Monthly Archives: April 2017

“B.C.’s economy relies on the selling off of real estate instead of actual jobs. It’s reached the point where we don’t have much to sell, other than the land itself.” – filmmaker Charles Wilkinson

Vancouver’s real estate market has attracted angry commentary from a wide variety of sources lately, and not just citizen activist groups rallying for affordable housing.

A couple of weeks ago, U.S. economist Michael Hudson sold out the Rio Theatre to talk about the city’s gone-sideways housing situation, which he compared to “a feudal society.”

Mother Jones magazine has a feature story about Vancouver in its current issue, Hedge City Blues: What happens when global elites invade your town?, which cautions that Seattle is next.

This week, local filmmaker Charles Wilkinson is releasing his film on Vancouver’s crisis, No Fixed Address, which opens May 2 at Toronto’s Hot Docs festival. The film will also screen at Vancouver’s DOXA Documentary Film Festival on May 6.

And in an unusual twist, a member of the region’s development community is incensed enough that he too is weighing in on our spectacular failure to regulate big foreign money.

Consultant Richard Wozny has been a key player in Vancouver’s development industry for 33 years and he just wrote a report: Low Incomes and High House Prices in Metro Vancouver. Mr. Wozny has, as he puts it, worked endlessly to make wealthy developers wealthier. Now nearing retirement, he says he wants “to give something back to society – a little knowledge the public should find useful.”

Mr. Wozny, whose company, Site Economics, has done the financial analysis and strategy for more than $120-billion worth of large-scale residential towers, shopping malls, suburban subdivisions and industrial parks, says he’s analyzed the financial feasibility of projects for all the major developers in Western Canada and the three levels of government.

He’s seen unprecedented financial windfalls in the Lower Mainland’s real estate market. Now Mr. Wozny wants to speak out on behalf of the losers: those residents who rely on their incomes to afford them a place in the property market, be it owning or renting.

He’s studied the situation and has come to several conclusions: that more supply is nothing but fuel for the unaffordability crisis; that house values that are wildly disproportionate to incomes indicate a high level of tax evasion; that government is failing to institute fair tax regulation to ensure infrastructure needs are met; and that all this “growth” is simply not paying for itself.

The result is that a basic necessity – housing – has become a low-risk profit-making tool.

“What would we think of someone who hoarded food? Why is real estate any different?” asks Mr. Wozny. Analyzing data from the Real Estate Board of Greater Vancouver and the Canada Revenue Agency, he found an odd inverse relationship between incomes and housing; the higher the house price, the lower the declared income; the lower the house price, the higher the income. In Vancouver, Richmond, West Vancouver and Burnaby, houses are routinely priced between $1.5-million and $3-million. However, taxpayers report “unusually low taxable median family incomes, well below the regional average.”

Richmond and Vancouver, says his report, are among the highest income-to-house price ratios in the world.

Meanwhile, in Port Moody, Coquitlam, Port Coquitlam, Langley and Maple Ridge, house prices are well below the regional average and reported incomes well above.

If tax returns are a guide, the suburbs are now the high-income earning areas of the region shouldering the greatest tax burden. Those closest to the central core appear to be scraping by with little income, despite their high-cost housing.

The only conclusion to reach is that incomes are not being reported, says Mr. Wozny. A segment of the population is effectively subsidizing a group that refuses to pay its taxes.

He makes the case that a home’s value is due almost entirely to its location within the city. It may provide shelter, but it is the roads and sidewalks, proximity to schools and amenities that determines its worth. The city, and public infrastructure, creates its value. But what of the buyers who capitalize on that value without putting anything back in?

“Over the past 30 years, private residential real estate has become more of an economic ‘free rider,’ enjoying speculative, low-risk increases in value generated by public investment, but avoiding making adequate contributions to the public realm which supports it,” he writes.

Because the majority of our infrastructure was built before 1990, we are continually drawing on that value with massive new developments. Government should be tapping the “vast fortunes being made in real estate” to ensure equal access to public infrastructure,” he says, echoing Mr. Hudson’s argument for far heftier taxes on speculative buying.

