There's so many articles about the Canadian property bubble popping that I'm starting to feel like it's some sort of concerted effort by the real estate industry to cool down the market.
It was just about to pop 6 years ago when I bought my condo. It was about to pop when values stopped increasing so dramatically 3 or 4 years ago. It was about to pop when the COVID-19 pandemic halted most sales. It's about to pop now because everyone is leaving the cities because of WFH rule changes.
But it never does. Prices are still high because demand is high and supply isn't keeping up. Demand is high because our financial laws allow criminals to launder money through housing, and because we're a desirable country for wealthy immigrants. Supply is low because cities have too many NIMBY politicians that are against density increases.
I wish it would just pop so we can all get on with fixing the root problems.
As an Australian, every single problem you have, we also have. It sucks.
I'm starting to come to the view that you should only be able to own one house, and you've got to live in it otherwise you pay full market rent on the vacancy.
I think about the housing situation as an almost existential economic threat. With the scale 'money' sitting in housing the banking sector is acting like a parasite starving potential capitol from growth opportunities.
We have a very high vacant home tax in Vancouver. There are also taxes on foreigners buying real estate. The pandemic has put a serious dent in foreign buyers as well.
None of it made much difference. Homes are selling after just days on the market, and as much as half a million above asking.
Putting a for sale sign on your lawn is akin to chumming shark infested waters. It begins a bidding frenzy.
I don't know what the solution is, but I'm ready to throw in the towel and leave the country for more affordable locales as soon as my lease is up. I don't work a local job, there's no reason for me to be here aside from the fact that I love the city and the country.
Vacancy tax isn't enough. Any residential property you own that is not your primary dwelling needs to be highly taxed. With how low western interest rates are currently, it's way too profitable to own property you don't ever plan to use yourself.
Housing is essential. It's bordering on a human right. When only the people who already own property can afford the prices, you've effectively created an insurmoutable barrier between the haves and the have-nots. The solution is to build more homes in the areas with jobs, and to make it unprofitable for private actors to own rental properties.
Rental properties absolutely contribute to the problem. I even outlined one of the reasons as to why in the above comment. The problem isn't that housing prices have passed some arbitrary threshold. Rising housing prices and easy profit from buying up property and renting it out eventually leads to neo-serfdom with the non-property-owning class being locked to renting for life. Moving property ownership to the people who want to live there is by definition part of the solution, and you don't own a property you rent.
>Any residential property you own that is not your primary dwelling needs to be highly taxed.
An excellent way to drive up rents into the stratosphere, both by reducing the rental stock and by having the landlords pass the tax right on to the renter (remember, landlords don't run charities and will adjust rents accordingly). So all you're doing with that high tax is giving even more of a subsidy to homeowners at the expense of renters. Regressive taxation in all but name.
Joe Walker: "Sydney and Melbourne are 2 of the most expensive cities in the world..."
Tyler Cowen: "AND THEY SHOULD BE! Great food, great views, relatively competent government. Are there 2 nicer places to live on Earth? Maybe these places are actually undervalued?"
Turns out really great places to live are extremely rare (Toronto, Vancouver) and expensive for good reason.
I got a day trip on Sydney harbour on a yacht a few years back. It was really nice. I can imagine a very expensive day for the host. I wish it was my yacht, because it was a real indulgence. Personally, I would have been pretty happy to just take the manly ferry a few times and have a sandwich.
Anyway, as we were boating about the proper harbour side mansions that sit close to the water. I noticed a few things. A lot of them were empty. I asked about this and the finance guys with us mentioned that most of them were land banking assets for Chinese money which isn't safe in CCP banks. I'm not sure how real this is, but if I owned a home on the waterfront in Sydney, I'd never leave the balcony.
Anyway, the effect is that rich foreigners own the places where our rich countrymen used to live. So now they've moved a street back and pushed all the upper middle class into the inner suburbs and now the regular professional folk our on the outer rim. And if you aren't rich, then your over mortgaged and live in a flood plain. Which just flooded.
Sydney is nice, but it's getting less nice, we generally need more cities in Australia. But what we really need is people to treat the family home as that. A place for families to grow and not some asset class.
Toronto isn't exactly a match for Sydney when it comes to climate or scenery though, and while Australian politics has its warts, the mayor of Sydney has yet to be caught on camera smoking crack.
That Cowen view is a very blasé view of inequality. So the great city to live ends up prices for the wealthy served by an underclass that lives in servitude, unable to ever own their own home.
And worse it’s that way for a super rich elite that buys assets and leaves them unused for most of the year.
> Great food, great views, relatively competent government.
The thing is, none of these things are a function of previous owner or landlord, so why should I be paying them for these great things?
Put another way, I'm honestly glad to pay lots of money to live in Toronto, because what I get for that is amazing. But I'd rather just pay that directly to the people who made the city great (the community as a whole), rather than someone who simply had the luck to buy at the right time.
I've been saying for years that there should be a tiered system of property taxation based on the number of properties owned by an individual or entity.
It could be a simple as using a multiplier. Own 3 taxable properties? Your rate for each is 3x the base rate. Unsustainable? Great, lower the base rate.
> Demand is high because our financial laws allow criminals to launder money through housing
> too many NIMBY politicians that are against density increases
Now I'm sure you can argue that there's no real contradiction between these two statements, but I can't help but feel that these are one and the same problem, and that we need some idea beyond the supply-demand or nimby-yimby binaries. Do these concepts really model the reality well, or perhaps more importantly lead us towards the reality we want to see? Isn't this high-density housing also just another way for real estate people to speculate?
I think we have to start looking at this problem like we do healthcare: the markets are _the_ problem. Housing should be something more like a right.
> Do these concepts really model the reality well, or perhaps more importantly lead us towards the reality we want to see? Isn't this high-density housing also just another way for real estate people to speculate?
Thinking about it. China itself is a good example. A fifth of the entire housing stock are vacant concrete boxes despite China having the biggest construction boom in human history for 20 years in a row (Chinese construction industry builds one California worth of housing every 2-3 months.)
Rents are very low though, rent to buy ratios above 100 are not rare.
> As for wealthy immigrants, the amount of purchases by foreign investors are few compared to locals purchasing.
The marginal buyer[1] has pricing power, so it doesn’t need to be a huge number. Pricing is complex though so I’m not sure that’s really what makes sense to call the root cause.
> Across the country, the prices for real estate rose by 1.3% in February compared with the month before. however, in Toronto, the rise for similar period was 2.6%. This actually makes the strongest gain in 5 months. However, although the prices rise in both Toronto and Vancouver, listings and sales are falling in these cities.
But the article has no date. Seems like marketing copy to me.
Canada is widely known (internally and among allies) to be an easy place to launder money (relative to other similar countries).
> The U.S. Department of State has designated Canada a “major money laundering country” where foreign drug-trafficking gangs are exploiting weak law enforcement and soft laws.
