The real problem with Vancouver’s outrageous house prices

[BCPhil]

Originally Posted by quobobo

So where are the numbers you have on this? I'd love to see one of you actually back up this assertion that all these rich foreign buyers spend no money in Vancouver. And again, even if these homes are empty, that means that someone is paying a ton of property tax and not consuming services.

If you want to have a debate about whether people living in Canada should pay tax on their income earned overseas, great. Instead you seem to want to ban them from purchasing property here altogether. Why?

Land is limited but housing supply is only constrained by our homegrown regulatory barriers to dense housing.

It's not that money isn't spent in Vancouver, the problem is no growth is generated in Vancouver. Our economy and standard of living isn't based on wealthy people paying taxes, it is based on people working hard, innovating, and generating growth and wealth.

This is what the original article sparked. If foreign buyers buy homes here and even move here, they are not contributing to our local economy as if that same home was lived in by a white collar employee. Wealthy foreign buyers might be good for the high end auto dealerships, fancy restaurants and Holt Renfrew, but the trickle down economics of that spending doesn't grow our economy at the same speed if those people were working here.

High prices work in other cities where the wealthy owners are contributing their wealth and experience in the economy by managing companies and investing in business. But here, rich people just move to "retire". It creates a drain on our economy, where average people, the people who generate the local wealth, can't compete and move away.

New York (and elsewhere) is a city build on the economy of spending money to make money. Vancouver is built on hard work. When the hard working middle class can't afford to live here anymore, they get up and leave. Those people lead innovation and create growth from their labor. If they aren't here to work in offices or industry, then Vancouver is nothing more than a high end retirement resort.

Economies are built on people looking to make money. And workers looking to make money are finding it harder and harder to make money in Vancouver. They then take their effort and supply a different economy somewhere else, somewhere where they will get ahead (the example being Calgary in the article). And by getting ahead, I mean most people are looking to raise a good family, and most people want space to do that. It's hard to put your kids through college when you can barely afford your mortgage.

For years Canada's best and brightest moved south to seek higher pay and make more money than they could here. If things continue as is, they might not have a choice but to move elsewhere just to be able to survive.


We can spend all day debating if it is racist or not to think about Chinese buyers, but the original article's main concern was that either the Vancouver market is going to crash, or Vancouver would become nothing more than a barista based economy as young smart people looking to make a buck move away.

[giallo]

^That's always been my biggest worry.

I'm not saying I'm the best and brightest Vancouver has to offer, but I moved away for more money and better opportunities. My future in Vancouver looks like it'll happen when I retire.

[deAuxerre]

http://www.bbc.co.uk/news/world-asia-pacific-13813688

[flight_from_kamakura]

over half of chinese rich are leaving or want to leave china, canada and us top destinations; nearly 1 million millionaires.
http://ca.news.yahoo.com/almost-half...063620562.html

[PaperTiger]

@BC Phil

Well put. It is always better to have someone build wealth and a grow a company here, rather than gain wealth off shore (china or anywhere) and use Vancouver for a parking spot for their capital. I’m not saying there are no benefits to having this wealth flow into the city, and I would argue that those benefits do extend beyond MCL motorcars and Holt Renfrew, but there are also costs.

It is certainly worth having a discussion about those costs, and weather it makes sense to try and mitigate them somehow.Having a strong immigrant investor program is one way. I know that one of the major barriers to growing a company in Vancouver is difficulty getting venture capital. Perhaps some tweaks to the program that give preference for higher risk investments, like start ups.

[trofirhen]

I appreciate your straightforward, matter-of-fact analyses of all this. It should be obvious to most people already (if it isn't now, it will be before long)

I guess this begs the question: what proactive measures (Laws? Incentives?) could be implemented to make sure the money that comes here is put into productive job creation and economic growth, instead of making Vancouver just an overpriced "retreat" for rich overseas buyers, with the hardworking middle class forced out, as you both say.

One thing for sure, though, I think that exhorbitant property prices in Vancouver are something we're going to have to live with from here on in....

That is, unless proactive measures are taken and implemented. FAST !!!!

Simplistic on my part perhaps ... but would anyone actively DISAGREE?