“The growth has not paid for itself. Much of the infrastructure is relatively dated and paid for by a generation that was far more generous, and we are drawing down on that, compromising the quality of life without growing the infrastructure. We are creating congestion, whether it’s traffic, or at the hospitals or universities, whatever. There is plenty of money in private growth, so the growth should at least pay for itself. Why should government and the people in the middle foot the bill?

“Somebody doesn’t spend $4-million on your house alone. It’s the region they are buying, not the house. It’s the community that makes it special. It wouldn’t be worth anything if the community were to decay. That’s what we don’t understand.

“Obviously something terrible is happening – the money flooding in is not a sign of a healthy functioning capitalist market.

“The only group at fault are politicians who want growth without having to pay the requisite cost.”

Another group might also be at fault: the general population.

Mr. Wilkinson, whose film will screen in Vancouver at Simon Fraser University on May 6, says a challenge he faced during the filmmaking was the general apathy of average people. He edited down discussion about big inflows of foreign money and corruption because the topic got the thumbs down from a mixed-demographic group he uses for feedback.

“Audiences don’t relate to it, they don’t get it,” says Mr. Wilkinson. “We had a bunch of stuff about corruption and money laundering and people kept saying, ‘I don’t get it. How does money laundering work?’

“Where we struggle with it is that people will often say, ‘So what? That’s just free money into our system, and money is good, right? Who cares if [buyers] are from another country or whoever comes here with $1-billion. It trickles down, right?’

“But they can’t get it in without breaking the law, which affects you,” Mr. Wilkinson says. “And there are people who say, ‘I don’t care if my community is disintegrating. I want to retire in Hawaii with an RV.’ I get that there are people like that and they are making a conscious choice.

“That’s the key focus of the show, for me, is the sense of community that I’ve always felt in Vancouver, and I see it’s under such assault.

“It’s been very frustrating.”

Instead of steering the viewer toward any conclusion, Mr. Wilkinson presents the facts of Vancouver’s affordability crisis in such a way that people can make up their own minds, according to their values. He includes interviews with David Suzuki, Bob Rennie, Raymond Wong, Seth Klein and Sandy Garossino, who is quoted saying: “We manufacture and export condominiums.”

Mr. Wilkinson became something of a media magnet when promoting the film in Toronto recently, because Toronto has entered the speculative frenzy that Vancouver has endured for years.

Toronto, he says, is even more vulnerable than Vancouver, because of its rich history of diverse ethnic communities. They will be crushed under the weight of gentrification, much the way Vancouver is losing its Chinatown.

B.C.’s economy, says Mr. Wilkinson, relies on the selling off of real estate instead of actual jobs, as a result of government inaction.

“It’s reached the point where we don’t have much to sell, other than the land itself. So when the Premier crows about how she’s created all these jobs, in a bizarre and macabre way, she has – by failing to impose any restriction on the real estate market. And of course it’s unsustainable, because there are no jobs anywhere else. When you drive past all these communities in northern B.C., everything is boarded up. Resources are simply gone.

“Jobs here are building speculative housing units.”

He wonders where this selling off of real estate to the highest bidder will eventually get us. Every time a home is sold for millions of dollars to a speculator, that home is likely forever lost to the local income-earner.

“Let’s assume everybody sells out and gets rich. What’s the plan – to build another city? But where am I going to go? This is my home,” Mr. Wilkinson says.

“I don’t feel the government really cares much about my interests, or anybody else I know, so everybody devolves into, ‘every man for himself.’ And that’s the antithesis of community.

“We’re Canadian. We weren’t supposed to be like this.”

– from ‘Housing talk gets louder and angrier in Vancouver’, Kerry Gold, G&M, 28 Apr 2017 [Whole article copied here, for the record. Hat-tip to The Auteur]

Strong feelings about RE are becoming more and more mainstream.
The ‘Anger’ factor is noteworthy. Extreme wealth inequality breeds anger. This is very, very bad for a society.
The mention of the ‘general population’ as a causative factor is good.
And don’t forget the banks allowing leverage with their mortgages, creating money from nowhere, fueling the speculation. Who needs to import money when you can create it from nowhere?
– vreaa

‘Poor’ Parenting – B.C. Liberal Housing Minister Rich Coleman – “My advice to my teens, start saving for the down payment.”

