The Metro Vancouver Real Estate Thread

[whatnext]

From today's Globe & Mail: former Rize Alliance employee and Oxford Graduate student's study shows Foreign Buyers Tax has helped affordbaility:

Oxford academic’s research suggests Vancouver’s foreign-buyers tax has been a boon to affordability

..he 28-year-old property developer says the city was being hollowed out, largely owing to foreign investment. So in the spring of 2015, he moved to London for a job with the region’s transit system and began his graduate thesis at the University of Oxford on Vancouver’s foreign-buyers tax to determine the impact it had on improving affordability. According to his research findings, the tax that was introduced in August, 2016, resulted in an immediate improvement in housing affordability in Metro Vancouver. He says he thinks he is the first academic to use empirical evidence to prove the tax achieved better affordability for local income earners, albeit only temporarily. And as someone who’d like to return to Vancouver one day, he’s arguing for policy makers to do more to deter foreign investment...

...Mr. Wilson says we are seeing long-term effects of the tax, but he says the tax itself is too low, even at 20 per cent, to have enough of an impact.

“The tax did have a significant impact, but it was short-lived and temporary, meaning the rate of taxation may not be high enough to dissuade foreign investment on a long-term basis to a sufficient degree.

...Using hedonic regression analysis, Mr. Wilson says he was able to measure the direct impact of the tax on housing affordability. He didn’t use the standard affordability ratio of median income versus median home price, but instead considered how well a median household could service a typical mortgage payment while maintaining a basic standard of living. He found that the ability for the median income household to cover the cost of a mortgage had been reduced by nearly 50 per cent between 2012 and 2016. When the foreign-buyers tax was introduced for Metro Vancouver in August, 2016, this trend reversed and affordability improved by 38 per cent. However, the impact was short-lived, and after six months, affordability once again began to worsen.Mr. Wilson says this proved that demand-side measures must be paired with supply-side measures if the crisis is to be fully addressed.

“This suggests that significantly higher taxation rates, or more likely, outright restrictions on foreign ownership, must be applied to deal effectively with the influence of foreign capital in Vancouver’s housing market,”...

https://www.theglobeandmail.com/real...uyers-tax-has/

[misher]

Originally Posted by whatnext

From today's Globe & Mail: former Rize Alliance employee and Oxford Graduate student's study shows Foreign Buyers Tax has helped affordbaility:

Oxford academic’s research suggests Vancouver’s foreign-buyers tax has been a boon to affordability

..he 28-year-old property developer says the city was being hollowed out, largely owing to foreign investment. So in the spring of 2015, he moved to London for a job with the region’s transit system and began his graduate thesis at the University of Oxford on Vancouver’s foreign-buyers tax to determine the impact it had on improving affordability. According to his research findings, the tax that was introduced in August, 2016, resulted in an immediate improvement in housing affordability in Metro Vancouver. He says he thinks he is the first academic to use empirical evidence to prove the tax achieved better affordability for local income earners, albeit only temporarily. And as someone who’d like to return to Vancouver one day, he’s arguing for policy makers to do more to deter foreign investment...

...Mr. Wilson says we are seeing long-term effects of the tax, but he says the tax itself is too low, even at 20 per cent, to have enough of an impact.

“The tax did have a significant impact, but it was short-lived and temporary, meaning the rate of taxation may not be high enough to dissuade foreign investment on a long-term basis to a sufficient degree.

...Using hedonic regression analysis, Mr. Wilson says he was able to measure the direct impact of the tax on housing affordability. He didn’t use the standard affordability ratio of median income versus median home price, but instead considered how well a median household could service a typical mortgage payment while maintaining a basic standard of living. He found that the ability for the median income household to cover the cost of a mortgage had been reduced by nearly 50 per cent between 2012 and 2016. When the foreign-buyers tax was introduced for Metro Vancouver in August, 2016, this trend reversed and affordability improved by 38 per cent. However, the impact was short-lived, and after six months, affordability once again began to worsen.Mr. Wilson says this proved that demand-side measures must be paired with supply-side measures if the crisis is to be fully addressed.

“This suggests that significantly higher taxation rates, or more likely, outright restrictions on foreign ownership, must be applied to deal effectively with the influence of foreign capital in Vancouver’s housing market,”...

https://www.theglobeandmail.com/real...uyers-tax-has/

If foreign purchases were still above 5% not under 1% as they've all gone to Montreal I'd agree. The less than 1% who are desperate enough to pay that 20% tax are not a problem. If anything we should be giving them medals as thanks for donating to our province.

