c44d69_566a7ec3a0dd46f0bc09e850a7a99598mv2
It’s not every day that three well-respected urbanists meet to discuss what is happening in the Vancouver housing market, but that is exactly what happened at the Union of British Columbia Municipalities convention which is currently being held in Vancouver. As reported in the Vancouver Sun by Matt Robinson , University of British Columbia’s David Ley, Simon Fraser University’s Andy Lam and Josh Gordon from Simon Fraser University’s public policy program laid it out succinctly and painfully.
Andy Yan  illustrated that the  so-called ‘million dollar and more‘ detached houses are concentrated around the City of Vancouver. However if transportation costs are factored in as  paid by households over a 25 year period to commute to work, those ‘million dollar’ housing units are located right across the lower mainland. Noting that you can’t use sprawl to provide housing affordability, Andy pointed out the disparity between incomes and housing values.  “Where does Vancouver sit? Its (housing) values are between Honolulu and San Francisco at Halifax incomes.” In the Fraser Valley Andy pointed out that housing prices are seven times what median income is, showing that even there local people are not able to buy in this market.
Dr. Ley backed up Andy Yan’s points by showing that 2017 data from the Demographia consultants illustratesthat Vancouver’s detached homes cost over 11 times median incomes. As a guide, affordable housing is classified as three times median income.
 
 

And with locals taking on large debt to finance a house there are implications if interest rates change or if there is a recession. But most importantly workers will not be able to live in Vancouver. “By 2020, workers in 82 of 88 in-demand jobs will be unable to afford a single-family home in Metro, Ley said, citing a 2015 study from Vancity. And in just 10 years, most people will forgo career opportunities in the region and simply relocate elsewhere.”
That is huge~if workers cannot live in the city, they won’t have any incentive to stay here and raise families. Calling Vancouver “a honey pot for global investors” Dr. Ley noted that you can’t build your way to affordability, and that increased supply through redevelopment feeds land assemblies at higher prices, driving up land costs which are reflected in higher valued units. “Housing has become a valued asset in an investment portfolio. Capital flows to select desirable locations, resort locations and gateway cities.”
So how to mitigate the affordability of housing? Josh Gordon from  SFU’s School of Public Policy, bluntly described the challenge of one of foreign money stating “You have to understand supply claims are largely about distracting us from doing stuff on the demand side,” said Gordon, who added that developers simply want to be able to build endlessly for the world’s rich.”

Calling the foreign-buyers tax and the marginal increase in property purchase transfer tax  “insufficient and modest” Gordon observed that what is needed is “a progressive property surtax that is offset by income taxes paid. “What that would do … if you wanted to own property on the basis of foreign income and wealth, you’d have to pay your fair share of taxes.” Local home buyers subsidize foreign buyers as local buyers use income upon which taxes are paid for social and other services. Foreign buyers do not. A property surtax would eliminate that subsidy.  With housing prices over 11 times the median income, and the median housing price now skirting two million dollars, this is no longer a local market. What happens if workers simply decide to live somewhere else  other than the Metro Vancouver region? What shifts can be made by municipalities and the Province to ensure that people in this area can purchase their own housing? Is it all too late?
vancouver-real-estate-investments

Comments

  1. I think houses are the wrong focus when they talk about housing in Vancouver. The median *housing* price isn’t getting anywhere near $2,000,000. The median *house* price in the City of Vancouver is. In some places this might be a distinction without a difference but in Vancouver it really matters. The majority of the population lives in things that aren’t Single Family Houses with only 1 family living in them. Even the majority of children live in other dwelling types. According to http://vancouver.ca/files/cov/housing-characteristics-fact-sheet.pdf there are 41,330 single detached houses in the City of Vancouver, just 15% of the housing stock. 85% of the housing stock is something else. There are significantly more households making > $100,000/year in Vancouver than there are traditional houses.
    Even if you eliminate every dollar of foreign money from the Vancouver market a house like I grew up in will never be affordable to the average Vancouverite. Eliminating speculative investment would help and I don’t think even single family house prices in Vancouver are supported by local incomes. Nonetheless there are now more high income locals than there are houses. People who aren’t high income are going to have an awfully hard time buying one ever again.
    Vancouver is built out. You want more housing you basically have to tear down some old housing. If you go re-zone some single detached houses to allow multi-family the land gets more expensive and so does the house on it. But if you then use the land as zoned and actually build multi-family housing on it then *housing* doesn’t get more expensive. Since single family homes are a small and ever diminishing fraction of housing in Vancouver, maybe we should focus on where and how people actually live?