[SpongeG]

i don't know how this factors in - but i know someone who is in the process of immigrating to canada - they recently purchased a house here in BC (vancouver area) after renting for a couple years before getting the word it looks like they will be able to immigrate - anyway they are doing so via quebec as its cheaper to do it via quebec than BC or any other province - they can invest about 50% less there than is required here in BC, even though they will never live in quebec their investment dollars are going to quebec, they could have easily invested that money here in BC - there's a lost business start up for BC right there - apparently its pretty common and many use the quebec program to get into canada even though they will never live in quebec

maybe BC could match what they require for the Quebec program and let those investor immigrants stay here and build a business/invest here in BC

[Pinion]

Originally Posted by trofirhen

That is, unless proactive measures are taken and implemented. FAST !!!!

Simplistic on my part perhaps ... but would anyone actively DISAGREE?

What is "proactive?" My wife and I aren't rich, make about $60,000 per year combined, but saved up to buy a one bedroom condo. Anything that brings housing prices down hurts us. How is that fair?

[worldwide]

Originally Posted by quobobo

They're rich, sure, but it's really odd that you keep mentioning their nationality like that's should make a difference.

he said foreign. it's relevant to this conversation. people who live here and make the city run vs people who see it as a luxury resort. last thing we need is another Vegas.

[Alex Mackinnon]

Originally Posted by Pinion

What is "proactive?" My wife and I aren't rich, make about $60,000 per year combined, but saved up to buy a one bedroom condo. Anything that brings housing prices down hurts us. How is that fair?

How is that the case? If you're that tightly linked to the price of your home you probably should have kept on renting. If you bought a house to live in at a cost that you can afford then it's no big deal.

It may not be fair, but there is a good chance you bought in a price bubble. The prices should and will come down. Historically were at an all time high as far as income to debt and income to housing price ratios go.

While loans are dirt cheap right now, the price will always track inversely with cost of lending. Generally you can either buy low when interest rates are high, or buy high when interest rates are low. Unless our economy loses a decade or two like Japan or a small percentage of buyers floats our entire economy, housing prices will crash as soon as the government tries to control inflation using interest rates. The catch is that all "the buy high at low rates" people are now yoked with the huge debt you've accumulated.

As soon as the number of people who get pinched by their rising interest rates is greater than the number of immigrants with mega bucks, there will be a race to the bottom for housing prices. That's when people who have saved should buy.

When I'm working (I've recently decided not to and become a ski bum for a few months) I make combined what you and you girlfriend earn, but in this economy I consider myself dirt poor because of the lengths other people are willing to go to get a house in Vancouver. As is, a fixer upper house in the middle of town will soak me for somewhere near 60% of my income for almost my entire working career. Then I add in the cost of heating, maintenance, taxes and I am a well paid professional with little disposable income.

Less and less people should be willing to make this trade off. We're an affluent nation where everything relative to housing is dirt cheap. How does that make sense?



Also, my definition of proactive would probably be to blanket upzone almost all major arterials to 5-6 flr density to curb speculation and built enough units to let market forces bring the cards down.

[twoNeurons]

Originally Posted by Pinion

What is "proactive?" My wife and I aren't rich, make about $60,000 per year combined, but saved up to buy a one bedroom condo. Anything that brings housing prices down hurts us. How is that fair?

It only "hurts you" if you're living within a small margin of affordability and are forced to sell if interest rates rise or you don't sell before said collapse happens.

60k is a decently-paid professional wage in other places... not in Vancouver. Why do you think there's been an exodus of middle-class from Vancouver. SO combined, you're still part of the working poor in this city.

ON another note, I have been thinking about Vancouver's unique quality of being on the more tolerable places to be in the Canadian Winter being a reason that prices seem to stick here for longer.

Lots of middle-income families WANT to move out of town, but won't until they HAVE to. Unlike the US, which has competition in the non-snowy winter Metropolises, Canada really only has its west coast. If things don't work out for you in LA, you can move to Phoenix or San Diego or San Francisco or Houston or Miami or Jacksonville or...

There are many places as nice or nicer than Vancouver, it's just that they're not in Canada.

