Another story from Business in Vancouver that would ordinarily be mind-boggling:
Vancouver home prices’ 24.5% average price hike in 2015 topped a list of 100 global cities “by some margin” according to the 2016 Knight Frank Wealth Report.
The gain easily topped the 14.8% residential property price rise in Sydney, Australia, and the 14.4% increase in Shanghai, China.
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But our minds have been boggled so frequently over Vancouver house prices that we seem inured. At least our leaders do – since there is rarely if ever a response included in these stories. When provincial politicians are quoted, it’s to tell us that this is a west-side aberration, and no, they don’t intend to do anything seriously about it that would affect existing (and rising) asset values. Or they blame local government for lack of supply.
This leaves three choices, as I listed at a symposium on housing equality held by UBC SCARP students last week.
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(1) Acceptance
If you believe that the community knows best, local leaders have no mandate to change the urban fabric in a way that would generate the thousands of units needed to affect prices. Already, for instance, west-side groups are positioning themselves to oppose any significant new density on the Jericho lands, much less a change of scale on their own leafy streets.
Elsewhere in the city, it would likely be suicidal for a political party to propose a policy that would deliberately lower existing housing values, thereby putting many thousands of new homeowners under water – that is, their homes would be worth less than the outrageous price they paid to get a roof over their heads.
Therefore, accept the condition reported above as absurd but the new normal. Or until …
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(2) Catastrophe
That is, some brutal externality that will burst the bubble, if it is one, resulting in a precipitous drop in prices. Or, at best, a drop in the rate of increase – which might then result in the drop in prices if supply inundates the market from overstretched speculators. At any rate, it won’t be something blamed on local or provincial policy makers, who can then use the tools of stimulation to some effect. They hope.
An exhibition I saw at the Museum of the City of New York on affordable housing revealed that the most significant changes occurred after a catastrophic event – like the Crash of 1929. The New Deal brought in the greatest changes in housing policy of the century, notably government-insured mortgages and direct intervention to build the great housing projects after World War II. Following the social collapse of The Bronx in the 1970s and the burning of vast stretches in the 1980s, the City was able to cheaply acquire by acquisition or default many thousands of units and acres of even cheaper land. With federal housing dollars for construction and rehabilitation, the City was able to provide a huge volume of affordable units which today is the reason many low-income people can live in such an expensive city. All it took was a catastrophe every few decades.
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(3) Incremental Change
Finally, there’s the application of slow but persistent policy, whether changes in tax policy, new zoning or regional strategies – some of which the City is doing. But it takes time. And it’s being overwhelmed by the phenomenon expressed in this chart:
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Until there is a political response from the electorate that gives decision-makers clear guidance, or we’re confronted with a local version of Trumpism, we wait.
Interesting. Seattle, San Diego and Portland don’t even show near the top of this list.
One can ask, What makes Vancouver so special?
Large quantities of Vancouver Specials of course.
Good one.
🙂
I wonder if one can find any similarity between the noted Catastrophe, and the manner of stimulus that war has on the economy …
http://krugman.blogs.nytimes.com/2011/08/15/oh-what-a-lovely-war/?_r=0
although by all accounts, we’re experiencing an alien invasion and it isn’t helping:
http://business.time.com/2011/08/16/paul-krugman-an-alien-invasion-could-fix-the-economy/
There was a lot of speculation at the MOV meeting of ‘Significant Planning Events’ that we’d hit “Rock Bottom” … which is at the same time rediculous (ie. we’re not Syria) and potentially useful – it seems grand political action only happens when one does hit rock bottom, at least some relative local ‘mini-rock bottom’.
There was an interesting part of one of Douglas Adam’s books, which mentions a crisis simulator device, which simulates an injury to induce the type of striving which only happens when personal heroics are necessary. This is an odd, but apt metaphor maybe.
Is the language of ‘rock bottom-ness’ useful as a catalyst for change? By declaring it loud enough, can you trigger change sooner? Its often said that NIMBYS get what they want because they speak loudly – is it just a matter of screaming louder than everyone else (for instance, the NO side in the referendum screamed louder and in a more concise and unified voice, and look what that got them).
We ‘all’ know that Vancouver is in a crisis, but maybe ALL of Vancouver doesn’t know it yet, so maybe a bit more screaming ‘FIRE!’ in a movie theater is called for, especially when I think most would agree that the theater is in fact on fire. So no simulation is even required, just volume.
The “FIRE!” could be developing already. The world is entering unknown territory by playing with negative interest rates. So far it’s confined to the central banks (Sweden started it), but it’s hard to say where it will end.
There is also a massive amount of debt out there, like a foolish amount, and minus rates will have an impact. There is no way that private banks will pay the debtor interest to maintain a loan, so it will be the state that would be affected in ways that may not be understandable at present. Go too far into the negative and something is bound to break. Therein lies one impetus to start raising interest rates again.
