Miloon Kothari, Former UN Investigator, Reviewing Vancouver Housing Crisis – “Hyper-speculation. Casino Capitalism. Gentrification. Collusion. Corruption. Criminal Investigations. A Lottery Which Reduces A Social Resource Like Housing To A Commodity.”

“Overall, I’m actually quite shocked on several fronts. One is that the housing crisis that I observed in 2007, 10 years ago, has become worse on virtually every level, whether you look at the level of homelessness, densification of poverty, the crisis of rental housing and the lack of housing options for low-income people. So that’s been quite surprising. These adverse housing and living conditions are partly fed by the hyper-speculation and gentrification you see all across the city.
I’m also quite disturbed by the fact that the city government, instead of playing the role of protecting housing options that lower-income people have, has been either through acts of commission or omission actually abetting this whole process. The kind of gentrification that you see happening in the Downtown Eastside, and that you see now in Chinatown is also being done through a process of rezoning, through the development of condominium buildings that drive up land values for adjacent areas. There doesn’t seem to be a commensurate attempt to increase the housing options for lower-income and modest-income people. You either see a shortage of shelters or inadequate conditions in shelters, a complete reduction in the number of single resident occupancy units, or the type of decrepit situation that you see at the Balmoral.
I don’t know what the logic is there, but [it’s] similar to the logic in other cities, where municipalities, in collusion with developers, deliberately let a particular area deteriorate and then it becomes an emergency. And then, when renovations happen, those properties don’t ever go back to the people who lived there before…”
—
“There’s no reason why the gentrification that is happening in the Downtown Eastside or Chinatown should be allowed. An entire area could be zoned off from this speculation to protect the low-income people living there. It has to be a political choice. It requires leadership at the political level. One can’t rely on the planners without the political sanctioning of such a policy. If you are doing rezoning, it could be limited to developing social housing for those most in need, not for the rich. A few token units for seniors and low-income people are insufficient. So I don’t see the city doing an adequate job in trying to stem that tide of gentrification.
The only conclusion you can reach is that there has to be collusion between the city machinery, developers, and obviously homeowners are de facto part of that too. That is who is benefiting from this system as it is. And it’s hurting the vast majority of the people who live here. We’re talking about millions and millions of dollars being made in this corrupt structure. People should be thoroughly embarrassed by this. If this were a similar situation in other countries, there would be investigations and hard questions being asked. Why are interest rates so low? Why are the banks being downgraded for being overexposed in the housing market? There should even be criminal investigations related to the real estate sector. The story of the unbridled real estate market in Vancouver is casino capitalism as its worst — a lottery which reduces a social resource like housing to a commodity.”

– from ‘Vancouver Housing Crisis ‘Worse on Virtually Every Level,’ Says Former UN Investigator’, an excellent interview with Miloon Kothari by Am Johal, The Tyee, 20 June 2017

‘Flip Vancouver’ Speculator Invite Flyer

– flyer targeting local RE speculators, found downtown June 2017, archived for the record [thanks to Westside Frank]

“Local Speculators Are Cashing In While We Blame Foreigners” and Other Truths – Geoff Dembicki, The Tyee

You’ve heard it a million times. The reason so few of us can afford Vancouver is because there aren’t enough new homes being built. This is the version of reality that real estate industry leaders and their political allies want us to believe.
But an investigation of the industry by The Tyee has revealed reality to be much more complex. Over the past six months I spoke at length with financial analysts, economists, industry consultants, realtors and many others to learn the true causes of Vancouver’s housing crisis and who is profiting from it. They were in broad agreement that real estate is at the centre of a massive realignment between our society’s rich and poor — and one that few leaders in the industry seem willing to publicly acknowledge. Here are the key takeaways from those conversations.

1. The industry no longer sells homes — it sells investments

Real estate has historically been a local industry. The people who buy and sell a city’s homes tended to live in that city. Yet that all began to change a decade or so ago. And one of the major reasons for it is a big shift in our global financial system. It’s a complicated subject. But what you need to know is that the global capital investors use to invest in things is growing much faster than the actual economy. There is so much capital, investors don’t know what to do with it all. Desperate for quick financial returns, many investors are pouring this capital into real estate, turning local markets into global investment opportunities. One of the results, according to trackers such as Bain & Company, is “skyrocketing home prices.”

2. Wealthy people are profiting from the housing crisis

The explosion of global capital coincided with an explosion of global wealth. Worldwide, the number of people worth $30 million or more has grown 60 per cent in the last 10 years. These elites have a different relationship to real estate than regular people. High housing prices aren’t a hindrance to the ultra-rich. The pricier homes become, the more desirable they are as a marker of social status. That’s why one top investor not long ago compared Vancouver condos to contemporary art. Rich people are less likely than the rest of us to live in the homes they purchase. A poll done by the group Knight Frank suggested the most popular reason rich people acquire real estate “is as an investment to sell in the future.” Which means they profit when prices rise.

