Vancouver's Housing Supply Myth

[whatnext]

Originally Posted by Changing City

Those few examples really don't make anything clear. It's well known that San Francisco has had a restricted housing market, which is why their home prices make ours look cheap. The same is true for London.

It also depends on the year you look at - the 2016 numbers (source) show Dallas Fort Worth with 55,618 housing starts. Seattle, with a population of 3.7mil had 25,516. Austin, with a population of 2.0 mil had 22,242 starts - so more starts and a smaller population base than Vancouver.

Are some Vancouver units being bought as investments, either to hold and sell when (if) prices rise, or for Air B&B rental potential, or for flipping on completion? Yes, of course some are. But can that explain why prices have risen like they have? Not as the only explanation, no.

You also can't say if the construction we have seen has moderated prices in older stock, because there isn't a parallel universe to access to see what would have happened to house prices if the new stock hadn't been built. The evidence out of San Francisco, where they didn't build much new stock, suggests the prices could have risen even more.

San Francisco actually has an economy that pays wages helping to explain the housing costs. While Vancouver's median household income is $77,662 CAD, San Francsisco's median household income is $103,237 USD. This is why Vancouver always comes out as the most unaffordable housing market in North America.

You quote Dallas, whose starts were driven by a push in affordable home construction, that is under $300k! Good luck finding anything in Vancouver near that let alone newbuilds. And though Dallas does have lower median income of $61,644 USD, that converts to the almost equal CAD amount of Vancouver.

[casper]

Originally Posted by Changing City

Those few examples really don't make anything clear. It's well known that San Francisco has had a restricted housing market, which is why their home prices make ours look cheap. The same is true for London.

It also depends on the year you look at - the 2016 numbers (source) show Dallas Fort Worth with 55,618 housing starts. Seattle, with a population of 3.7mil had 25,516. Austin, with a population of 2.0 mil had 22,242 starts - so more starts and a smaller population base than Vancouver.

Are some Vancouver units being bought as investments, either to hold and sell when (if) prices rise, or for Air B&B rental potential, or for flipping on completion? Yes, of course some are. But can that explain why prices have risen like they have? Not as the only explanation, no.

You also can't say if the construction we have seen has moderated prices in older stock, because there isn't a parallel universe to access to see what would have happened to house prices if the new stock hadn't been built. The evidence out of San Francisco, where they didn't build much new stock, suggests the prices could have risen even more.

Stats Canada data for average family income shows Vancouver on part with Toronto and Montreal. http://www.statcan.gc.ca/tables-tabl...il107a-eng.htm

Where Vancouver falls behind in household income is in comparison to Calgary and Ottawa. I think Calgary is heading down towards the same levels as the other cities. Ottawa has a lot of government employees who are very well paid and have pretty good pensions for when they retire. I don't think Vancouver incomes are out of back with the rest of the country in the slightest.

The old condos in principle should be just as good as the new ones. These buildings "in principle" are professionally managed, have engineering studies, reserve funds and maintenance plans. Other than factoring in the cost of the odd kitchen or bathroom remodel they should command the same price as a new similar condo. They don't. They sell at a discount.

[logan5]

Originally Posted by whatnext

San Francisco actually has an economy that pays wages helping to explain the housing costs. While Vancouver's median household income is $77,662 CAD, San Francsisco's median household income is $103,237 USD. This is why Vancouver always comes out as the most unaffordable housing market in North America.

You quote Dallas, whose starts were driven by a push in affordable home construction, that is under $300k! Good luck finding anything in Vancouver near that let alone newbuilds. And though Dallas does have lower median income of $61,644 USD, that converts to the almost equal CAD amount of Vancouver.

Vancouver is the richest city in Canada. There are plenty of locals who are real estate rich (sounds like you are one of them), who are cashing out then buying in the east side or suburbs. When you have a lot of people with millions of dollars in the bank, that has to have an effect on housing prices.

[a very long weekend]

The start of a good response. Basically, however dense the city might be compared to Calgary or Milwaukie doesn't matter. Housing markets all have local demand/supply cycles, and in Vancouver introducing taxes to harm demand instead of upzoning the single family home areas that occupy a supermajority of land in the city is just boneheaded. It's not an either/or proposition, obviously, but for some reason, significantly increasing density is off the table. The geography professor's terrible ideas are uncontroversial and held by most of the politicians and planning staff, but they shouldn't be! They should be way out of the mainstream, because upzoning the low rise areas would allow for an enormous increase in building, it would even out land values, allow mom and pop builders back into the business, etc.