    1. Wrong. If the “supply” of foreign buyers was choked off prices would drop back to what locals could afford. A house around Main or Fraser was $500k a decade or so ago, nothing economically (other than foreign buyers) has changed to make it worth more.
      And checkout the price of a 2 bedroom condo in the city. Hardly affordable. To follow your logic, it’s perfectly okay that locals be priced otu of the City of Vancouver unless they;re content to squeeze into a one bedroom.

      1. Yes absent foreign investment (or a local bubble) prices should be what locals can afford. What has changed about houses in the last ten years is there are fewer of them. What has changed about people in Vancouver in the last 10 years is there are many more high income households. There are maybe 70,000 households in the CoV who can afford the mortgage payments on a $500,000 house even if they had no money down. There are only 41,000 houses. Houses will not be affordable to the other 200,000+ households. So if we want them to have affordable housing in the CoV it will have to be something other than houses.
        Two bedroom condos also aren’t affordable right now but at least they have a chance to be. The point I was trying to make is that we need to increase supply of those condos, and rentals, on an ongoing basis so that people of more modest means *can* still live in Vancouver.

        1. In addition to what you mention what has also changed is
          far more GenY folks entering the market
          AND
          far lower interest rates.
          AND
          massive QE and money printing
          AND
          weaker tax enforcement
          AND
          a more unsafe world with many more crisis (say Turkey the latest one, or Venezuela, or continued exodus from Middle East of China)
          AND
          a decent economy
          AND
          continued immigration – perhaps even higher or more concentrated into Lower Mainland
          People need to understand that no politician will be able to change the world such that house prices will come down in Vancouver EVER (barring outright expropriation and forced redistribution or a mass death due to disease outbreak). Note the word: EVER.
          If you think of buying, buy now, as next ear or in 2 or in 5 or in 12 or in 22 it will be more expensive !
          The best you can hope for is
          a) more housing – but very expensive, at least $1000/sq ft
          b) more rapid transit so you ca buy further out where it is cheaper as land is cheaper
          c) more rentals as new developments get forced into rentals – making ownership even more prohibitive
          That is the best you can hope for. Anything else is just a lie.
          deleted as per editorial policy

      2. It would be great, Bob, if you could back your conjecture with a modicum of evidence, research, analysis, educated reasoning… anything.
        Rich foreigners are not the sole cause of the affordability crisis, but they are sure are a sexy target compared to distinctly boring interest rates, limited land supply, lack of housing choice, speculation by long-time Canadians, and that ultimate snore inducer, zoning.

        1. Let’s not forget CACs, DP fees, BP fees, lengthy approval cycles, redoing design and proposals, building code complexities, …
          And also immigration .. especially those with money congregating in a very small part of BC, ie demand pushing onto limited land supply.
          As such, tough to reverse the clock …

        2. Alex you forgot another important factor: aging boomers hanging onto their houses through government charity. Understandable.

        3. Yup, seniors with a paid off house have it good in BC .. a large (too coddled?) voting constituency !! Delayed property taxes, many discounts, no mortgage .. ability to borrow at 3.2% via LOC or reverse mortgage against their house for world wide travel, ..

        4. Dragging seniors from their homes, what inflammatory language. I would hardly call aiding a senior liberate the millions of equity tied up in a home they obviously can’t afford “dragging”.