[rofina]

Originally Posted by misher

If foreign purchases were still above 5% not under 1% as they've all gone to Montreal I'd agree. The less than 1% who are desperate enough to pay that 20% tax are not a problem. If anything we should be giving them medals as thanks for donating to our province.

I actually kind of agree with this.

20% is plenty steep - if volumes were higher this would be a serious revenue generator.

[whatnext]

Originally Posted by misher

If foreign purchases were still above 5% not under 1% as they've all gone to Montreal I'd agree. The less than 1% who are desperate enough to pay that 20% tax are not a problem. If anything we should be giving them medals as thanks for donating to our province.

That 1% figure is suspect, and definitely does not capture the impact of foreign money, as outlined by SFU Professor Josh Gordon in the Georgia Straight this week:

...I want to do three things: (a) expose the insincerity of some of those who continue to deny or downplay the role of foreign money; (b) explain why the Canada Mortgage and Housing Corporation (CMHC) report that these folks point to is flawed; and (c) suggest that recent events and evidence thoroughly vindicate the view held by most Vancouverites.

What you’ll notice when you see people try to minimize the role of foreign money is that they fixate on “foreign buyers”. (We’ll call these people “minimizers”.) When they do this, they want you to focus on the nationality of the buyer, or sometimes their residency. In other words, they emphasize stats about foreign citizens purchasing housing, which the B.C. government now collects, or “nonresident” owners, which Statistics Canada has collected for Toronto and Vancouver.

The problem is that these stats only capture a small part of the foreign ownership that’s happening in Vancouver. This means that those stats are misleading.

What matters is where the money comes from. Foreign ownership, properly defined, is “ownership primarily based on foreign income or wealth.”

Those who have studied this issue, including the pioneering David Ley, have always seen the source of money as the primary issue. That’s because if we want to understand the impact on house prices, whether the buyer is a resident or a citizen is less important than where the money comes from.

The issue with foreign money being used to buy housing is that housing prices no longer merely reflect local incomes. In fact, with sufficient amounts of foreign ownership, housing prices can become decoupled from the local labor market—as they have in Metro Vancouver, which is why the stats comparing house prices to incomes are so off-the-charts.

Consider two cases. One case is the “satellite family”, where the breadwinner earns abroad while the family resides in Vancouver. They use foreign money to pay for housing and usually don’t pay local income taxes, even though they are permanent residents or citizens. Another case could be called “the caricature”, the wealthy guy buying a house in Vancouver from across the world with the click of the mouse.

Each of the cases will have the same effect in terms of pushing prices for desirable property beyond what most local incomes can afford—at least as long as the amount of money involved is the same. But the residency and citizenship are different. If we fixated on those things, we’d miss the influence of the satellite family. And yes, there are a lot of satellite families in Metro Vancouver, in the tens of thousands, because of the history of the Investor Immigration Program and other forms of wealth migration...

... Second, properly understood, even if we look only at the nonresidency data from StatsCan, the influence of foreign money is readily apparent: for condos that were completed in 2016–17 in Metro Vancouver, roughly 16 percent were owned by nonresidents. What matters most for price trends is the flow (share of current buyers) not stock (share of all owners), as I’ve argued before. By any standard, that share of buyers is going to sharply move a housing market. In one American study, each extra share of out-of-town buyers added nearly two percent to the price growth in the following year...(bold mine)

https://www.straight.com/news/116280...ip-and-housing

[Vin]

whatnext, they are baaaaack!


http://dailyhive.com/vancouver/vanco...-november-2018

[misher]

Originally Posted by whatnext

That 1% figure is suspect, and definitely does not capture the impact of foreign money, as outlined by SFU Professor Josh Gordon in the Georgia Straight this week:

...I want to do three things: (a) expose the insincerity of some of those who continue to deny or downplay the role of foreign money; (b) explain why the Canada Mortgage and Housing Corporation (CMHC) report that these folks point to is flawed; and (c) suggest that recent events and evidence thoroughly vindicate the view held by most Vancouverites.

What you’ll notice when you see people try to minimize the role of foreign money is that they fixate on “foreign buyers”. (We’ll call these people “minimizers”.) When they do this, they want you to focus on the nationality of the buyer, or sometimes their residency. In other words, they emphasize stats about foreign citizens purchasing housing, which the B.C. government now collects, or “nonresident” owners, which Statistics Canada has collected for Toronto and Vancouver.