> Tim Hudak, president of the Ontario Real Estate Association, said he was “very nervous” that Toronto’s housing market could see an influx of dirty cash as B.C. regulators crack down. “I’m very nervous that the Greater Toronto area will become the epicentre for dirty money in Western democracies,” Hudak told Global News. “For some reason, Canada still seems to be in a bit of the dark ages when it allows drug dealers to hide behind numbered companies and snap up real estate.”
I just want to point out that Tim Hudak being “very nervous” doesn’t mean it’s happening, or that the impact is large. He does however suggest we can’t properly measure it; to me that means we’re equally in the dark about whether the impact is small or large.
I highlighted this in another comment: foreign ownership is banned in New Zealand but they are going through the same speculative asset bubble.
Interest rates are at record lows. Stocks and other assets are at record highs. People are buying and selling NFTs for millions of dollars. Canada and other governments have erected policies that solely benefit homeowners (e.g. no capital gains on appreciation of your principal residence). Why isn’t occam’s razor sufficient here?
I’m not saying money laundering or foreign ownership aren’t happening. I am saying that at best, it is one of a number of factors.
I keep hearing that there are loopholes and there are exploits, but not one actual example. I seriously doubt that money laundering is a huge factor in real estate price rises.
They aren't doing anything. Bank of Canada said they don't want to adjust rates for a couple years, ruling parties have been mum on the whole thing because it benefits a good chunk of voters that are homeowners.
Right now it seems like to buy a house you have to offer no conditions, so no housing inspections etc. which is probably going to lead to a good number of screwed people when they find out their 900k home needs an extra 200k in work.
> because it benefits a good chunk of voters that are homeowners.
Western nations all deciding to encourage homeownership looks like a bad decision in retrospect. Having a large percentage of voters with a large percentage of their net worth in a particular asset class practically guarantees bad policy with respect to that asset class. The same sort of thing is no happening with pension programs being replaced by investment schemes that encourage widespread stock ownership.
As far as I know, pension fund board members were investing in stocks and REITs and hedge funds also. What is the difference between an individual owning a broad market index fund ETF like VTI and a pension fund?
Both are going to get bailed out by governments the same way, by inflating asset values. At least with the individual investing in the index fund directly, they get to save money by not having to pay the pension fund board members and actuaries and lawyers and all that overhead.
The pressure to bailout is lessened when the assets are owned by an intermediary institution. It took until the third covid free money bill for the multiemployer pension fund to get nearly a hundred billion of dollars with no strings attached. Meanwhile housing has been bailed out several times since those funds started ailing.
The biggest owners of pension fund assets (and hence liabilities) are governments themselves, whether it be city, state, or federal.
Multi employer funds also got bailouts via all the asset inflation, but I assume you are referring to an explicit cash transfer bailout, which I am not aware of. I am simply referring to the continuing trend of devaluing currency and inflating assets to fulfill debt obligations. In which case pension funds only serve as unnecessary middlemen where a target date fund from Vanguard/Fidelity/Schwab will do just the same.
Canada seems to perhaps be the #1 place that foreign money wants to own property - a stable, fairly rich country - resource and otherwise. The current measures to counter this are inadequate, along with countering the efforts of the local grown Landlord-Rental complex - which is compounded by foreign investment - and their rent-seeking behaviour.
>There's so many articles about the Canadian property bubble popping that I'm starting to feel like it's some sort of concerted effort by the real estate industry to cool down the market.
Fired immediately because of outrage by the FIRE industries. The problem with Canada is that we taxed all our industries out of existence. We only really have FIRE industries or our economy crashes. There is technically only 1 way for it not to crash. Hyperinflation will fix the problem, though yes grandma and grandpa have to go back to work.
>It was just about to pop 6 years ago when I bought my condo. It was about to pop when values stopped increasing so dramatically 3 or 4 years ago. It was about to pop when the COVID-19 pandemic halted most sales. It's about to pop now because everyone is leaving the cities because of WFH rule changes.
The problem is that interest rates are so tremendously low and in some countries even going negative because it's a bubble that the governments are propping up. They'll risk everything to not be the last guy holding the bubble. It has gotten to the point that Canada's governments are not releasing financial information and even blocking evictions and such. Exacerbating the problem.
>I wish it would just pop so we can all get on with fixing the root problems.
It will continue so long as the government runs deficits. Everyone gave Kathleen Wynne a hard time about deficits but Ontario's deficits are not going to at least 2030. By Ford... the guy most likely to balance the budget. Meanwhile Trudeau's deficit of ~400 billion in a single year is equivalent to about 20 years of government debt.
The deficit problem is so bad that they are planning to simple print money. If your debt is locked in at 6% or so like ours is. If inflation is 50%. The problem goes away quickly. They will do that before letting our last industry fall. Especially given our taxes are so connected to the value of what is on the property.
I make more money alone than both parents did at my age. And I cannot afford even 1/3 of the house they bought when they were my age. And not some Toronto house. Just this thing on the edge of Waterloo. The house is worth 1200% what it was in 1989.
Luckily remote work allowed me to move to rural Ontario but even here prices are exploding. At this point I'm expecting my house to be worth a lot less one of these days, but I think it inevitably will appreciate in value long term.
Living in or near Toronto isn't even a possibility anymore.
Sold my house in Woodbridge, North of Toronto. To a unmarried couple from China studying at University of Waterloo for 1.85M, no home inspection nothing... Paid over ask. It is all about the wealth fleeing from China and nothing else
Think about how desperate you have to be to buy in Woodbridge if you’re studying in Waterloo? I think they were more likely victims of the situation not perpetrators, c’mon.
Waterloo is a legit school, not unexpected for it to draw international students and of course they have money, international tuition ain’t cheap.
$1.85m student purchase. Sounds like a perpetrator rather than victim to me. They could have bought something or rented near the university. It was clearly a choice to buy in the GTA and tuck cash into “safe” Toronto real estate. Likely not the students themselves but their corrupt parents siphoning cash from China into Canada.
Canadian parents do this too, I’ve known several students whose parents bought homes to live in while they study. It’s not necessarily a naked investment ploy, it’s simply very difficult to maintain a certain quality of life for your children in rental accommodations. I’m not commenting on the ethics of it, just the suggestion it’s specifically a Chinese behavior.
Supply in KW is far more constrained that GTA. I bought here in 2019 after selling a Brooklyn condo and had to buy something under construction. There was nothing reasonable (ie didn’t need a ton of work) on the market.
Some regions are implementing various taxes on foreign buyers or penalizing those who don't occupy whay they buy.
The thing about Canada is that we seem to take everything slower and more moderately. To put simply, we're like American policy put through a low pass filter, smoothing down the extremes.
Should we be more protectionist? Probably. Will we do so? Probably. Will we rush to implement significant and severe new policy? Probably not.
Ontario isn’t building nearly enough housing for the rate of flux in the economy. We’re 10x behind. KW is a great example, we’re still building too many cul-de-sac subdivisions with 3000sqft houses on 3000sqft lots. We can’t build enough supply that way. It’s also supply geared towards the old university-and-insurance economy not the new tech-priced-out-of-Toronto economy (hello me). This seems sustainable to me, supply isn’t keeping up.