[trofirhen]

Originally Posted by Pinion

What is "proactive?" My wife and I aren't rich, make about $60,000 per year combined, but saved up to buy a one bedroom condo. Anything that brings housing prices down hurts us. How is that fair?

As far as I understand, "proactive" means acting with anticipatory judgement, as opposed to "reactive," which is acting reactively to something already extant in our environment.

If lowering housing prices may hurt you, should I assume that you are thinking of the day when you sell, and want to make the most profit possible?

Regarding fairness, I think this would address more the high-end of the market, which, being so inflated, pulls middle-income accomodation prices out of reach. That is not fair to anyone with financial limitations trying to buy, for example, a starter home.

I think, however, that the prices of smaller units such as yours would be less effected (then again maybe not; let the experts decide). Nevertheless, if this means that you will make less profit when you decide to sell in the future, it is of course unfair.

Without entering into the whole philosophical issue of nothing in life being fair (and I don't think that anything is fair; rather that fairness is a concept humans strive for in the abstract sense) I think the main objective is levelling out the playing field as much as possible, so that middle-class people who work in the city and dynamize the economy can continue to do so while living there, and that being a homeowner is not an exclusivity for very wealthy people only.

Hope this answers at least part of your question, providing I interpreted it correctly.

[jsbertram]

Why is it when buying their house someone automatically expects to make a profit when it gets sold later?

There are too many variables outside your control that determine the selling price, so the expectation of always profiting from real estate is a fools game.

If you buy a property with the expectation that 'next year it should be worth ...' or 'when the mortgage needs to be renewed the rates will be ...', you're setting yourself up for a fall when your predictions don't pan out because market forces have changed the game.

classic symptoms of a bubble market:

• Buy into the market
• Closely monitor nearby properties as they rise in value
• Sell at a profit

[djmk]

Maybe instead of more housing supply, Vancouver needs less demand.

People on this thread mentioned that the gov't should be "proactive" reducing home prices in Vancouver. I think the best way would be to give people the better option of living else where in this province. promote more jobs elsewhere.

[jlousa]

Bingo
We have a winner.
You can not build your way to lower prices, the most dense cities in the world are also the most expensive, while the least dense ones tend to be cheapest. The most effective way to control prices is to remove demand. You can do that by raising interest rates, cutting off immigration completely, adding additional taxes etc etc, none of which are of course desirable.
The other option is to make the city itself less desirable then other alternatives to purchasers again not sure that's a policy we want to take.
We need to realize that Vancouver is probably the most desirable location within Canada which itself is one of the most desirable countries in the world. We might become cheaper but we will never be cheap and there will always be more people that want to live here then will be able to afford to live here. Luckily rents are affordable for those that can't purchase.

[IanS]

Originally Posted by jlousa

The other option is to make the city itself less desirable then other alternatives to purchasers again not sure that's a policy we want to take.

Perhaps this explains Meggs' desire to see the viaducts removed?

[mr.sandbag]

Originally Posted by jlousa

Bingo
We have a winner.
You can not build your way to lower prices, the most dense cities in the world are also the most expensive, while the least dense ones tend to be cheapest. The most effective way to control prices is to remove demand. You can do that by raising interest rates, cutting off immigration completely, adding additional taxes etc etc, none of which are of course desirable.
The other option is to make the city itself less desirable then other alternatives to purchasers again not sure that's a policy we want to take.
We need to realize that Vancouver is probably the most desirable location within Canada which itself is one of the most desirable countries in the world. We might become cheaper but we will never be cheap and there will always be more people that want to live here then will be able to afford to live here. Luckily rents are affordable for those that can't purchase.

Well Said.

We have many factors which are affecting the price here in Vancouver. The least of it a small percentage of Foreign buyers. I read an article in one of the Condo magazines a few months ago, now take this at face value, but they were saying that around 70% of the sales in Vancouver were made by existing homeowner in Vancouver. New foreign buyers in the market are not the norm.