The problem is that these stats only capture a small part of the foreign ownership that’s happening in Vancouver. This means that those stats are misleading.

What matters is where the money comes from. Foreign ownership, properly defined, is “ownership primarily based on foreign income or wealth.”

Those who have studied this issue, including the pioneering David Ley, have always seen the source of money as the primary issue. That’s because if we want to understand the impact on house prices, whether the buyer is a resident or a citizen is less important than where the money comes from.

The issue with foreign money being used to buy housing is that housing prices no longer merely reflect local incomes. In fact, with sufficient amounts of foreign ownership, housing prices can become decoupled from the local labor market—as they have in Metro Vancouver, which is why the stats comparing house prices to incomes are so off-the-charts.

Consider two cases. One case is the “satellite family”, where the breadwinner earns abroad while the family resides in Vancouver. They use foreign money to pay for housing and usually don’t pay local income taxes, even though they are permanent residents or citizens. Another case could be called “the caricature”, the wealthy guy buying a house in Vancouver from across the world with the click of the mouse.

Each of the cases will have the same effect in terms of pushing prices for desirable property beyond what most local incomes can afford—at least as long as the amount of money involved is the same. But the residency and citizenship are different. If we fixated on those things, we’d miss the influence of the satellite family. And yes, there are a lot of satellite families in Metro Vancouver, in the tens of thousands, because of the history of the Investor Immigration Program and other forms of wealth migration...

... Second, properly understood, even if we look only at the nonresidency data from StatsCan, the influence of foreign money is readily apparent: for condos that were completed in 2016–17 in Metro Vancouver, roughly 16 percent were owned by nonresidents. What matters most for price trends is the flow (share of current buyers) not stock (share of all owners), as I’ve argued before. By any standard, that share of buyers is going to sharply move a housing market. In one American study, each extra share of out-of-town buyers added nearly two percent to the price growth in the following year...(bold mine)

https://www.straight.com/news/116280...ip-and-housing

While we can go on arguing about underground foreign money being channeled into our economy for hours in the end the tax and further regulation only hits the above ground stuff which is the less than 1% of sales.

I feel like anything above 5% on foreign purchases is extreme. Anyone willing to pay 20% is crazy. However, banning people from paying a 20% premium in taxes is crazier and shame on our education system for allowing supporters of this to graduate.

Recently there's been a massive and undeniable correlation between difficulty in obtaining mortgages and demand across the nation which in itself is a huge piece of evidence showing the a majority of the market is local.

PS: The Chinese buyer interest article is quite old by about a month or two. Sales have not surged yet, remains to be seen if they will. Likely many will show interest then cancel once they see the tax or are unable to take money out of the country.

[scryer]

That thesis is definitely questionable to say the very least .

I think that the writer is out of touch (read: hella rich) but what do I know, I just live and work here.

[whatnext]

Things are looking ugly out on the Valley, where working locals could actually still afford to buy:

Fraser Valley Condo Sales Drop 50%, Inventory Rises 153% in October
https://vancitycondoguide.com/fraser...es-in-october/

[misher]

Originally Posted by whatnext

Things are looking ugly out on the Valley, where working locals could actually still afford to buy:

Fraser Valley Condo Sales Drop 50%, Inventory Rises 153% in October
https://vancitycondoguide.com/fraser...es-in-october/

That's not good a lot of the workers there work in the construction industry or associated businesses. I still remember the mayor of West Kelowna fighting the speculation tax tooth and nail because he was worried about the impact on the economy.

[whatnext]

Originally Posted by misher

That's not good a lot of the workers there work in the construction industry or associated businesses. I still remember the mayor of West Kelowna fighting the speculation tax tooth and nail because he was worried about the impact on the economy.

This has zero to do with the speculation tax.

[misher]

Originally Posted by whatnext

This has zero to do with the speculation tax.

Sales may be declining partially because of it (the Kelowna mayor said they were in West Kelowna) but yes my point was that sustained reduced sales is going to hurt their economy like a rock.

[whatnext]

Originally Posted by misher

Sales may be declining partially because of it (the Kelowna mayor said they were in West Kelowna) but yes my point was that sustained reduced sales is going to hurt their economy like a rock.

Sales are not declining in the Fraser Valley condo market because of the Speculation Tax. Period.