I have a house in Kitchener but also a farm in PEC. The situation in rural Ontario is an order of magnitude worse and certain to crash. I bought farmland (with pretty bad soil) in 2014 for under $2000/acre—basically it’s agricultural value. A one acre lot across the street from me on a similar old farmstead sold for 100x that price this winter. This is not sustainable, I mean our wells go dry all summer. I get high speed internet such as it is through a complex direct LTE setup. This demand won’t last.
Also, I was in KW recently and it seems like there was tons of development, but all either (a) high density core development, or (b) medium density suburban development (stacked townhomes as far as the eye can see in seemingly all directions. I understand the Places to Grow Legislation effectively killed 3,000sf single family subdivisions.
I concur. I recall my father buying farmland in southwestern Ontario about 20 years ago for $4,000/acre. At the time, farmers rented land at $100/acre. Not a very good return.
Today? $25,000-$30,000/acre and farmers pay… $150-$200/acre. Far worse return. Yet there is a frenzy anytime land comes available.
This is what doesn't make sense to me. High earners are struggling to buy a place.
It's not sustainable generally and political will for ever growing prices will have to shift as demographics age and non-owners grow relative to population.
And if interest rates start going north in any real way it's going to be severe with some of the debt load you hear about so many people taking on.
Zoning is largely local though, so the actual political control of the thing that would make this situation unsustainable is held by incumbent owners.
There are of course still limitations to the impacts of higher density as well, the desired living conditions of many buyers is yard+reasonable commute, so there is an absolute physical constraint here as well.
> Zoning is largely local though, so the actual political control of the thing that would make this situation unsustainable is held by incumbent owners.
Or a solution that speaks to that. E.g. A progressive tax like income is but in total residential property value.
Something like <$1m is 0%. $1-3m is 1%... Etc. Make the top rate untenable to own more than $Xm in residential like 10% + top rate for anything held under obscure ownership structure.... or whatever bands/percentages that seem right.
There is an increasing small group of people that own/inherit significant residential ownership. And while there is a physical constraint side of housing, fixing residential as investment vs place to live can take a heap of pressure off and is a much easier/faster point of solution I feel.
I cant remember where I heard but someone said residential property can either be good for investors or owner occupiers. Not both. Ultimately the government needs to prioritise occupiers in my view anyway as not just for happy people, but this brings stability and economic benefits to a society.
I would love to see a "land tax" instead of a "property tax" - so if you have a bungalow on land that would be very profitable as a tri-plex you get taxed on that potential vs. on what you happened to have on the land... but that's politically infeasible unfortunately.
Wondering what the total expected cost of buying a house in the 80s was, factoring in much higher expected interest over the mortgage, versus today, with much lower interest. Is it that we are effectively paying up front what previously would have been spread over the term?
Interest rates in the east 80s were in the teens. Today they are around 10x less at 1.5%. Over 25 year amortization that makes a big difference in total interest payments.
I think there's a significant difference, yes. But I don't think it comes anywhere close to accounting for all of it.
Also the house in question doubled in value in just the last number of years alone when rates were already basically zero.
Low rates are quite something. My mortgage is fixed at under 3%. As a result I'm actually discouraged from paying off my mortgage because all my index fund investments return way above that.
I did some math. Assuming 12x increase in prices as you suggest, starting with $50k and now $600k, 15% interest in the 80’s, and 1.5% today. Also assumes interest rates are steady in both scenarios. Obviously it is preferable to start high with greater odds of declining, vs start low and can only go up.
Total payments over 25 year amortization:
$50k —> $192,125
$600k —> $719,885
So yeah, interest rates don’t explain it. We are paying too damn much up front!
There’s an ongoing international failure to protect young people from various investors creating a generation of neoserfdom in the form of REITs, foreign real estate purchases with no intent for the owner to live in the property a minimum of 51-80% of the time to encourage GNI growth, rampant house flipping, the spread of HOAs, and virtually no assistance to first-time prospective home buyers.
In my opinion things are so bad, I don’t know how these politicians aren’t getting killed. Maybe young people are too ignorant to know everyone is screwing them and that’s why we have no civil unrest.
There has always been lots of support out there for 1st time home buyers, some measures have been clawed back on that front because they are obviously ineffective.
Everything else you cite here seems to be random arm waving in the general direction of capitalism.
The thing about the past was that we built a lot of housing, I think creating an environment where politicians can openly support building a lot more housing would actually address the "capitalism" problems.
This is such a great comment. It is partly generational warfare, partly class warfare, and partly institutional-vs-retail warfare.
Now matter how you look at it though, there are winner and losers and policy-makers have chosen those winners and losers by way of policy.
Unfortunately, this is easy which is why it is done -- people feel pain but the network of cause-and-effect is too complex for people to put a finger on the root cause.
The problems Canada is having with real estate values is a good argument for high property taxes on real estate. When home owners have to pay 2-3% the annual property value it creates a strong incentive to use property in the most economically productive way. You don't get stuck in situations like this where homes become like bitcoins for rich chinese who want to park money overseas while buying into a bubble.
High property taxes can then be offset by lower income and sales taxes which only affect people who actually live in these cities. The end result is cheaper housing even after taxes.
That might discourage some of the foreign investor activity, but unfortunately I don't think that will make a significant difference on keeping price increases in line with income.
To give you a real world example, NYC's Long Island suburbs are notorious for having some of the highest property taxes in the nation (mostly the school taxes). Despite this, LI home values continue to go up at a pretty high rate, an average/very basic starter home is around $500-600k.
This is because despite the high property taxes and not great weather, the demand for homes there highly outpaces supply. In the case of Long Island, the demand is due to things like having easy access to NYC's huge job market and NYC itself, the quality of schools, low crime rate, etc.
For you to make property taxes high enough to make a meaningful dent in demand, they'd have to be so high that any decrease in the cost of the home would essentially be cancelled out by the astronomical property taxes.
Time and time again, the root cause of high home values has shown to be that the increase of supply isn't keeping up with increase in demand. To fix that, the factors slowing down new supply need to be removed. These factors vary by location, and include things like a slow/expensive permit process, overly restrictive zoning, allowing NIMBY groups to slow down or block new development with constant town hall meetings, etc.
In the case of the crown jewel of places that are horrible at keeping up with housing demand, California, all 3 of those are at play simultaneously, and the housing costs there show it.
I think a progressive tax like income in total residential property value.
Numbers off the cuff but something like <$1m is zero. $1-3m is 1%... Etc. Make the top rate untenable to own more than say $50m in residential like 10% + top rate for anything held under obscure ownership structure.
This way peeps can own a normal home at no cost, even have an investment property. But the person with 300 apartments who buys another 10 every year is encouraged to move their money to alternate assets.
It appears to me, the rise was almost exclusively artificial overseas (likely from China) investments. Basically, Canada is stable and the wealthy in China need a place to park wealth (in a diversified way). Best option is foreign land purchases. This has been occurring in largely west coast US cities as well.
The solution(s) are pretty straight forward and I believe Vancouver already initiated a tax on not living in a residence. If the goal is affordability, those policies need to be increased as well as new building efforts (aka change zoning).
