to stay in business as a speculator. Buying property in an area with a huge chance of densification is virtually a slam dunk. As you may guess, I think an unusually large portion of SFH purchases here are based on out and out speculation.
    Do you really think the population of Vancouver proper in 20 years will be double what it is now?

    • These pretzels are making me thirsty

      Basically Vancouver is a nothing city in the larger picture or as compared to other big cities in North America. There is no real feel of a city…diversity, yes..scenary, yes….but no real soul

      Oh..and the two big claims to fame, WINTER Olympics and Canucks. Lest the world forget!!!

    • “Do you really think the population of Vancouver proper in 20 years will be double what it is now?”

      yes.
      Immigration is the wild card. By maintaining current levels at 250,000/year it ‘s easy to predict population growth.
      I think Federal Gov’t is likely to increase this to 350,000/year by 2020. Keeping in mind Vancouver accepts a disproportionately high # of the immigrants compared to other cities, do you think there is any chance detached home prices cannot continue climbing?

      • You’re assuming linear growth, and you’re extrapolating from past growth. Human behaviour doesn’t work like that.
        For instance, rising property prices make Vancouver less and less attractive. The curve hits a steep bit. Witness falling inter-province in-migration.

      • i can assure you the great silent majority of aboriginal and multi-generational canadians will be getting very fed up with this immigration policy as soon as our resource-exploitation economy hits the skids.

        frankly your attitude smacks of triumphalism – however deluded it may be.

        by your unwavering logic of permanent exponential price gains, your kids won’t be able to afford a family (here) either, and they’ll be pissing and moaning about ‘dey tuk-ur-jobs’ related issues soon enough.

  16. the march of immigration will continue in spite of your protests vreaa. 250K per year, every year, as long as the government allows it. Either you plan for it or you don’t – sounds like you haven’t

    • You seem to assume that this ‘march of immigration’ continues relentlessly, regardless of the characteristics of the place into which the immigrants are received. It doesn’t. If you make a place increasingly unattractive by, for instance, increasing housing costs into the stratosphere, the immigrants see that, and march elsewhere.
      Again, you can’t simply extrapolate prior immigration growth and prior housing price growth into the future. To use your own words, “that’s a simplistic approach”.

      • if low housing prices are the only reason for immigrant choice why are they not choosing US?
        Most popular immigration destination are Canada, Australia and GB – coincidently, all have high real estate prices.
        This angle is as simplistic as the rest of your assumptions.
        Use your noodle vreaa

      • “If you make a place increasingly unattractive by, for instance, increasing housing costs into the stratosphere, the immigrants see that, and march elsewhere”.

        why don’t they march to Winnipeg, or Saskatoon, or…
        And last I checked the two most expensive cities in Canada were the most popular immigrant destinations.
        Seems immigrants are not as deterred by housing costs as you are?

      • Mainland Chinese probably prefer a familiar community because everything is new here. I’m told that from a spouse who travels there. I asked her if business people there ever ask about Vancouver. “Nope.”
        She said where she goes it’s not that easy to get a visa and leave. They are more interested in our lifestyle, everyday things. They expect to live their lives in one place. She knows a factory owner who bought a house here for his wife and school age daughter and he commutes. Demonstrating wealth and prosperity is very big there, maybe because it’s relatively new, so this person probably bought the house for bragging rights. Often the kids speak English and have to coach the parents, an extended community helps. The factory owner had family here already, another factor.

        Personally, I’ll bet there are not enough rambling factory owners to prop up housing when we enter a downturn in multiple sectors.

        Sidebar, just met with a buddy who works in the tar sands all winter. He said there’s people from all over up there. He said rules dictate you can’t leave your vehicle on site and Somalians have sort of cornered the cabbie market. They charge $180 for a twenty mile round trip. Imagine going from Africa to Fort McMurray? Bonus if you can get used to minus 30. I don’t know if immigrants are buying houses up there.

      • Somalis cornering the cabbie market in Fort Mac? Makes perfect sense to me. This is a crazy country but one thing is certain, new immigrants catch on fast and they know where to go to find the really big opportunities.

        I am pretty sure those Somalis think they landed flat in the lap of a cash God. They have almost certainly come here via Kenya as refugees because there are few other means for most to immigrate here with the ease that Europeans or Asians do and Somalis have no access whatsoever from within their own country.

        So 180 bucks for an hours work……well that would be 6 months of the average pay in Somalia where wages rarely exceed a dollar daily (except for pirates). It might represent even more in a refugee camp. A years income would be about right. They must think we are all idiots here the way we throw money around.

        Back in Vancouver in the eighties and long before HAM was a term, there was quite a hullabaloo about East Indians buying up West side houses. The locals were indignant because the Indians were so well organized. They would group together 3 or 4 families and camp out in the houses until they paid it all off together. One family would then take over and the cycle repeated. In such a way, they were able to achieve home ownership in a fraction of the time of most Canadians. Eventually, they all had a house.

        It is funny thinking about it now. They already came from a country where densification was the norm. They just needed to live in the way they were already accustomed with all the extended family together and they could own very quickly.

        Actually.,they outsmarted the locals. Look who owns the houses now. It is the immigrants who were prepared to make sacrifices and share. The kids who grew up West-side-snotty live in the Interior of BC now. They got priced out and won’t be coming home except to visit.

    • marching is what soldiers in a war do

      are you fighting a war, f1?

      mass migration can obliterate/degrade civilizations – it says so in the introduction to Will and Ariel Durant’s 10 million word “Story of Civilization” collection – not that anyone reads anymore..

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