[Alex Mackinnon]

Originally Posted by goldenboi

Not entirely true. The markets for renting and owning a home are closely related and they can be substituted for each other. E.g. If prices for owning a home are rising, people will move to the rental market, increasing the demand and price for rental units. You can't separate them entirely. Housing is housing.

Only to a small extent. You can't borrow to pay rent, so rents aren't nearly as tied to banking policy as home ownership is.

Realistically, rents are usually more tied to inflation, which recently has been very low. Asset prices however have been heavily inflating due to monetary policies. So, eventually the cost of rentals catch up to ownership costs, but it's probably a bit of a lagging relationship.

[whatnext]

Originally Posted by a very long weekend

The start of a good response. Basically, however dense the city might be compared to Calgary or Milwaukie doesn't matter. Housing markets all have local demand/supply cycles, and in Vancouver introducing taxes to harm demand instead of upzoning the single family home areas that occupy a supermajority of land in the city is just boneheaded. It's not an either/or proposition, obviously, but for some reason, significantly increasing density is off the table. The geography professor's terrible ideas are uncontroversial and held by most of the politicians and planning staff, but they shouldn't be! They should be way out of the mainstream, because upzoning the low rise areas would allow for an enormous increase in building, it would even out land values, allow mom and pop builders back into the business, etc.

Oh please, look at the main participants in that twitterfest-lots of connection to UBC (aka operators of the Real Estate program). Lauster has staked his reputation on a book titled "The Death and Life of the Single Family House", no bias there. And there's the glaring gaps in arguments like this from Wittstock:

... Last 10 years (2007-2016): housing production deficit of 16,676 units.
5 years prior to 2007 saw surpluses that exceeded pop growth, but these were "catch up" from enormous deficits of the 1990s (30k units)..

Right, the enormous housing deficits in the 90's - when prices were largely stable!


image: Huffington Post

All your argument really proves is that there are legions of people who have a stake in arguing Vancouver's real estate prices are a result of rational local demand, not some speculative bubble ignited by offshore money. they want to keep the party going, why wouldn't they?

[Changing City]

Originally Posted by whatnext

All your argument really proves is that there are legions of people who have a stake in arguing Vancouver's real estate prices are a result of rational local demand, not some speculative bubble ignited by offshore money. they want to keep the party going, why wouldn't they?

What if Vancouver's real estate prices are a result of irrational but mostly local demand, fuelled by low interest rates, significant inter-generational transfers of capital and a fear of 'missing the market' or believing that the rising prices in the past decade (for detached houses) and couple of years (for apartments) will continue in future? Maybe slightly augmented by offshore money.

[MIPS]

Local demand?
I can list off with both hands friends I know who were born and raised in Greater Vancouver but when it came time to move out they had three options: live in a $2200/month box, share an apartment with someone else for a cheaper rent (in the same box) or move East and pay $2200/month for the mortgage on a full size detached home and say I own the land I stand on.
If you call spoiled brats who walked out of university and have salaries that can sustain themselves in a hyperinflated market the "local demand", sure. Otherwise I'm seeing money washing in from mainland Asia like the tide.

[goldenboi]

Originally Posted by Alex Mackinnon

Only to a small extent. You can't borrow to pay rent, so rents aren't nearly as tied to banking policy as home ownership is.

Realistically, rents are usually more tied to inflation, which recently has been very low. Asset prices however have been heavily inflating due to monetary policies. So, eventually the cost of rentals catch up to ownership costs, but it's probably a bit of a lagging relationship.

I won't buy that macroeconomics has more of an impact on Vancouver housing prices than local factors such as the land values, red tape, foreign buyers, the ALR, desirability, etc. In reality rental prices in Vancouver have skyrocketed along with home ownership prices, and that is not due to some obscure national policy. It is because the two markets are extremely intertwined. Any factor that affects the supply or demand of owned homes will also have an impact on rentals. You have to consider that rental units can be converted into owned units, vice versa, as well as the fact that people can switch between the two markets. Get your head out of your textbook man.

[GMD]

The number of new units coming on the market hasn't been particularly high in recent years (by historical Vancouver standards), but the number of units under construction right now is very high. So as all those units under construction complete in the next year or two, we should get a good test of the impact of supply on prices.

Supply in the single family dwelling market doesn't really move much as price increases, because it doesn't matter how much you can sell it for, there's (effectively) nowhere to build new ones in metro Vancouver. But this is not true for Condos and the Condo price surge of the last couple of years has been met with a huge supply response - its just that those units are mostly still being built.

At some level, it seems obvious that supply will have an impact on prices. Imagine if Shape finished all 30 planned condo towers at Lougheed Mall at once - they'd have to offer brutally low prices to move all those units at the same time. But there's lots of moving parts in the broader market so it is harder to see the impact of supply that obviously most of the time, but the next year or two should be a good test.