3. Rapidly rising house prices are deepening class divides

Unaffordable homes are not just a drag on people’s incomes. The housing crisis is doing lasting damage to social mobility. If you are hoping to improve your income, your best bet these days is to live in — or relocate to — a large, globally connected city. Over 90 per cent of new jobs in Canada over the past several years were created in just three such cities: Vancouver, Toronto and Montreal. And of those, Vancouver has Canada’s fastest growing economy. But housing is so pricey that those opportunities are denied to many people. One real estate economist worries that “we are driving a very large wedge between the lowest income earners and the highest income earners.”

4. Industry leaders are convinced the middle class is dying

The real estate industry is aware social mobility is declining. Its leaders know there is huge demand for cheaper homes. But they prefer to profit from income inequality rather than doing anything about it. That’s one takeaway from a major real estate industry trends report produced by PwC and the Urban Land Institute. “The middle class has been hollowing out,” it concluded. With land prices going up in big cities, the industry is increasingly focused on building luxury homes for wealthy people. Not everyone thinks it’s a wise strategy. “Time will tell if that’s going to come back to haunt us,” said one CEO. “Not everybody makes $75,000 to $100,000 a year.”

5. Your intimate data is being used to drive home sales

Even if you don’t earn much money, you can still be valuable to the real estate industry as a source of data. It’s likely not news to you that almost everything you do online — and off — is tracked and sold to advertisers. But what is new is that the real estate industry is now trying to get in on the action. Companies are creating technology that mines public records and notifies realtors when a potential client gives birth, declares bankruptcy or files for divorce. Industry forecaster Swanepoel predicts “this technology will be huge.” But at what cost to privacy? Or our right to control our identities? “I don’t think anybody has the answer,” said one observer.

6. Political leaders aren’t telling the full story about housing

What we can be certain of is that politicians aren’t telling the full story about the true causes of unaffordability. British Columbia Premier Christy Clark has argued “the only way to really solve” the housing crisis is to build more condos. And during the provincial election, her BC Liberals took any chance they could to blame the red tape and protesters they claim are standing in the way. Yet the majority of new condo units are sold to speculators. More supply isn’t helping locals. The market does what it knows best: maximizing profits. Which is why industry insiders like Richard Wozny argue the “only group at fault are politicians” — those who know what the problem is but refuse to fix it.

7. Local speculators are cashing in while we blame foreigners

The most substantial step the BC Liberals took towards fixing Vancouver’s housing crisis was the 15 per cent Foreign Buyers Tax. At first the tax seemed to work: home sales and prices fell. But prices are once again rising. And this time transactions involving overseas buyers are at relative lows. “Everything we see suggests that there is a whole lot more domestic investment activity in the real estate sector than foreign investment,” said the head of Canada Mortgage and Housing Corp. Foreign money is a big cause of crazy home prices. But so are Canada’s historically low interest rates, which make it “almost stupid to not buy property,” argued the site Better Dwelling.

8. Income inequality is causing a boom in luxury retail

Real estate has become a zero-sum game in Vancouver. Those at the top are doing better than ever, while everyone else struggles. It’s a fair assessment of our wider economy. Recent data from Stats Canada showed that average Canadian incomes have stopped increasing. Yet the ranks of the ultra-rich in Canada are growing faster than in the U.S. — between 2006 and 2016, the number of people worth over $30 million rose 50 per cent in this country. These elites want to flaunt their wealth. And the boom of luxury retailers across the country is happy to oblige them. “High-end retail will prosper as the high-end population does well,” noted one real estate analyst.

9. People within the industry want serious solutions

What the May provincial election showed is that people across the province, but particularly in urban regions, want serious change. They are sick of being priced out of their cities. They’re fed up with an economy that privileges the wealthy. And they’re tired of being lied to. The NDP-Green coalition now has an opportunity to make things better. Leaders of the two parties promised housing policies that “will have an impact,” local realtor Steve Saretsky told The Tyee. He is one of many people within the real estate industry who supports solutions to our current housing crisis. “A lot of realtors I’ve spoken with want some sanity to the market,” he noted. “They know it isn’t sustainable.”