I have family in Toronto and I concur that the primary cause of the rise in real estate prices is China. My cousin is an established IP attorney who earns a pretty good salary and this is directly from him...he was looking to move last year into a $1MM house (approx. 4k sqft) in suburbs of Toronto. He had the deal all worked up and ready to close until the real estate agent called him in the 11th hour and said the house was sold. He had been looking for some time and thought he finally found what he liked only to not get it. This really irritated him so he decided to find out what really happened. Well, it turns out that a Chinese foreign student made a $1.25MM all cash offer with contingency to close right away. This is the current state of real estate in Toronto. Imagine someone willing to pay more than the assessed value of the property because they’re not taking NO for an answer. Which seller would not want to make extra profit?
North of Toronto, Vaughan specifically, quite a few homes on our street selling for slightly under $2m. Over the last two years, three homes were sold to Chinese nationals who never even set foot in them. Viewings were all via video.
The transactions were all brokered /over/ asking price in cash and are sitting empty ever since. They remove the snow, they do basic maintenance, and everything is again documented via video and shipped off to confirm a job done.
Many families came for the listing but all were outbid with much more favourable terms, quick closing, no inspection, no approval required for funds, etc.
The money is definitely being parked in many pockets of the city via Real Estate. Is it exclusively Chinese? No, but they are by far the larger demographics that parks the money in the home and keeps it empty. I've seen others invest in Canada as a means to get citizenship faster but they usually rent out the homes to generate some money back.
Whats there to complain about? Agents are making their commission, the city is getting their taxes, the province is cashing it on their taxes. Everyone is happy.
I’m going to share my own personal anecdote because I think “it’s China’s fault” is both wrong and leads to the anti-Asian sentiment that is going around North America right now.
I viewed many properties during the pandemic, and when we saw other potential buyers (e.g. had the appointment before or after us), they were all white couples in their 30s or 40s.
After a couple tries, we bid on a home and won (I am white citizen). We have since moved in, and I’ve observed that the other homes that sold on our street all now have white families living in them.
This is obviously inconclusive, but I believe “it’s all foreign money” is mostly a convenient scapegoat and doesn’t really capture what’s going on.
(Also I find it strange that in your story, the homeowner would break a contractual agreement to sell and go with someone else.
I’m not a lawyer, but that seems like obvious grounds for a lawsuit. Note that in 2017 in Ontario a buyer broke an agreement to buy and was ordered to pay hundreds of thousands of dollars in the ensuing lawsuit.)
> I’m going to share my own personal anecdote because I think “it’s China’s fault” is both wrong and leads to the anti-Asian sentiment that is going around North America right now.
The root cause of the anti-Asian sentiment (and most anti-other tribe sentiment) is the loss of relative socioeconomic status.
For example, in previous decades, almost everyone in China was socioeconomically lower than everyone in Canada. You can insert any undeveloped country and developed country here, but you frequently saw Americans/Canadians/Europeans vacationing in developing countries, buying vacation homes, real estate to diversify, businesses, etc.
Now the populations in those developing countries has caught up, and they’ve caught up by taking some of the economic value that used to be provided by populations in the developed countries. See income/wealth gap widening over the previous decades.
So now you have people in developed countries having to compete with people from previously developing countries, and more competition means life is not as easy. And people get tribal when looking for who to blame. But really, the only tribes that matter are those who are able to capture economic value and those who are not.
I understand it has been a popular narrative for a long time. Most studies have shown it’s a tiny percentage of home sales. There are also now significant taxes on foreign ownership, and statistics show this is having the effect of deterring buyers.
“CBC's analysis suggests foreign buyers account for about 1.8 per cent of total home purchases in the GTA (Toronto plus the regions of York, Peel, Durham and Halton) since the tax was imposed in April 2017.”
A common rebuttal to this is “well they use corporations to shield the true origin of the money”. Why not just park your money in the US where no such taxes exist and is overall less hostile to foreign ownership?
Base rate matters here. They are measuring `Sales subject to foreign buyers tax`, not the impact of foreign buyers.
This percentage of foreign buyers THAT ALSO pay their taxes. The foreign capital that flows into residential real estate mostly held in numbered corporations which are not captured in the above data.
> Why not just park your money in the US where no such taxes exist and is overall less hostile to foreign ownership?
After 9/11 the USA (relative to Canada) got very serious about prosecuting money launderers. Tax rates are less important than getting dirty money clean.
> government inaction is putting Canadian banks in an awkward position as they seek more growth south of the border. Americans are keenly aware that criminals exploit [Canada's] weaker laws.
Why is everyone so eager to blame this on China? Of course there are some Chinese buyers here in Canada but if you’ve actually been in the market or know any builders you know that explanation doesn’t add up.
I’m sorry if my comment offended you. The goal of my comment was not to put the blame on China but rather share a real life story of a close relative and correlate his experience with the current state of real estate in Canada (Toronto specifically).
To add value to this discussion, it would help others and myself if you could elaborate on why it “does not add up”. Just stating that without providing details is a disservice to those who you claim are trying to shape the narrative.
FYI: I did not downvote any comments on this topic. I'm looking to hear everyone's thoughts.
> The solution(s) are pretty straight forward and I believe Vancouver already initiated a tax on not living in a residence. If the goal is affordability, those policies need to be increased as well as new building efforts (aka change zoning).
And there instantly came ads for services to keep appearance of home being occupied on https://www.vansky.com/ =D
Basically, property owners pay those guys to go and live there!
Not sure how this narrative plays out in Canada, but given that it's raised in California but doesn't pass the laugh test I don't have much hope for it. Not only is such foreign ownership rather limited in terms of the % of total units it affects, but this would really only drive up housing prices if not only were these investments being made but that the investors for whatever reasons were leaving the units empty and/or converting them from being residential and thus actually taking them off the market and putting upwards pressure on other units. But this is nonsensical and basically never happens, and I don't think you're seeing skyrocketing vacancy rates in any of these "overheated" housing markets.
> in San Francisco – as well as many other high-cost cities such as Vancouver, London, and New York – we see a different phenomenon: an
extremely tight housing market with skyrocketing rents, that puzzlingly also has a high vacancy
rate.
...
> It is difficult to know whether an “absentee” or foreign buyer has an intent to occupy the unit or rent the unit, or whether the unit is intended solely to be an investment property.
...
> In August 2017, CoreLogic estimates that absentee buyers purchased 15.8% of homes in the San Francisco Bay area. In September, this number increased to 17.1%. 23 Thus, while we do not know how many of these units purchased by absentee buyers in the Bay Area may be held vacant, it seems to be a significant amount of ongoing sales in the region.
If every empty house on the market in SF or Vancouver came on the market tomorrow it wouldn't make a dent in housing prices.
Vancouver has actually seen some price declines as recently as 2018 and CMHC says it is driven by new construction - any jurisdiction where you can't build will attract investors that can afford to sit on empty properties and still expect a reasonable return. It is just the iron law of modern real estate.