[cornholio]

Economics are tied to people. If you want to know why economic fundamentals changed, look at the demographic changes first. The demographics of Vancouver are undergoing rapid change, the demographics of buyers today are vastly different from buyers 20 years ago. The people running the market today and buying are often coming in with cash from the developing world instead of coming in from the developed world looking for new opportunities and a change of scenery. Different cultures, different mentalities, different mentalities, different demographics. Buyers today for the most part are very culturally different from buyers 20 years ago. They have a very different idea of what is large, what is cheap, what is nice, what is fair, what is acceptable and it is them running the market and the market has responded to them. Vancouver is just adjusting to its demographic changes imo, to the detriment of locals with different standards. This is what you get with rapid changes in demographics. Blame the feds. All of this went into my personal analysis of the region and why I threw in the towel, things cant get better because many of these things are permanent societal changes to this region...and the pace of change on top of it is only going to be increasing.

Want to know why economic fundamentals changed (if they in fact did). Look at the demographics. The two are tied together. Economics after all is a social science.

Economics is the study of social behavior guiding in the allocation of scarce resources to meet the unlimited needs and desires of the individual members of a given society.

[whatnext]

Originally Posted by Changing City

What if Vancouver's real estate prices are a result of irrational but mostly local demand, fuelled by low interest rates, significant inter-generational transfers of capital and a fear of 'missing the market' or believing that the rising prices in the past decade (for detached houses) and couple of years (for apartments) will continue in future? Maybe slightly augmented by offshore money.

But this goes back to the thesis that the demand isn't for the units as housing, it is for the units as commodity to speculate with. Many attackers jumped on Dr. Rose but a similar argument was put forward by Josh Gordon of SFU: the more units you build, the more you fuel the speculation. You can't just blame it all on supply, its demand for commoditized speculation housing.

Tulip Bubble didn't burst because suddenly they were able to grow more tulips. It's no different here.

[Changing City]

Originally Posted by whatnext

But this goes back to the thesis that the demand isn't for the units as housing, it is for the units as commodity to speculate with. Many attackers jumped on Dr. Rose but a similar argument was put forward by Josh Gordon of SFU: the more units you build, the more you fuel the speculation. You can't just blame it all on supply, its demand for commoditized speculation housing.

Tulip Bubble didn't burst because suddenly they were able to grow more tulips. It's no different here.

There is undoubtedly speculation in the market. Price rises haven't been matched by increases in income, for example. That doesn't prove that there is no demand for the housing that has been built.

The census data that Dr. Rose supposedly rested his case on shows that from 2006 to 2016, when the prices of housing rose dramatically, Metro Vancouver saw an 18% increase in total dwellings (+156,618) and a 17.6% increase in dwellings occupied by usual residents (+143,860). Given that many of the 'not occupied by usual' dwellings have somebody living there who the Census didn't find, or didn't count (like foreign workers, or Air b&b) that doesn't look like evidence of a speculative over-building of dwellings in Metro Vancouver over that 10 year period. If that was happening you would expect the 'not occupied by usual residents' dwelling proportion to grow much more than from 6.2% of dwellings to 6.5% of dwellings - less than the 8.8% in both BC as a whole or Canada.

[whatnext]

Originally Posted by Changing City

There is undoubtedly speculation in the market. Price rises haven't been matched by increases in income, for example. That doesn't prove that there is no demand for the housing that has been built.

The census data that Dr. Rose supposedly rested his case on shows that from 2006 to 2016, when the prices of housing rose dramatically, Metro Vancouver saw an 18% increase in total dwellings (+156,618) and a 17.6% increase in dwellings occupied by usual residents (+143,860). Given that many of the 'not occupied by usual' dwellings have somebody living there who the Census didn't find, or didn't count (like foreign workers, or Air b&b) that doesn't look like evidence of a speculative over-building of dwellings in Metro Vancouver over that 10 year period. If that was happening you would expect the 'not occupied by usual residents' dwelling proportion to grow much more than from 6.2% of dwellings to 6.5% of dwellings - less than the 8.8% in both BC as a whole or Canada.

Even if you disagree with Rose' reasoning (btw I think he's right) there's also this very real fact from another academic:

..Josh Gordon, assistant professor at Simon Fraser University's School of Public Policy, has regularly spoken out against the more-supply argument.

"There's simply no evidence of a slowdown in construction or supply," says Dr. Gordon. "The construction industry in Vancouver is operating at full throttle. There are around 40,000 units under construction, which is twice the historical average for the post-2000 period. The idea that we should get more supply into the pipeline is a bit silly...
https://www.theglobeandmail.com/real...ticle37015584/

It is clear there is no amount of supply that can quench the speculative demand.