– text and image from ‘Nine Things the Real Estate Industry Doesn’t Want You to Know’, Geoff Dembicki, 19 Jun 2017 [an article important enough that we are archiving it here in its entirety] (hat-tip to Keith)

Longtime readers of this blog will be familiar with many of these factors.
A very good article and hats off to Geoff Dembicki for pursuing.
The potential future for our city is that it will either increasingly look more and more like a gated airport/casino, or it will suffer a massive RE price crash.
– vreaa

“Nuthin’ That A Good Ol’ 75%+ Price Crash Won’t Fix…” – BOC Governor Stephen Poloz *

(Yeah, the font is too small to read exactly, but, you get the idea.)

Massive and risky home loans are increasing in number across Metro Vancouver, while mortgage fraud cases are also on the rise, connected to the growth of so-called “shadow banking,” a Postmedia investigation shows.
The trend of increasingly risky loans underlying Metro Vancouver’s high home prices is illustrated by Bank of Canada figures that show the rapid growth since 2014 of large mortgages made to people with relatively low incomes.
This is a growing danger for Vancouver’s real estate market, because under new tighter lending standards introduced for banks in fall 2016, the Bank of Canada says that many of these big mortgages can no longer be insured, and won’t be issued again by federally regulated lenders.
As a result of the tighter federal lending rules, borrowers trying to buy million-dollar-plus properties in Vancouver’s market are increasingly taking out dangerous loans from shadow bankers in a fast-growing and poorly regulated financial market.
There is also evidence of growing links between shadow banks and traditional banks, according to the Bank of Canada’s June 2017 report, as people borrow large amounts from shadow lenders to use as down payments in order to qualify for lower-interest loans from federally regulated banks.
“Price increases in Vancouver and Toronto have an element of speculation to them,” Bank of Canada Governor Stephen Poloz said last week, while issuing the bank’s biannual financial system review. The review showed “riskier characteristics are increasingly evident” in new mortgages.
A December 2016 Bank of Canada report estimates shadow lenders now account for $1.1 trillion in debt — about half as much as the traditional banking sector — and that over the past decade “these new players have become more important and have changed the face of the Canadian mortgage market … (as) tightening bank regulation can lead to migration of activity from the traditional banking sector to the shadow banking sector.”
…
Postmedia’s review of over 30 regulatory or civil court cases shows a trend of allegations that home buyers and real estate professionals are involved in deceptive mortgage applications that include exaggerating the incomes of borrowers, forged documents of home ownership used by multiple borrowers to obtain mortgages, phoney claims of offshore assets used to back home loans, falsely inflated collateral accepted by subprime lenders to fund real estate development loans, and falsified CRA tax return documents.
For Hilliard MacBeth, an Alberta-based author and wealth manager, the Bank of Canada loan risk statistics and the related growth of shadow banking in Vancouver and Toronto herald a crisis.
“These properties in Vancouver are so expensive that you need people either laundering money or loan fraud or people borrowing such large amounts of money that should never be allowed, in order to keep it going,” MacBeth said. “If everyone is reporting their incomes honestly in Vancouver, there is no way that housing prices can stay where they are.”
– image and excerpts from ‘Risky mortgages, shadow bankers threaten Vancouver housing market’s stability’, Sam Cooper, Vancouver Sun, 16 Jun 2017 [hat-tip to The Auteur; and hats-off to Sam Cooper for pursuing this]
—
(* The author has exercised their right to poetic license in the writing of the title of this post.)
But, seriously now folks, notice how none of the mainstream players and commentators consider the option of a price crash as a solution to most of Vancouver’s housing problems.
A price crash, a real price crash, would flush out all speculators and all appetite for speculation for about two decades, perhaps even three. The price of accommodation in our fair city would drop to fair fundamental values (perhaps lower for a brief period). All housing would be used, as there would be no pie-in-the-sky jackpot for those who wanted to hold ‘units’ like poker chips. Lending would tighten to the point that one would have to be able to support a purchase with demonstrated income (novel idea!).
Sure, people would get hurt, but people are hurtin’ now, and who is to say who should be hurtin’ and who shouldn’t?
Real estate and related activity would drop from, what?.. its current inflated 30% of the economy to a more historically normal less than 10%. Kids would go to classes rather than smoking weed while tacking cheap shingles to roofs without harnesses. We’d be able to talk about things other than RE at BBQs (I know this may be difficult, but we can do it!). Our minds (and behaviours) would stop being blown and distorted by stories of professionals making more money via their modest house than that saved and invested from an entire 40 year career of honest earnings.
Homes would become homes again.
Vancouver would never be cheap, or ‘free’.. nobody’s expecting that. But ‘honest’ prices, determined by those who actually want to use properties and are prepared to fund them from their own actual funds, would be a very good thing for the longer term health of the city.
– vreaa

Reconsidering High-Rises – “These people do not want a neighbourhood. They want a locked gate, a gated community in the sky.”