A worldwide deflationary spiral will probably force more people to take their cash and put it into tangible assets, like real estate, but the downside is that mortgages may be restructured so they will not be that attractive even with low private rates against a backdrop of negative rates set by central banks, and then a countering rebound to higher rates.
Economists are using terms like uncharted territory.
I’m waiting for someone to say Vancouver has always been expensive.
I can say it for you and I would honestly mean it. 15 years ago even I remember things costing more than other places for somewhere to live. The other side of it though is that wages are higher and food is cheaper.
It was pretty average back in the 90s and before. I arrived in the late 70s and the big issue then was a low vacancy rate, higher rents and high unemployment rate. This forced me into a roach-infested tenement full of artists and punk musicians in Strathcona for a couple years. Looking back, that was fun … except for the shared bathroom part.
And the spillover affect continues….
http://www.bloomberg.com/news/articles/2016-03-03/millionaire-boomers-decamp-vancouver-pocketing-housing-windfalls
Yes, the signs of an overheated local economy have their frustrating disadvantages for those not already in the market. At least you’re not blaming “Mainland Chinese” directly this time, as though eliminating them from the picture through legislated prejudice will bring prices down to 1999 levels. Dream on.
So it’s best that (1) Acceptance leads to (3) Incremental Change, and that we try as best we can to skip over (2) Catastrophe.
You shouldn’t single out Ron or Bob or me. The mainstream media is fueling the debate. Often when I read a real estate article or see an interview on TV, the talking head will state (not in a negative way, but in a matter-of-fact way) that we are an attractive safe-haven for Chinese investors to put their money.
http://blogs.theprovince.com/2016/03/04/vancouver-property-sells-for-more-than-1m-over-asking-price/
“Realtor Bo Park said the seller received 11 offers on the property after the first open house weekend. They were all cash offers with no subjects and most were for more than $8 million.
All but one of the offers were from Chinese buyers, she said.”
MB, are you really that naive?
I think the path has to be acceptance. It’s a fools game waiting for the bubble to pop, life is just too short. I think we should focus on cultural change. Why is everyone so convinced that home ownership is the paragon of what is right and true in an adult life? Comparatively, Canada is an outlier of home ownership when stacked globally. Moreover, with a strict enough adherence to an investment plan, one can essentially attain the same level of wealth renting a place and saving the difference as home owners do forcing themselves to pay off increasingly speculative amounts of debt.
I’ve resigned myself to never owning in city. It just isn’t worth the risk to liquidate a globally diversified portfolio that pays me to hold it for a single moldy plot of Vancouver delusion. I hope our society can change to better support families who don’t want to own, but still want to be a part of this region (fighting against the discrimination that new parents face by landlords, more rental and co-op housing for families, getting the city to take on Nimby neighourhoods for increased density – to name a few).
One reason we ought to look at is taxation of real estate, on acquisition, while holding and on sale. Canada taxes house ownership far too low and real estate tax laws are poorly, if at all, enforced. Thus rampant abuse is encouraged.
BC did the first right step by requiring buyers to list citizenship. Then we can start to enforce taxes due on gains when selling.
2% to $2M, then 3% is also a step in the right direction. Should be 15% for non-Canadians for single family houses, and perhaps half that for condos in my (humble?) opinion.
To me housing is consumption, over and above a minimum abode. We tax consumption far too low in this country and incomes far too high. Any affluent Canadian and immigrant recognizes that and buys as big a house as they can afford as any gain is tax free. Affluent immigrants, and certainly non-residents do the rational choice and declare their incomes abroad and thus pay no incomes taxes here.
Change the tax law and prices will adjust somewhat, and certainly for high-end homes. of course we need more supply too, and we could do more land for example. { For example, I was flying into Vancouver this aft, and the Fraser River berm east of the airport could be 50 20+ story highrises along the Fraser River and ocean, with bike and ped path on both dies, kind of like a long Yaletown. Who is discussing or proposing these kind of ideas anywhere ?
We need politicians that have the courage to do the right thing.
Like a BC or Canadian version of Donald Trump ?
What is the right thing ? Many folks obviously have different views here.
But indeed I am very surprised that making far more land off UBC, off Delta, off Ladner or off Tsawwassen isn’t even discussed as we have dozens of sq km of shallow ocean tidal land we could use to create more housing, more parks, more industrial land, more retail or more agriculture !
This last option, Thomas, I like … its a pragmatic solution (and very dutch, so I’m programmed to like it!) … its interesting to look at overhead images of False Creek and see the amount of area which used to be occupied by log booms (and therefore inaccessible to boaters/etc), and imagine that area being used for housing. We already have proof that the creek can function with that area inaccessible, so why not let people live there!
I think the same when I look on the boat houses at Coal Harbour by Stanley Park, and imagine the peaked roofs with a little chimney, and little glowing Thomas Kinkaid windows poking through the walls … that’s a few hundred places that people could live, but instead we park boats (quite cheaply, I might add). I keep meaning to photoshop this …