>> The solution(s) are pretty straight forward and I believe Vancouver already initiated a tax on not living in a residence. If the goal is affordability, those policies need to be increased as well as new building efforts (aka change zoning).
Wouldn't simply ONLY building new buildings/housing be more effective? This way, the wealthy can continue to purchase, but the investment would become worse and worse in returns and essentially provide subsidized housing to renters. This is somewhat the case in NYC where rents are far lower than ownership carry for identical units because the units are sometimes treated as stores of value.
In the NYC case the property taxes go the other way. A rental unit is taxed at a much higher rate than an equivalent condo. Nonetheless the effect you point (speculation) is so strong that renting still comes out ahead.
"Wouldn't simply ONLY building new buildings/housing be more effective?"
Yes, the vacant house tax is just politics, Vancouver has had some actual success with build-build-build but that strategy is limited by NIMBYs in many areas.
Same with downtown Toronto, the suburbs are a pricing disaster but condo prices are not following as steep a curve simply because there is supply being built.
No, in short term people hoarding apartments will be happy to buy whatever amount of new property built. Probably it will hit people 2, 3 apartments, but not ones with 20+ ones.
I'm sorry if i'm not familiar with the situation in Canada -- but the people hoarding apartments, why do they keep them empty? Why not at least try to rent them for a partial recovery of carry cost? Wouldn't it be irrational to keep apartments empty when you could at least rent them for a bit of money.
If they rent for a partial recovery, then isn't that good as renters get a good deal?
> I'm sorry if i'm not familiar with the situation in Canada -- but the people hoarding apartments, why do they keep them empty? Why not at least try to rent them for a partial recovery of carry cost?
Paying people money to avoid the vacancy tax sounds bizarre, beyond idiotic, but somebody does it, and it's there. They will prefer to pay money rather than bothering flying to Canada every month to collect rent, and making sure that renters keep the apartment pristine.
Clean money can buy financial assets like foreign stocks. Dirty money cannot.
> Canada is a great place to launder money because of our lack of ownership transparency ... criminals can park large amounts of illicit cash in real estate and hide the purchases behind numbered corporations or shell companies located in offshore tax havens.
> Canadian real estate has been “extensively exploited” by the problem of money laundering and all financial sectors need to fight against it.
~Half of all transaction fail basic AML/KYC compliance.
I disagree with your point (I’ll explain why below) but it shouldn’t have been dead so I vouched for it.
—-
There’s diversification across asset classes and within asset classes. If you add a large non-diversified asset even in a different class, to a diversified portfolio your average diversification goes down, not up.
Or in other words—REIT sure, but a significant fraction of your wealth in a single, idiosyncratic, illiquid, high carrying and transfer cost asset is not diversification.
An REIT (and other traded equities) have agency risk that you can avoid with something you directly own and control, but also, you can diversify your places of shelter by having somewhere to physically escape to if need be. So it’s less diverse in the financial return aspect, but might solve other diversification needs.
Not so giant, the $50,000 limit works for it as well.
The property is specially attractive because unlike socks, you can do one big effort to move money out in one go, and then forget about it for a few years. Plus, the customary blindness of Western law enforcement institutions to dirty money in property transactions.
The 50k limit is easy to circumvent. Anyone who's anyone in China has a Hong Kong bank account. They then hire a tour bus and a bunch of poor elderly people and each takes 50k across the border and deposits it into the HK account. This money can then be invested however they see fit.
Before the pandemic this was not an uncommon sight.
Yes, it is, but having a string of correspondence in between you, and broker, and a stream of legal records pouring from sock transactions is much more bothersome, unlike pouring money into a stone cold piece of concrete in Ontario which will assuredly not go anywhere, and would not bother you with requests to prove your place of residence 4 times a year.
If you spend Canadian dollars on Chinese products then what will happen to those CAD? There is a 50 billion trade deficit with China. The Chinese keep accumulating more and more CAD and they don't buy anything with it... except housing and companies because Canadians aren't producing anything that the Chinese want to buy. Now the obvious thing would be to just do the same thing the Chinese are doing. We buy Chinese products, they produce them. They buy our houses, we produce them. Turns out, we forgot to do that.
Of course, this isn't the only factor. There are probably dozens of factors that are causing prices to rise but Chinese investors are highly price insensitive because doing anything with the CAD they have is better than letting them sit around. What else are they supposed to put the money into after all?
I wonder why the rise of AirBNB isn’t discussed much more frequently. I’ve lived in pretty desirable areas and found it nearly impossible to find a decent rental because anything good is dedicated to AirBNB during the nice months, so my option is to rent a shitty apartment for 12 months continuously, or a decent apartment for 8 months and then be in disarray for 4 months struggling to find somewhere to live. I think it is complete madness that AirBNB has soaked up so much of the rental and housing stock.
Because places like HN like to celebrate "disruptors" like AirBNB?
I've got no problems if hosts want to put up a guest bedroom to get some side income, but the amount of "furnished apartments" that are converted to basically hotels, without paying taxes as a business, or operate within the regulations is pretty staggering.
When the first lockdown happened, a rash of "furnished apartments" started appearing on rental sites, trying to stay afloat.
But it's far easier to blame foreign ownership alone, and ignore significant parts of the complete problem.
Airbnb didn't create demand for housing that didn't exist. People really want to rent places that aren't hotels for short periods.
Is that madness? Cities trying to clamp down on Airbnb are just shooting themselves in the foot again along with NIMBY housing regulations.
There's incredible demand for housing in cities that isn't being met, and the cities which refuse to allow supply to rise will face the same problems and eventually lose out to more dynamic cities.
People really want to run hair salons from their house, but zoning regulations prevent it. People really want to run daycares without licenses, but laws prevent it. People really want to house old folks without licenses, but laws prevent it.
We have zoning laws, restrictive covenants, and boarding house licensing rules for a reason. If there is demand, then have a public referendum like we’ve seen for cannabis laws, overturn the legislated barriers and allow it. But right now, it is illegal in most places and consequently hammering the market for actual residents.
I would argue that Airbnb is not illegal in 'most places', and even if it were, it does not take away the demand. Similar to cannabis, it's illegality did not take away the demand.
Whether there is demand is not up for debate, as there clearly is. The question lies in how it is handled. Making short-term rentals illegal will almost certainly not work. Allowing short-term rentals, and allowing enough housing to be built to accommodate them, along with those who wish to own is the only solution likely to work.
> People really want to run hair salons from their house, but zoning regulations prevent it. People really want to run daycares without licenses, but laws prevent it. People really want to house old folks without licenses, but laws prevent it.
Maybe I'm crazy, but I see nothing wrong with any of these.
On the off chance there are policy makers here, I’m surprised there’s not a bigger focus on land transfer taxes and their impact on home prices.
When you purchase a home in Ontario, as a buyer, you are expected to pay an additional 2-5% of the purchase price in taxes. You need to have this money when you close, in addition to your down payment, and it is remitted immediately to the government.
This can be the equivalent of 5-10 years in property taxes, depending on the purchase price and how your home was assessed. And you pay it every time you move (and buy a new home)!