  2. Agree 100% with David. This focus on single family homes is very strange and counterproductive. As the saying goes, we’re not in Kansas any more.
    Also, can someone get these supposed experts a refresher course in econ 101. Then they wouldn’t embarrass themselves pretending that the laws of supply and demand have magically been repealed in Vancouver.
    There was an article in the local (tri-cities) paper the other day in which developers were very matter of factly describing their planned rate of development and the need to pace themselves (i.e. hold back potential supply) in order to avoid pushing prices down. Everybody understands this, there may be a lot of demand (especially closer in to downtown) but it is not infinite.
    Let me quote from a recent article in ‘The Australian’ on the Brisbane housing market:
    “Within five kilometres of Brisbane’s CBD, 5500 apartments were completed and available to be moved into by owners or tenants in the nine months to September last year.
    During the same period, vac­ancy rates rose from 2.7 per cent to 4.7 per cent — a near doubling — 5km-15km from the CBD. Landlords who purchased a flat that has no tenant need to deeply discount their rent or accept zero income. And that puts financial stress on the landlord even if they haven’t lost their job.
    Most worryingly, another 13,300 new apartments will be completed within 5km of the CBD before September this year.
    Meanwhile, some financial planners have reported to me being cold-called by developers with offers of 7 per cent commissions to market properties to their clients. This inducement comes on top of the free holidays, free cars and free frequent flyer points being offered as incentives to property buyers.
    As supply increases, (see graph) these discounts will become more aggressive, ensuring lower prices. Reports of some apartments being revalued 30 per cent lower than 18 months ago will not help.”
    I see zero reason why the law of supply and demand wouldn’t similarly apply in Vancouver.
    CMHC puts Metro Vancouver 12 month completions at ~20,000, with almost 40,000 units under construction, which is by far the highest that figure has been in decades, but these numbers are still low compared to what they managed to build in Brisbane.

  3. When will folks realize that median income (or income to house price ratio) doesn’t matter anymore ? Vancouver attracts many folks that have incorporated or derive income from elsewhere, either Alberta or Ontario, or Hongkong or Iran or Bejing or Chile or Mexico or US or Russia or Saudi Arabia or any other place where people with money come from and/or do business ?
    Vancouver is a great place to work FROM and live, while incomes are derived elsewhere.
    Our tax system, designed post WWII pre-internet AND pre-cheap travel AND pre-mass migration worldwide hasn’t caught up to it yet.
    Since we also tax incomes very very high for folks that can actually afford $2M+ homes (namely 50%+ over $150,000) they do what is rational: declare incomes elsewhere and live here with very low property taxes, or declare a small income here, gift the money to kids or spouse tax-free.
    How long will it take for academia and politicians to realize that ? 2 more decades ? 3 ?
    As such, we ought to tax consumption (the new Ferrari, or $20,000 couch, for example) more and also properties, both its gain (say above $1M or if held for less than 5 years) and its ownership, and incomes far far less. Until that changes people will do the rational thing and buy the most expensive house or condo they can afford. It’s the rational thing to do !

  4. There is no reason voters federally, provincially or municipally should reward parties that do nothing to stem the tide of foreign buyers. Elected Canadian politicians should be placing the needs of Canadians above all else. Nobody voted for them in order to provide offshore buyers with a place to stash their money. Christy Clark learned that the hard way. Unless they absorb that lesson Justin and Gregor may meet the same fate.

    1. Its not that simple. There is MUCH value in having offshore money here. The issue is under-taxation of real estate and over-taxation – based on a 70+ year old tax system – of incomes.
      New condos or housing provides massive jobs and economic stimulus: CACs, BP fees, DP fees, $1B+ in land transfer taxes alone last year, jobs for architects, lawyers, realtors, planners, elevator designers, cleaner, concrete truck drivers, engineers, A/C technicians, window manufacturers, designers, wallpaper installers, painters etc .. a new $1.2M condo just doesn’t fall out of the sky, you know !
      ==> Without real estate the entire BC economy would be TOAST ! In fact its is THE gold in BC – the main industry ! So killing the golden goose is dumb dumb dumb .. just monetizing better is what we ought to do !
      There are far more winners than losers here with foreign owned, or foreign funded real estate. The trick is to get the mix and taxation (or monetization) model right !
      So, the trick is to more sensibly monetize it, eg.
      a) higher land transfer taxes and/or
      b) property taxes for real estate, especially foreign owned, while owned, and.or
      c) higher or actually enforced capital gains taxes when selling
      but lower local income tax payer taxes. We can use TX or WA as a model.
      Imagine all the offshore money left. That would be better why ? It would trigger a massive recession with far more losers than winners !

Leave a Reply

Your email address will not be published. Required fields are marked *