[Alex Mackinnon]

Originally Posted by whatnext

It is clear there is no amount of supply that can quench the speculative demand.

Not really. There's a finite supply of speculators trying to hide, launder or invest a finite amount of money. Overbuilding will mean that the speccers are more likely to realize that demand isn't there, and make their existing investments less desirable.

[whatnext]

Originally Posted by Alex Mackinnon

Not really. There's a finite supply of speculators trying to hide, launder or invest a finite amount of money. Overbuilding will mean that the speccers are more likely to realize that demand isn't there, and make their existing investments less desirable.

Technically yes, just as their is a finite amount of oil. But that doesn't stop oil prices from dropping. If you want to get picky then, there is apparently no amount of supply that reasonably be built to satisfy speculative demand.

[logan5]

A metro wide land use policy needs to happen in order to curb speculation.

If speculators are capable of driving up land prices, why not start buying in Regina where it's dirt cheap, then watch their small investment grow at an astronomical rate?

[Alex Mackinnon]

Originally Posted by whatnext

Technically yes, just as their is a finite amount of oil. But that doesn't stop oil prices from dropping. If you want to get picky then, there is apparently no amount of supply that reasonably be built to satisfy speculative demand.

If you want to use oil as an analogy, you just need a temporary supply glut to shock the system. When that happens you find out who is overly leveraged and doo doo hits the fan.

[dreambrother808]

New study from Sydney, Australia challenging the supply myth:

Claims that simply increasing the number of homes in Sydney will fix the housing affordability crisis have been challenged by new modelling that shows boosting supply alone is unlikely to deliver affordable housing.

Analysis by Australian National University academics Ben Phillips and Cukkoo Joseph has identified a long-term oversupply of housing in many inner Sydney suburbs. Despite the surplus, property prices have surged in that region over the past five years.

The findings cast doubt on assertions made by many political leaders, including Premier Gladys Berejiklian, that adding new housing supply is the best way to improve affordability.

http://www.smh.com.au/business/the-e...19-gzobxa.html

Due to vested financial interests, there will continue to be a lot of intentional clouding of these underlying issues, akin to the oil industry and climate change, or the NRA and gun control. The BC economy is held hostage to the real estate industry at the expense of middle and lower class citizens. Supply will not fix this problem, especially when it often comes at the expense of affordable rentals.

[Vin]

Originally Posted by Migrant_Coconut

Several census estimates... and/or a bit of number-crunching I did when I was bored.

It's true that the States uses an unorthodox means of drawing boundaries, so with the metro population, I'm using "Greater (City Name)" or "Metropolitan Area;" my guess, "Combined Statistical Area" is the equivalent of Lions Bay to Hope.

N.A. CITY DENSITY

1) New York City, 10,890/sq km

2) San Francisco, 7,170/sq km

3) Mexico City, 6,000/sq km

4) Vancouver, 5,493/sq km

5) Boston, 5,368/sq km

6) Chicago, 4,600/sq km

(Toronto's at 4,149, somewhere below Chicago)

N.A. METRO DENSITY

1) Mexico City 2,469/sq km

2) Montreal, 890/sq km

3) Vancouver, 855/sq km

4) Toronto, 849/sq km

But don't just take my word for it, feel free to search for better numbers, or ones that I missed.



Note that San Fran is a more vibrant city with higher wages. Right now, we're busy attracting the "code monkey" kind of tech worker.

But I'm mostly referring to startups - even Google and Facebook began with nothing. And we sure as hell won't get any future Googles or Facebooks with these land costs.

Wow, Vancouver has a really really low population density when compared to other places, even more so for a place constrained by geography and national/jurisdictional boundaries. With so many people wanting to live here, coupled with the very restrictive development policies of this City, it's no wonder that housing prices are going through the roof!


Boosting supply will definitely help with the affordability here. If CoV can zone more areas for affordable rental buildings, we will definitely be able to see more people able to live in this City. For instance, the City can partner with a developer to build 4 blocks of 50 story apartments in places like the empty parking lot next to Mc Donalds at Olympic Village. That alone can easily supply 1600 long term flats for people to rent. Make these units affordable so that people can save up to finally own their own place. The neighbourhood does not have to be a boring "commie block" type. It can be well designed with shops and markets, perhaps a theatre like what we have at the Marine Gateway, etc.

Instead, our vision for the future is the very low density modular housing. What a joke!

We really have a backward visionless City government, and there's no argument to it.