This pushes the tax burden disproportionately onto new homeowners, and incentivizes folks to stay in their homes for longer (don’t forget the additional 5% paid to agents).
It reminds me of Prop 13 in California, which similarly disproportionately taxes new homeowners and incentivizes people to hold onto property forever.
(Note: my numbers here are fuzzy, and I’m not a real estate expert, so someone here is welcome to correct me if I’ve incorrectly interpreted all this.)
I believe the purpose of this tax is in part to lower demand thus reducing sale prices. Some municipalities have credits for first home owners to offset that. If anything, to increase accessibility for first owners, the taxes (along with the associated credits) could be increased.
There are quite a number of factors which are causing incredible price growth.
These cities are immigration destinations, a large number of Canada’s > 300k annual immigrants becomes residents of these cities every year. These immigrants are educated and quite often asset owners in their own countries. So lots of foreign money flows to these cities through immigrant population. Also culturally immigrants invest more in real estate as countries they have come from don’t have great investment alternatives beside real estate.
Because interests rates have been falling for last 20 years property prices have increased tremendously. This has created tremendous wealth for property owners, who then learned that they can cheaply get money out through home equity line of credit. This money is then invested in other properties which are rented out to pay for mortgage and expenses, creating a loop which further expands the price growth.
At this point property owners are making more money just by living or holding their properties than by working. So its becoming extremely attractive form of investment.
All of this is propped up by lax regulation, low housing starts, green belts, few public housing options. It is a dire situation and now young people are getting frustrated. Because the wages haven’t kept up and savings have been inflated away by a government which loves to print money.
Now this not even a big city phenomenon, the leverage available has caused prices in small cities to rise tremendously as well. Young local population is getting priced out because numbered companies are hoarding up houses and making them rentals.
There are some solutions, like banning non residents to own residential property in Canada. Asking for over 50% downpayment for 2nd residential property, 75% on 3rd. Taxing vacant properties.
In the end government needs to realize that residential properties are social assets not financial assets. The goal should be to create vibrant communities, and that cannot be done if people are unable to own a residence.
“ This has the potential to destroy the livability of every major community, create two classes of citizens, cement a wealth divide, disenfranchise an entire cohort, create structural household debt, make shelter unaffordable and hobble the economy as billions a week flow into vaporous housing equity. In short, it’s an epic policy failure. It’s time those who have greased the wheels – realtors, central bankers, political leaders and our federal housing agency – stand accountable.”
If or when it pops, it will wipe out the savings of most of the country. There are so many folks depending on their house to fund their retirements, that there is no possibility the Government would ever allow a meaningful Interest Rate hike or anything that would adversely affect real estate value. I suspect most Canadians know this and understand it is a sure way to make 20% returns on their money (safer than a Canada Savings Bond). My advice is to borrow as much as you can and buy a house in Toronto. It will double in value in the next 5 years. There is absolutely no possibility the Gov will allow your investment to fail.
For Canadians that can't buy, I suggest you lobby your Gov to force Corporations to implement mandatory WFH for at least 80% of employees (that can). This should allow you to live in rural Canada somewhere and participate in property ownership. The other solution is to sell millions of acres of Crown Land to Canadians who are first time property owners.
what's the second part about - implementing mandatory WFH? how do you mean that translates to rural opportunity? The rural options are always there in a country the size of Canada, but it's the being disconnected from civilizations/culture/community that keeps everyone close to the southern end.
It’s funny that most Canadian software companies don’t even offer salaries that meet the median for a “typical home,” which sounds like a small condo for 1 or 2 people. You have to have a dual income to be able to afford the payments, taxes, insurance, and maintenance... and just get by.
I think with Covid making remote working far far more accessible for a lot of jobs there's going to be a pretty big growth in smaller cities and communities outside of Toronto/Vancouver over the next 10-15 years. My partner and I moved out of Toronto two years ago and bought a detached house for far less than the cheapest tear-down bungalow was being marketed for in the city. In the last year several friends have moved out of the city because house prices are too expensive there and the area we're in has seen house prices go up a lot. This seems to be mainly driven by people in the 25-40 age range moving out from Toronto.
Out of curiosity, where does the 30% of gross income max sunken come from? Considering that other living expenses don't also rise with more expensive homes, I don't understand why we'd use a flat figure. If it costs $40k to live per year, and you make $80k post tax, then you have $40k left over to spend on a home per year. If you make $100k post tax per year, you have $60k left over. That's a 50% increase for a 25% increase in salary. There's no reason it should be flat.
I've seen it often thrown around for housing markets but it seems out of touch, since it doesn't line up with a lot of median incomes of home owners vs median prices in metro areas.
It's not uncommon to see many people putting 50% of their income or more to rent, so why would mortgage be different?
I've been reading about the impending crash for a decade now. The most that's happened is that the market in Vancouver cooled down with new mortgage rules and regulations on empty homes. However average pricing hasn't really gone down.
I bought a town house in 2015, downtown Vancouver. Within a year it went up 50%. For a bit it was even 75% at the peak of the market pre the new regulations. Depending on the time of year it hovers between those two ends. Since it's downtown I'm not worried about a crash affecting it too much. However a crash would benefit us for selling and moving further out to a detached home where prices tend to fluctuate more.
That said, again, it's been a decade of people talking about the bubble bursting but I don't see what would cause it?
* Vancouver, like San Francisco, is limited in growth by the geography of the area. So it's not like new development will lower the market prices.
* We don't have a mortgage issue like the US did for the 2008 recession. In fact mortgage practices have become even stricter.
* The distance from the distant suburbs of Vancouver to downtown is paltry compared to commute in the Bay Area or LA. There's room to grow out in that direction. The public transit system is also much better than most American places I've been to. So living further isn't as much of a burden.
Point being: yes the market sucks. But I don't see what would cause a crash? Yes it's unaffordable for many. But I don't see that as a metric for a crash either, just a metric for growth outside of the core.
I'd like to say that as a rural grain farmer I would like to live in a condo in a dense and walkable neighbourhood with an excellent range of ethnic cuisine expertly prepared by my diverse neighbours.
I consider that desire just as realistic as the desire to live in a fully detached home and work in downtown Toronto.
Life is full of compromises, I'd rather not have a lawn to mow, but thems the brakes!
> In real estate alone, an estimated $5 billion may have been laundered last year [2018] in the province — equivalent to 4.6 per cent of all transactions by value in that period, according to one of the reports.
> In the Vancouver region, where housing prices rose more than 70 per cent in five years, “I certainly believe that money laundering played a part,” James said.
> Such a share of transactions is “sufficiently large to have an observable impact on real estate prices,” the report said.
> It estimated that dirty money pushed B.C. home prices 3.7 per cent to 7.5 per cent higher than they would be in the absence of laundering.
And how much more of it is preparation for the effects of global warming? I'm personally strongly considering buying land in Alaska because the land will be far more livable in just a few decades. It makes sense that people around the globe would start preparing in Canada too.
The major metropolitan areas of Canada are no colder (and often quite warmer) than their neighbouring US cities. Toronto and Chicago are fairly comparable, and Vancouver and Seattle pretty much the same.
