Feb 23 2008
An Interesting Solution To Unsustainable Housing Prices and Rental Rates Part 1
If you live in Greater Vancouver I don’t need to describe the rapid increases in housing prices seen over the past 5 years. All that one really needs to know is that:
- Homeowners not planning to sell in the near future have seen the property taxes follow the increase in their property’s value without seeing any relative gains.
- First time buyers making anything less than 6 figures are being pushed further and further away from Downtown Vancouver, The North Shore and Vancouver, often those making even 150,000+ a year aren’t able to afford to live in central areas once they factor in car payments and family expenses.
- Vancouver’s younger generations are desperate to get into the market although many have lost hope they will ever be able to afford to live where they grew up.
Now of course there have been a lot of benefits derived from the housing boom. Increased jobs, more money flowing into the city, a lot of prosperity for intelligent investors and those in the real estate industry, and an increased net-worth of all homeowners.
Like it or hate it, the price of real estate in Vancouver is not going to fall significantly and I do not take issue with that fact. Vancouver is a gorgeous, relatively safe city situated to continue as a major international trade centre due to its proximity to the Pacific Rim. As a long time Vancouver resident what I do take issue with is the large proportion of unoccupied condos and properties held as investments by non residents. RBC’s affordability index ranks Vancouver as the #1 least affordable place to live in Canada. RBC’s index is based on 2 values, people’s mortgage payments and their incomes. The higher the mortgage payment relative to income the less affordable an area is. Pretty simple stuff.
Vancouver is so ridiculously unaffordable for a many reasons. The main reasons I will point out are:
- Vancouver is not a business hub in the same way Toronto is. We don’t have many corporate head offices or a large financial centre. This means there are not as many high paying jobs here. People look at New York and say “Well Vancouver could see those prices one day New York has” but this simply isn’t the case. New York sees an incredible amount of fund managers and investment bankers making 7 figures, we just don’t have that in Vancouver.
- Speculation. As happens far too often in markets around the world speculation is running rampant in the Vancouver real estate market. Huge marketing teams push condo development presales and buyers hope to flip them for a quick buck. This means the market prices don’t reflect true resident demand for housing. Speculation drives market prices up beyond what resident’s incomes support.
- Foreign buyers play a role in market prices as well and their transactions are completely unrelated to incomes within the city. This isn’t as large of segment as people want to believe (it is far too easy to take out ones frustration on a vaguely defined outside group) but still plays a significant role in driving up affordability.
The other issue I feel is worth of discussion is intentionally unoccupied properties. By unoccupied I am referring to properties bought but not rented or owner occupied. The reason this really upsets me is that it drives up rents and hurts those who already can’t afford to buy. There is a huge amount of new condos being built in this city, many bought by investors yet rents are rising and occupancy rates are below 1%. Try finding an apartment for rent on craigslist, I’m told it is chaos as a place will be listed and taken in the same day. My opinion is that intentionally unoccupied properties play a huge role in maintaining high rents despite an increase in the amount of available housing.
In Part 2 of this article I will discuss at least one out of left field idea for evening things out and making Vancouver a little more affordable for its citizens.
Like it or hate it, the price of real estate in Vancouver is not going to fall significantly and I do not take issue with that fact.
What would you consider a ’significant’ fall in prices and how can something that may or may not happen in the future be a ‘fact’? Previous cycles have seen Vancouver real estate prices fall between 5% and 50% - what makes it different this time? If you bought the benchmark house in Vancouver today and had to sell at 5% down that would be about a $35k loss. Just for comparison cities like Miami, San Diego, Las Vegas, etc are seeing losses greater than 15% off their peak prices in just a couple of years.