Under the B.C. Liberals, who are actually quite conservative, the gap between the super-rich and the rest of us has become a yawning chasm. For most, it has become harder to make ends meet. This demands fundamental change, not a softer tone. …

… B.C. Liberal Housing Minister Rich Coleman is laissez-faire about it: “My advice to my teens, start saving for the down payment. That is your future if you can build up that equity.”
With million-dollar homes, stagnant or declining wages and big student loans – good luck, kids.

Last week, Premier Christy Clark built on this train of thought at the leaders’ debate. “You know what you need to be able to afford a house? You need a job,” she said. Yet, unemployment is up everywhere but the Lower Mainland and Vancouver Island.

– from ‘Anger Brewing in unaffordable BC’, Garth Mullins, 24 hrs Vancouver, 23 April 2017 (with quote augmented based on Frances Bula tweet)

Meanwhile, who would benefit from the fruits of all that hard work?….

From Jan 2016:

Surging real estate values added $2.3 million to B.C. cabinet ministers’ personal wealth this year alone, as the government says coming measures to ease housing affordability won’t include any that lower prices.

One minister saw her four properties jump $765,000, more than five times a minister’s salary. Another saw gains on a portfolio of eight homes. On average, ministers made $103,000 – more than an MLA’s salary, according to a review of public records by CTV News.

It’s natural for those ministers to welcome their own wealth boost, but they have to realize how their eye-popping gains translate into tremendous hardship for young people trying to get into the notorious Vancouver property market, said UBC professor Paul Kershaw.

“We can’t start with the presumption that housing price increases are a good thing. Housing prices that have outpaced incomes is remarkably bad news. It’s turned Vancouver into a generational ghost town,” Kershaw said, referring to how hard it is for young people to buy in neighbourhoods where they grew up.

– from ‘Surging real estate makes $2.3M for B.C. cabinet as affordability worsens’, Jon Woodward, CTV Vancouver, 25 Jan 2016

Goya’s ‘Saturn Devouring His Son’ (1819-1823):

The Value Of The Dirt? – “In condo crazy Vancouver, downtown’s last gas station for sale”

“If you look at the value of the dirt, there’s just no possible way that just having a stand-alone gas station makes any kind of sense financially,” Tsur Somerville, director of the University of British Columbia’s Centre for Urban Economics and Real Estate, told CTV Vancouver.

Downtown Vancouver’s second last gas station was recently sold to a development company for a staggering $72 million. That sale prompted the owners of Downtown Vancouver’s last gas station, an Esso located at the intersection of Burrard and Davie Street, to put their property on the market too.

And while that may be good news for condominium developers, Stephen Regan, executive director of the West End Business Improvement Association, says that selling the station will come with consequences.

“Losing a gas station, and possible the last gas station in downtown, is going to have some significant impacts, I think, for locals and for visitors,” he said.

– from ‘In condo crazy Vancouver, downtown’s last gas station for sale’, CTV, 14 April 2017

The fact of the last fuel station in downtown Vancouver, here for the record.
BTW: If we were to make all decisions about what’s important in Vancouver based on the “value of the dirt”, where would that lead?
If we were to make all decisions about what we do with our lives based on maximizing income per time unit, where would that lead?
In a related sense, how does one measure success?
– vreaa

Spot The Speculator – “I can’t imagine a bubble bursting where over six months you see a decrease of 30 or 40 percent”

“Living in cramped spaces is everyday life for many families. Because of the high cost of housing, many have to make do with whatever they can afford.
In Vancouver, city staff estimated that more than 8,000 families with at least one parent and a child were living in a studio or a one-bedroom apartment in 2011.