How many times should we say it? Don’t build residential towers. Don’t make or let people live in them, least of all families. They are antisocial, high-maintenance, disempowering, unnecessary, mostly ugly, and they can never be truly safe. No tower is fireproof. No fire engine can reach up 20 storeys, period.
Towers are again raising their heads across the urban landscape, creatures of egotistical architects, greedy developers and priapic mayors. We gasp at their magnificence, their extravagance, their sheer height. Yet like Grenfell they are alien creatures in a British city. They do not converse with their context, they thumb their noses at it.
…
There is no need to build high at all. The developers’ cry, that cities must build high to “survive”, is self-serving rubbish, the more absurd when their towers are left half-empty. The principal reserve of residential space in British cities is derelict land and the under-occupation of existing houses. Unless we wish to build at the squalid densities of Mumbai and Hong Kong, high buildings require space round them and extensive ground servicing.
Hence the most “crowded” parts of London are not around towers but in eight-storey Victorian terraces. The boulevards of central Paris have treble London’s residential density without towers. Westminster council’s aborted Paddington Pole, at some 60 storeys, had fewer housing units than the high-density street housing suggested by its opponents. The tall blocks wanted by Boris Johnson for Clerkenwell’s Mount Pleasant estate are at a lower density than the low-rise town houses proposed by the consultants Create Streets.
Besides, people are entitled to the city they want. When in the 1980s Liverpool’s Militant movement asked Everton’s inhabitants what should be done with their towers, the reply was pull them down and give us back the streets. It was done.
Today’s surge in tower building – some 400 are in the pipeline of London’s uncontrolled property market – is driven by a quite different demand. It is from high-income migratory couples and foreign buy-to-leave investors. These people do not want a neighbourhood. Their social life is dispersed. They want a locked gate, a concierge and a pied-à-terre with a view. They want a gated community in the sky. When I moved from a tower flat to a street flat, I encountered a completely different city, exchanging what amounted to a self-catering hotel for a community of neighbours.

– image and excerpt from ‘The lesson from Grenfell is simple: stop building residential towers’, Simon Jenkins, The Guardian, 15 Jun 2017

Wake Up Canada! – Countries By Population Density

The red square on the map above represents the amount of space it would take to provide every household in Canada with a 66ftx122ft lot (which is twice the size of a standard Vancouver lot).

Population density (people per square km):

Monaco 18,589
Singapore 7,797
Hong Kong 6,644
Taiwan 650
South Korea 513
Netherlands 412
India 401
Israel 394
Philippines 347
Japan 335
United Kingdom 268
Germany 232
Nigeria 208
Italy 201
China 144
Denmark 134
France 123
Portugal 112
Jordan 111
Austria 105
Turkey 102
Egypt 93
Spain 92
Iraq 85
Greece 82
Morocco 77
Croatia 74
Mexico 63
Yemen 54
Iran 49
South Africa 43
United States 33
Canada 4 (yes, four — not a typo)

C’mon people! Open your eyes! Think!
– vreaa

Fun Facts:
Did you know that Vancouver Island is bigger than Belgium?
If the entire population of Canada moved to Vancouver Island, the population density there would be 1,145 people per square km.
If the entire population of Canada moved to the island of Newfoundland, the population density there would be identical to that of Japan (330 people per square km) and less than that of the Philippines, Israel, India, the Netherlands and South Korea.

Related post: ‘Land: Not Making Any More; Don’t Need To’ (2011)

The amount of space it would take to provide every person on the planet with a standard Vancouver size lot.

Low Interest Rates, Foreign Capital, Local Speculation

“Here, in a nutshell, is what Saretsky has learned. The reason most Vancouverites can’t afford a home is because of three related trends. The first thing you need to know is that low interest rates make it easier than ever to borrow money and invest in real estate. The second is that buyers from China and elsewhere are investing in the market at record levels. The third is that as real estate prices across the city skyrocket, a surge of domestic speculators — including first-time buyers worried they’ll miss their chance to buy a home — is causing prices to go even higher.
Or in Saretsky’s words: “I would boil it down to low interest rates creating an easy credit environment, slash foreign capital coming in and distorting the market, and ultimately, as prices went up, it fuelled a fear-of-missing-out speculation.”
– from ‘A Realtor’s Revolt – Why Steve Saretsky is exposing the truth about Vancouver’s real estate industry’, Geoff Dembicki, The Tyee, 12 Jun 2017

Gee, this guy sounds like us.
Note how he correctly classifies first-time buyers as domestic speculators.
All buyers here are speculators, have been for many years. – vreaa

Unstoppable?

May 2017 – REBGV New Average Sale Price Highs:
Detached $1,831,000
Attached $859,000
Apartments $657,000