Alaska and southern Ontario are about as comparable as Vermont and Florida.
An argument could be made that people move to Canada for political stability, though.
I live in Toronto and have to say the real estate prices here have been the puzzle of my life. They are going up even now, still under lockdowns and significantly reduced immigration in-flow. Tiny unliveable condos bought to rent out lost a few percents, everything else keeps going up
The crazy thing is that this is no longer a Toronto/Vancouver thing. It is everywhere in Canada now. Every province, every small town. There is literally no escaping this bubble now and I do not believe it is related to foreign money - this one is home grown and resulting from monetary policy mismanagement. We never took our medicine after 2008 and everyone has been loading up on debt - individuals, companies, and governments. It’s madness and no one can afford altars hikes. Just wait until the bond vigilantes come and make us atone.
Meh. 5 years ago my house in Calgary was worth 380k. I just sold it for 385k. It might have gone up to 400k if I had waited a bit.
Its not 'bubbling' everywhere - just the meccas of Toronto and Vancouver and their bedroom communities are going nuts. Move to western Canada and prices are still very reasonable.
"Detached home sales in February amounted to 1,123, up from 678 the year prior, while prices edged up to $572,670 from $526,084 previously." [0]
Calgary detached homes are up 9% year over year, in a pandemic, with Alberta's oil industry haemorrhaging jobs. The only way 9% is low is in relation to the rest of Canada. BC (Victoria, Nanaimo, Kelowna, etc, all outside Vancouver) are up 30%. Nova Scotia is up 30%+ even outside Halifax.
And here's the truth about the 'average' prices in that article. They are heavily skewed by the high end houses, not the ones the average person buys. Ive owned there for 35 years and my two houses have always within 10k of the average price. Now, the average is 160k higher? That'll happen when the high end houses are selling for 10 million when we rarely had a house over 1 million a few years ago.
The top purple line shows single family homes which peaked at about 500k in 07, about 14 years ago. Now they are supposedly about 550k which is only a few percent rise per year. This is totally consistent with my own house values.
The CBC article says prices are up 9% from last year. It doesnt bother to mention that they aren't much different than 14 years ago.
Edit: I recall about 10 years ago when someone built a house in a nice part of Calgary that was over 3M and people were surprised there was a house that expensive. A quick check shows there are several homes for sale over 10M now and there are over fifty at 3M and up. The high end stuff keeps rising astronomically.
No, Alberta is the exception due to the oil economy and chronic low oil prices. And not for long, I just saw an article this morning about Alberta real estate switching to a seller's market.
Everywhere outside of Alberta (and maybe Sask) is going mental. Not just the GTA and the Lower Mainland.
As someone in Toronto living through this for years it's just so depressing. Seeing no light at end of tunnel on prices, the pandemic obliterating so much of the benefit of the city core itself, and even GTA searches turn up crazy prices and bidding wars.
I know the Chinese/foreign money is forever a blame thing that isn't entirely true but that also drifts into the effect on communities that constant churn of buyers/renting etc has on culture and areas. Who wants to live in neighborhoods or condos that every year are getting new tenants who just reno/fix places up and then move on?
Also, don't know if anyone or your partners are into HGTV style shows about house hunts and stuff - but man, most of them take place in the states in places like Tennesee, CA, NC etc... and it's like young couples going shopping or doing renos to decide to buy new or sell and they're throwing 100k at something or buying new at 200-400k. That's a shed in Toronto. I know I know, different income levels/rates/healthcare/they're in middle of nowhere developments etc... .but man...just adds to the depression.
In order to predict a crash of the Canadian real estate market one should understand the root cause of the bubble. However, there is no consensus on that.
And once again, for about the 20th time, we are told there is a "Canadian" real estate bubble where in fact, there is a Toronto and Vancouver bubble and surrounding bedroom communities.
I know they dont care much, but theres an entire country outside of those two metropolis but welcome to western Canada, where you can buy a very decent 3 bedroom home in Calgary for 400k and and only have to save up for 2.5 years.
The difference is that this has shifted a whole bunch in the last year. And you have to put Alberta aside because its economy is so tied to oil prices that real estate there took a major hit that it's only really bouncing back from now. (And in a big way, just saw articles this morning about the seller's market in Edmonton. FWIW I grew up there and have family there, so I keep my eye on thing)
But with the COVID situation people are moving all over, and smaller communities in rural or small town southern Ontario (like my own) are being hit with real estate practices that used to be just confined to Toronto. Things going way over list, blind bidding, unconditional offers no inspections, rural places that would normally sit for 4-5 months (because of the complications of selling a rural place) off the market in a week, etc.
Towns like London and Windsor that have had depressed real estate markets for a long time are suddenly hot. Forget about places like Collingwood that might be considered luxury lifestyle places by some.
And then it's spreading out of Ontario; I've seen articles about the Nova Scotia real estate market starting to go crazy as people from Ontario are buying things there sight unseen, etc. Have to admit, we've looked ourselves. Why not work remote from NS? It's super nice there.
And forget about B.C. Last year we were browsing homes in Squamish as it was still "relatively" affordable relative to Vancouver. Prices seem a good 30-40% higher than when we looked a year ago. Interior BC is off the charts and not just in Kelowna where it's always been pricey. I've been watching various ski town (Golden, Revelstoke, etc.) prices for a while. They've gone bonkers over the last year. Friends of friends sold their acreage here in Ontario recently (for a ridiculous price) and relocated to Vancouver island hoping to cash out and get out; reportedly they found it really hard to find a place in Victoria and got caught in multiple bidding wars.
Buyers in Toronto and Vancouver have Stockholm syndrome in regards to the real estate market. They are used to practices that were just not a thing elsewhere in the country. And as they leave the city they're bringing those practices (and their frankly unethical real estate agents...) with them...
All these articles assume median incomes with 10% savings for a down payment, which to me seems ridiculous and is simply never going to be enough to buy a detached home in a major city.
We're talking about incomes of only $46k CAD. Is the author really expecting a young couple saving 9k per year to come up with a down payment on a detached home in one of the most expensive cities in the world?
Home ownership is now very liquid. People buy/sell/move very easily. Foreign ownership is huge and as mentioned, money laundering is now rife in realestate. Prices in London are estimated to be 10% higher due to laundering. I'm sure that it's much higher in higher priced homes...for a while.
If this is indeed the case, Toronto's housing will not price correct: ultimately, capital from China/wherever needs a place to be parked, and it will flow most to the places where taxes are lowest: hence Toronto (see above), Vancouver (see articles listed in this discussion along with some steps taken to patch the issue), SF Bay Area/California (Prop 13 makes it attractive).
I ran through this thought experiment now to understand why East coast real estate (e.g., Boston) as well as Seattle don't see as much absentee buying.
The calculations of the article is seem wildly not reality based.
Most young people buying a home in a big city are getting downpayments from family or they are saving more than 10% a year. Add in the rsp savings, tfs accounts and the actual calulations are more complex.
The drop in the condo market because of the drop in airbnb makes that sector an attractive entry for young Canadians.