Ryan Chahl, a 29-year-old entrepreneur, is thinking about settling down. He wants to provide adequate housing for his future family.
“I’m kind of looking for a home that could potentially support a family,” Chahl told the Georgia Straight in a phone interview.
That means a three-bedroom house “with some room to grow”.
“I’m trying to plan for the future and think ahead,” Chahl said.

For now, his plan doesn’t include selling the Port Moody condo he bought four years ago. “It’s an asset that I can grow equity in,” he said about the two-bedroom property where he lives on his own, and which he intends to rent out eventually.
He used to live with his parents before he purchased his apartment with a five-percent down payment.

Chahl’s challenge is how to secure a new mortgage.
Aimal Pamir, who was his mortgage broker for his condo purchase, has advised him that because he is self-employed, it’s not going to be easy.
According to the Real Estate Board of Greater Vancouver, the federal Office of the Superintendent of Financial Institutions requires from individuals working for themselves a minimum down payment of 35 percent of the purchase price to qualify for a loan.

In 2016, Chahl set up his own consulting and project-management firm. Chahl related that his business is doing well, giving him the confidence to approach a major bank for a mortgage.
“It’s kind of been the vehicle for me to start making those heavy savings that are required to be able to buy a home in Vancouver or near Vancouver, at least,” he said.
Getting the bank to approve a mortgage will likely take a bit of time.
Like the more than 400,000 self-employed people in B.C., Chahl has to prove that his business is viable. According to him, banks typically require three years’ proof of income. If he wants to make a purchase in six months to a year, he said that he may have to produce a 50-percent down payment.

Chahl holds a business-administration degree from SFU. For him, the housing market isn’t just a game in which he wants to make a quick buck.
“It’s something that I’m investing in, going in long-term with the kind of goal of seeing those assets appreciate long-term, not kind of flip them in a year or two,” he said.
Chahl expects home prices to gradually decline, which is generally in line with the latest projections by the Canadian Real Estate Association (CREA). According to the CREA forecast issued on March 15, home prices in B.C. will shrink by more than five percent in 2017.

Chahl is not worried that the property market has risen so fast that it can only head for a crash. In September last year, Swiss bank UBS reported that Vancouver is number one on its global list of cities with the highest bubble risk.
“Over the next year, maybe two, you’re going to see a decrease in prices, but I can’t imagine…a bubble bursting where over six months you see a decrease of 30 or 40 percent,” he said.

As in his first purchase, his realtor and older brother, Adam Chahl, is around to help him acquire a second property. “Adam, being who he is, I have absolutely no issues trusting him,” he said.
Chahl said he’s happy with the way things are going for him.
His long-time girlfriend lives in a neighbouring city 10 minutes away from his condo. There are lots of trails nearby where they can hike and walk her three dogs.
Chahl can see the two of them growing a family together in the future: “That’s the plan.”

– image and entire article from ‘Home search: Millennial in the market to buy second property’, Carlito Pablo, Georgia Straight, April 5th, 2017


For 10 years or more, the vast majority of Vancouver RE sales have been at least partly based on the belief that there would be ongoing outsized price gains.
The buyer above is convincing himself that he’s an investor, and that he’s purchasing for his own future sensible use, but actually he’s speculating.
He’s assuming there may be modest price decreases in the short term and then.. off to the races again. Why else buy two properties?
It’s interesting to hear him state the possible risks but then dismiss them.
The family RE professional is another bubble feature.
Buying even vaguely near the top of a bubble can take thirty years or more from which to recover, in real terms.
Perhaps this guy will be lucky and fortuitously-timed price drops will cause him to reconsider.
Timing can be… tricky. Luck helps.

PS: Yeah, we know the standard response: “But, he just needs a place for him and his family to live!” — That’s the argument that has fueled this bubble all this while: Locals overextending themselves into mortgages which in rational times would be seen as preposterously & laughably oversized, pushing prices higher and higher in doing so, completely unsupported by any real economic fundamentals, all the while convincing themselves they are prudent citizens motivated by wholesome values. If and when you take the expected unrealistic price gains out of this equation, there will be fresh air under this market.

– vreaa