[Changing City]

Originally Posted by whatnext

Things are looking ugly out on the Valley, where working locals could actually still afford to buy:

Fraser Valley Condo Sales Drop 50%, Inventory Rises 153% in October
https://vancitycondoguide.com/fraser...es-in-october/

As has been the case for several years, Steve Saretsky's data and insight is really good. The chart showing prices staying level at around $200,000 for a condo from 2008 to 2016 and then taking off like a rocket to more than double that in mid 2018 is extraordinary. With changes in interest rates and the stress test on mortgage finance, it's not surprising that the Index price has fallen for four months in a row, and it seems likely to keep falling for the near future. How far, and how fast is the obvious unknown.



In terms of inventory of unsold properties increasing by 153% in a year, the chart suggests that while it's true, it's not necessarily a big deal - yet. It looks like between 2008 and 2015 inventory of condos fluctuated between 1,300 and 2,000 on an annual cycle. The break in the pattern came in the past two years, where it looks like almost everything was sold, and inventory dropped to only 500 units. It's risen really fast back to around 1,500, hence the 153% increase, but it's only returned to the average that was seen over the previous seven years, and there are still fewer condos for sale than in that period. If inventory goes over 2,000 units, and stays there, then there would appear to be a much bigger problem.



image source: Steve Saretsky's blog.

[whatnext]

That price run-up is insane when you see it graphed like that.

[misher]

Originally Posted by Changing City

As has been the case for several years, Steve Saretsky's data and insight is really good. The chart showing prices staying level at around $200,000 for a condo from 2008 to 2016 and then taking off like a rocket to more than double that in mid 2018 is extraordinary. With changes in interest rates and the stress test on mortgage finance, it's not surprising that the Index price has fallen for four months in a row, and it seems likely to keep falling for the near future. How far, and how fast is the obvious unknown.



In terms of inventory of unsold properties increasing by 153% in a year, the chart suggests that while it's true, it's not necessarily a big deal - yet. It looks like between 2008 and 2015 inventory of condos fluctuated between 1,300 and 2,000 on an annual cycle. The break in the pattern came in the past two years, where it looks like almost everything was sold, and inventory dropped to only 500 units. It's risen really fast back to around 1,500, hence the 153% increase, but it's only returned to the average that was seen over the previous seven years, and there are still fewer condos for sale than in that period. If inventory goes over 2,000 units, and stays there, then there would appear to be a much bigger problem.



image source: Steve Saretsky's blog.

Yes whats scary isn't the total inventory but the rapid increase. Hope sales pick up or high inventory will pose a large issue. Thank you for your analysis.

[whatnext]

Here's one example Misher could try and pin the blame on the speculation tax. Though in reality stricter mortgage rules and Chinese restrictions on capital flight are to blame. A cautionary tale about shadow lending and getting caught up in real estate hype (it never goes down!):

With its slightly kitschy but homey pine-panelled interior, stunning view of the ocean and backyard swimming pool, it’s easy to imagine a family living in the four-bedroom home on Russet Way in West Vancouver.

But today the house is empty, a court notice affixed to the door, the pool holding just a few inches of slimy green water.

Like many houses in West Vancouver, this house’s value has dropped dramatically since a series of government interventions, in response to a price spike in 2016, let air out of the market.

Real estate market watchers say this home is also an example of how borrowers and private lenders are scrambling to recoup their investments in several high-priced neighbourhoods where home prices are rapidly deflating.

A recent analysis shows private lending has been growing in Toronto, but a dearth of data in Vancouver makes this area, and its potential impact on the wider housing market, a mystery.

Two private lenders have registered a total of $4.47 million against two West Vancouver homes owned by Sherrin Lim, including the one on Russet Way. While the two properties together have an assessed value of $5.85 million, one of the homes sold for $2.4 million in a court-ordered sale in July, while the Russet Way home is currently listed at $2.1 million. The owner has seen $3.35 million in value disappear...

https://www.thestar.com/vancouver/20...e-markets.html

[Vin]

Originally Posted by whatnext

Here's one example Misher could try and pin the blame on the speculation tax. Though in reality stricter mortgage rules and Chinese restrictions on capital flight are to blame. A cautionary tale about shadow lending and getting caught up in real estate hype (it never goes down!):

With its slightly kitschy but homey pine-panelled interior, stunning view of the ocean and backyard swimming pool, it’s easy to imagine a family living in the four-bedroom home on Russet Way in West Vancouver.

But today the house is empty, a court notice affixed to the door, the pool holding just a few inches of slimy green water.