You can get a fairly big house outside of the downtown core (45/50 by 120+) for a fair price or you can get a rundown older house postage stamp close to downtown for 4 times more.
I see raises in prices for all detached homes for the next two years followed by a period where people try to move back to major cities causing a price increase in major cities and a drop in cottages / smaller cities.
The predicate of this article is nonsense. The market has not failed, nor is it nearing 'systemic failure' if some people can't afford to buy goods in the market. Is it a housing crisis for young locals? Yes. Is it a market failure? No.
As an economist articles like this strike me as pretty bizarre. Okay, so an asset class is more affordable than it used to be. Why does this indicate the existence of an asset price bubble rather than normal supply/demand dynamics?
These house prices greatly exceed the value provided by a house (basically shelter from the elements, access to employment). An economist would call such margin a rent, and reason that supply would increase to take advantage of the profits to be made.
A bubble is driven by price momentum, which in this case is a result of poor policy (zoning), too big to fail dynamics (what would happen to the pension funds in a crash?), and a blind eye to illegal activity (money laundering).
Supply is going to have to increase to almost illogical levels to temper this momentum. I could imagine a public construction company tasked with nothing but building new towns outside the cities, complete with universities and subsidized employment opportunities, could begin to make a dent.
One sign of a bubble -- to me -- might be purchases which are out of line with income/yield. One could theoretically make growth assumptions, but even with that baked in, sometimes the PEG ratio is irrational and that suggests a bubble.
This issue is pretty much global. It's the same story here in Sweden. As far as root cause goes, I think people are fucking more than they are building. Solutions? It's not easy, and the most effective ones are not going to be popular. We're eventually gonna have to try to make people have fewer babies, I say we start now so that we don't have to do anything so drastic in a couple of decades.
It's annoying now when housing is expensive, but when food prices start climbing were gonna have a real problem.
Sounds familiar and seems to come down to a shortage of housing built in desirable places all over the world. The sad thing is that even while investors are getting rich of these artificially rare commodities cities don't significantly build more and higher etc. Spreading out is a way around this, but the increased concentration of cities still seems valuable to me and most people, otherwise prices would drop, so it's not a real solution.
The article is talking about detached housing. In Vancouver I keep seeing the trend of several detached houses in a row being bought, bulldozed, and converted to low-rise condos or townhouses.
The supply of housing (condos, townhouses, duplexes) is increasing, it’s just people aren’t too happy with “lowering their living standards” by having to live in a condo or townhouse, or having to move out of their neighborhood to a suburb.
Land is an issue in Vancouver. We have mountains to the North, ocean to the West, and farm land to the East and South.
What little land is available does get converted to “dense” accommodations, but it could be more dense. For example, in my area 10 years ago there were maybe 3 or 4 detached houses on the land. Now there are 450 condo and townhouse units. This could be significantly more dense by building a high-rise (6+ floors I think) instead of the low-rise (5 or fewer floors). However, we don’t really have the correct road infrastructure to accommodate huge density increases. Pre-pandemic a 20-25 minute drive to work already takes around 1.5-2 hours during the weekday.
The detached housing that remains detached is converted from, for example, a 3bed 2 bath rancher to some sort of luxury home with 6 bed 4.5 bath. Doubling or tripling of value is not uncommon.
I can’t find it right now, but articles in the local papers have talked about changing communities from being all single family detached to a mix of condos, townhouses, detached. This way new buyers can start at a condo, move to a townhouse, then upgrade to a detached house as equity builds up, the family increases their income, and the family expands.
The problem with this is the people who own the detached houses don’t downsize when their kids leave, so these rarely come on the market, or people are buying more house than they need at that point in their life to counteract rising house prices.
Yes, people have expanded outwards. For example, my mom and step-dad moved approximately 1.5 hours East of their last house (now a 20 minute commute for my stepdad instead of the previous 60-70 minute commute). The problem here is that the house prices have risen here too for detached houses. Places on my parents street are 650-800k. Go over one block to the next cul-de-sac/ street and they go for 800k - 1.2 million. These are all new detached houses built [edit: on previously vacant land] in the last 3-5 years. Spreading out hasn’t actually caused prices to drop. Spreading out has done the opposite. They call it half-doubling or something here. Half the price for double the house if you move outwards.
Sort of a methodological question: why does a crash max out at 30%? The author seems to point out that even a 30% crash wouldn't fix it and therefore no crash would, but I'm wondering why crashes can't be larger than 30%.
In Canada there is no 30 year fixed product. Most people float month to month. Since interest rates have been dropping since 2002 prices will go up. Australia is very similar.
As a Canadian homeowner, I don't actually know anyone that floats month to month.
Second: it's more complex than "no 30 year fixed". I have a 30 year mortgage, but I need to 'renew' (renegotiate) it for a new term whenever my term ends- typically 5 years, though I chose a 3-year term last time. The internet rate is fixed throughout the term. At renew, it's totally normal to change banks if they offer a better rate.
I've found the same thing with most of my friends that own homes. Everyone goes with a fixed mortgage banking on the fear that interest rates would go up. I assumed this was just a lack of financial knowledge on how to calculate and guesstimate projected costs, even with some rate increases over the period.
However, I've since had 2 cases that make the fixed rates more understandable.
1. In order to lower mortgage payments and provide longer stability in monthly payments that I could pass on to tenants, I got a 10yr fixed rate (around 3.4%) amortized over 30 years for an investment property 2+ years ago
2. I recently had to renew my own variable mortgage and I tried to go with variable again, however my mortgage provider wouldn't give me the variable rates advertised on ratehub.ca cause they were only for new customers. It resulted in me having to go with a 5yr fixed rate with another provider cause that was the next lowest that would work for me. I wasn't happy.
Canadian mortgages are not quite apples-to-apples with US ones. They have similar amortization schedules but the term is only generally 1-5 years (although you can get 7 or 10 year terms at fairly awful rates), after which it can be rolled into another one (at whatever rates are then) or fully paid off without penalty.
It’s not a coincidence that this is happened and I’m sure the government has been well aware—they just make too much money from it to care to slow it down.
There are so many issues besides just saving for a downpayment.
How will you keep a job that supports the mortgage? Companies are exceedingly disloyal and looking to cut labor costs whenever possible, whole industries go through huge labor contraction, not to mention accumulating effects of automation.
Even if I saved a downpayment, I would not feel comfortable entering into a mortgage like this at all. It just adds stress to your life and you get none of the independence or peace of mind you expect to get from private property ownership.
It was just about to pop 6 years ago when I bought my condo. It was about to pop when values stopped increasing so dramatically 3 or 4 years ago. It was about to pop when the COVID-19 pandemic halted most sales. It's about to pop now because everyone is leaving the cities because of WFH rule changes.
But it never does. Prices are still high because demand is high and supply isn't keeping up. Demand is high because our financial laws allow criminals to launder money through housing, and because we're a desirable country for wealthy immigrants. Supply is low because cities have too many NIMBY politicians that are against density increases.
I wish it would just pop so we can all get on with fixing the root problems.