Really – “in the world”? Once again, Vancouver is top of the list. From Business in Vancouver:
And yet, we live with the prospect of catastrophe as a likely outcome without expecting it to actually happen. Reminding me of the great quote in Michael Lewis’s book “The Big Short”:
These people (on Wall Street) believed that the collapse of the subprime mortgage market was unlikely precisely because it would be such a catastrophe. Nothing so terrible could ever actually happen.
I think murphy’s law says that the unlikeliest thing to happen is always the most likely thing to happen.
The subprime fiasco and Vancouver’s high housing prices cannot be compared. I don’t believe there is a bubble, at least not a big one. If there was, then it would have popped big time in 2008-09-10-11… The Great Recession is still not completely over.
Helmut Pastrick, chief economist with Central 1 Credit Union, said Metro’s housing market has taken a hit with the recent 15-per-cent foreign buyers’ tax, but demand for property will likely rise in the long term because there is little room to expand in geographically constrained Metro and a million more people are expected to move here by 2041 […] This demand will likely worsen affordability and force more young people to rent for longer, he added, as incomes won’t rise at the same pace.
http://vancouversun.com/news/local-news/b-c-economist-says-price-of-metro-vancouver-houses-will-keep-climbing
The article goes on with comments by other economists on controversial ideas like taxing older home owners more to “cool the market.” However, those home owners are also voters, and not all have adequate incomes, especially those who made a house their home all their lives and see in their limited sunset the rising value as a only number on a piece of paper.
I believe there is merit in the idea of building dedicated public market rental housing with 20% being subsidized and 25% three bedrooms with an emphasis on ground access. The sunk costs of debt-free parcels of public land are marginal. If the developments are well-designed with mixed incomes and ages and a good neighbourhood fit, and well-managed with rents breaking even but covering ongoing maintenance, management and depreciation, and allows replacement reserve funds to be built, then what’s the problem? The need is great, and the private sector isn’t filling the vacuum.
I know one shouldn’t predict the future by looking at the past, but Vancouver has long been a place where the price of land keeps going up and up. Sure there have been little bubbles and valleys along the way, but if you look at 20 or 50 year periods the rate of increase has been remarkably steady. It doesn’t seem to matter what the rate of inflation is, what interest rates are prevalent, how the stock market is performing, where the price of oil is going or whether wages are rising quickly or not at all, there has always been someone willing and able to keep the appreciation train rolling. Every time prices rose too quickly there was a plateau or dip and each of those was seen as a buying opportunity that quickly restored the long term trend.
The last few years have definitely been exceptional and certainly qualify as a bump. Values rose so quickly that they’re already sitting where they were expected to be in 2020 or so. If they stagnate for the next 4 years the long term trend will be confirmed once again. If they actually drop it’ll be another buying opportunity that will quickly restore the normal rate of increase.
A big chunk of the money fuelling the market has always originated somewhere else. The city has long been a popular destination for migrants and immigrants and many local magnates made their money somewhere else. So local conditions really have little impact on the price of land. What looks like an insurmountable hurdle from up close is merely a tiny blip when viewed from a global perspective.
“Local conditions” unfortunately include a land supply constrained by geography and a 50-year old zoning lock-in for low-density (RS) while demographics constantly change. This situation remains unaddressed — even unacknowledged — by decision makers while the racket over foreign money calms to a dull roar.
The City of Vancouver has a background rate of appreciation the stretches back much longer than I have been alive. It may be a simple case of demand constantly exceeding new supply, but I suspect the truth is far more complicated.
If pricing was simply a supply/demand imbalance then those places with the least new supply should see the highest price increases and those with the most new supply should see the lowest appreciation. But in the decade from 1976 to 1986 when the forests of South Surrey were being chopped down and existing lots subdivided, prices rose much faster than they did in Vancouver where there was very little new supply added. During the last few years the biggest price increases weren’t in Dunbar or Renfrew Heights where RS-1 has a lock on almost the entire land base, they were in the exurbs like Mission and Abbotsford where re-zoning and building were proceeding at a rapid rate.
Correlation doesn’t always mean causation.
Exactly Anonymous. Land valuation is far more complicated than any single factor like supply/demand, interest rates, foreign exchange rates, uneven lending criteria or restrictive zoning can explain.
I think part of the “problem” is that our society still presents ownership of a single family house as the mark of success and brands anything else as failure. It unfairly makes condo owners and renters into second or third class citizens.
I know that having a nearby park is better for kids than the tiny yard that comes with a typical Vancouver house. I know that having transit and shopping nearby can relieve a family of at least one car and its enormous expenses. I know that having someone else maintain the building and keep the garden looking beautiful is a relief at the end of the day (especially for new parents). But I learned those things by actually living them.
Until you’ve had those experiences society’s mark of success, a detached house, is all you know.
I realize that townhouse living is not for everyone and that good neighbourhoods with all the amenities aren’t around every corner, but I believe a large segment of our society could find happiness if enough family-sized units existed.
there’s also the fact that given the drop in canadian dollar in past years, even with the added cost of the tax, vancouver’s prices haven’t really gone up in relation to foreign currencies that much over the last 2 years (the 30% rise we had roughly factored against a 30% fall in dollar … so the actual recent rise is not nearly as much more than the new 15% tax)
It should have come as no surprise that a huge drop in the Canadian dollar might lead to a spike in sales and prices for desirable Canadian land.
As I said above, I have yet to find any factor to explain the deviations from the long term average rate of appreciation. I wonder if the value of the Canadian dollar is it.