Like many houses in West Vancouver, this house’s value has dropped dramatically since a series of government interventions, in response to a price spike in 2016, let air out of the market.

Real estate market watchers say this home is also an example of how borrowers and private lenders are scrambling to recoup their investments in several high-priced neighbourhoods where home prices are rapidly deflating.

A recent analysis shows private lending has been growing in Toronto, but a dearth of data in Vancouver makes this area, and its potential impact on the wider housing market, a mystery.

Two private lenders have registered a total of $4.47 million against two West Vancouver homes owned by Sherrin Lim, including the one on Russet Way. While the two properties together have an assessed value of $5.85 million, one of the homes sold for $2.4 million in a court-ordered sale in July, while the Russet Way home is currently listed at $2.1 million. The owner has seen $3.35 million in value disappear...

https://www.thestar.com/vancouver/20...e-markets.html

Doesn't matter the cause of this decline in economy, the measures introduced were all thrown in due to knee-jerk reactions. Now that the major sources of revenue is killed off in many of the outlying municipalities, time for many, especially those in the suburbs, to suffer the consequences. When more people see their home values drop, more will stop spending as much like the previous years, and that would also bring down other areas of the economy. But these are all what you've wanted all along, no? As long as the Chinese are kept out, nothing else matters.

[misher]

Originally Posted by Vin

Doesn't matter the cause of this decline in economy, the measures introduced were all thrown in due to knee-jerk reactions. Now that the major sources of revenue is killed off in many of the outlying municipalities, time for many, especially those in the suburbs, to suffer the consequences. When more people see their home values drop, more will stop spending as much like the previous years, and that would also bring down other areas of the economy. But these are all what you've wanted all along, no? As long as the Chinese are kept out, nothing else matters.

It really is a mixed bag. I didn't say that its all speculation tax, but a mix of a bunch of factors.

It is harder for Chinese to get money out right now but Chinese are also more desperate to get it out so it balances out a bit. There's also large flows of money coming from Britain & the Middle East as many wealthy there are choosing to invest abroad.

Most are predicting a slight rise in 2019. Barring any great disaster I am confident this will occur. There's too much tied up in the market so if it doesn't it will be an unhappy time for the province. If it looks like it will rise into 2022+ then development will still occur at a good pace. We can stand a 10% average decrease in prices but the worry is that momentum will continue unchecked which would be a disaster.

Vin is right, real estate is a massive and essential part of our economy. People suggest that we need to stop relying on real estate and I completely agree. However, we can't stop cold Turkey without plunging our province into a depression. We will still need a strong and robust real estate industry for at least the next 20 years to keep our economy afloat.

Its likely the Foreign Buyer tax will be overturned in 2019-2020 as I don't think the court will rule out the Charter and our international trade agreements. Same may happen with the Speculation tax. Until then we're going to have to rely on the domestic market to pull through.

[whatnext]

Originally Posted by Vin

Doesn't matter the cause of this decline in economy, the measures introduced were all thrown in due to knee-jerk reactions. Now that the major sources of revenue is killed off in many of the outlying municipalities, time for many, especially those in the suburbs, to suffer the consequences. When more people see their home values drop, more will stop spending as much like the previous years, and that would also bring down other areas of the economy. But these are all what you've wanted all along, no? As long as the Chinese are kept out, nothing else matters.

How was this scenario remotely a source of revenue for the "outlying municipality" of West Vancouver? Nothing was done to the two houses. Sherrin Lim, whoever they are, apparently just wanted to make a quick buck flipping them, or sit on them as some sort of safety deposit box. West Van made no money from that. No contractors made renovation money. No new furniture was purchased from local companies.

Keeping foreign capital out is what matters. Getting burned on transactions like this will help.

[misher]

Originally Posted by whatnext

How was this scenario remotely a source of revenue for the "outlying municipality" of West Vancouver? Nothing was done to the two houses. Sherrin Lim, whoever they are, apparently just wanted to make a quick buck flipping them, or sit on them as some sort of safety deposit box. West Van made no money from that. No contractors made renovation money. No new furniture was purchased from local companies.

Keeping foreign capital out is what matters. Getting burned on transactions like this will help.

Foreign capital is a huge source of money in. Even if nothing gets done by the purchaser the seller, real estate agent, government all receive large sums that get spent and so on and so forth. Economics teaches us that each market activity leads to further activity like how water ripples from a rock you throw in.