Here's a quick list which I feel is really affecting the continue upward pressure on house prices in Vancouver.
1. Landlocked. No were to build but up.
2. Mild temperatures relative to the rest of Canada.
3. World recognition as a safe and desirable place to live.
4. Continued increase in population, I checked with Stats Canada and we added close to the city of Richmond to the GVRD from 2006-2011.+150k
5. A Well established construction industry which tries to control demand by releasing just enough product to keep things moving, never flooding the market.
6. Decent economy, lower unemployment relative to the Canadian average.
7. Foreign money.

Im sure there are a few more as well. Basically, unless we have a major downturn in Canada or the world and several of these factors we will not see a bubble burst here.

My wife and I sold our last place moved into a small run down 30 year old apartment to save money to afford something bigger. How many people do you know who would down size to save money. I'd bet you\d be hard pressed to count them on one hand. The sooner people realized that the best time to buy in Vancouver is when you can and the sooner you can take advantage of the continual rise of prices we have here. I remember just over 10 years ago you could get a 1 br & den downtown for 150k - 650sqft.

So stop blaming other people and this or that. We need all take responsibility for what we want to make it happen . Prices in Vancouver will always go up even if its just small increments.

[Alex Mackinnon]

Originally Posted by jlousa

Bingo
We have a winner.
You can not build your way to lower prices, the most dense cities in the world are also the most expensive, while the least dense ones tend to be cheapest. The most effective way to control prices is to remove demand. You can do that by raising interest rates, cutting off immigration completely, adding additional taxes etc etc, none of which are of course desirable.
The other option is to make the city itself less desirable then other alternatives to purchasers again not sure that's a policy we want to take.
We need to realize that Vancouver is probably the most desirable location within Canada which itself is one of the most desirable countries in the world. We might become cheaper but we will never be cheap and there will always be more people that want to live here then will be able to afford to live here. Luckily rents are affordable for those that can't purchase.

I don't think that's really true. Most of the housing that's been built in the last decade hasn't been necessarily aimed at affordability. I'd imagine other than the aging of some of the existing housing stock not much has been done to build affordable market housing. Plus building at an increase rate is more create conditions where the bubble pops.

I'm not in the business, but as far as I can see the major issue holding holding back the development of large affordable developments is the high cost of land. There aren't a whole lot of reasons other land costs and zoning conditions that construction should be more expensive here than in Campbell River.

If you could eliminate at least some of the speculation premium on up-zoned properties I think we could make a lot of progress on bringing the overall cost of housing down. The way to do this would simply make them common enough where the speculators holding out will likely get hosed, rather than have regular rezoning applications which we currently have. Once you flood the supply of zoned properties, it would make sense if more lower priced housing followed.

[Pinion]

Originally Posted by trofirhen

Without entering into the whole philosophical issue of nothing in life being fair (and I don't think that anything is fair; rather that fairness is a concept humans strive for in the abstract sense) I think the main objective is levelling out the playing field as much as possible, so that middle-class people who work in the city and dynamize the economy can continue to do so while living there, and that being a homeowner is not an exclusivity for very wealthy people only.

You say life isn't fair, I say "You're right, tough luck on not getting into the market on time." It is not me who life wasn't fair to on this issue.

I'm fairly confident I'm one of the most left-leaning members of this board, but having the government artificially lower housing prices somehow is beyond even my tolerance. That's why I was curious exactly how you envisioned this "levelling of the playing field" happening.

[cc85]

Originally Posted by mr.sandbag

So stop blaming other people and this or that. We need all take responsibility for what we want to make it happen . Prices in Vancouver will always go up even if its just small increments.

No, prices do not go up all the time. We have a bubble that will burst that will see prices go back down to a reasonable level. A level that roughly corresponds to 30% of one's income. Places that face a shortage of land are notoriously known for boom and bust cycles. Of course prices do go up if you have a long enough time to measure the range.

Let me know what our baby-boomers intend to do when they decide to sell to move into senior's homes. I guess there will be enough demand to purchase all of their single-family properties at their inflated prices.

It is quite sad that real estate runs on the backs of the ignorant segment of the population that have very limited knowledge on finance and real estate trends. It is even sadder to understand that those who seek a sustainable solution to cities realistically have no other solution to encourage densification aside from supporting this arrangement.

I never stop questioning why I'm left out of the conversation and those with less foresight are included.