Appearently some real estate agents have targeted ads in Facebook for "Googlers in San Francisco". I clicked on an ad I saw the other day. This is the listing:
$1,247,988 is the rough valuation. Their suggested EMI is around $6.8K/month. Would it be in reach for people getting $200K/yr? Are there enough Googlers getting that much?
It really isn't surprising. It started with the wind up to the turn over of Hong Kong and only continued after that. I wanted to move to Vancouver, but lack of tech scene (Dick Hardt doesn't count) played a big role during the late 90s/2000s.
I continued to visit for various reasons at lead a week a year until just a few years ago. What started in the late 90s only continued.
In recent years Australia has had many of their large farms sold to the Chinese, and often times, expensive homes are bought at high prices to only be taken down and built anew.
The worst thing is companies buying water sources to build bottling companies. How can politicians allow drinking water to be privatized in some places is beyond any explanation.
The only thing that counts is money...... keep selling. Sell it all. Sell sell sell.
Who gives a toss for community or society or cohesion. Sell everything.
As long as property sellers can take all that lovely cash and buy more and bigger homes then what else matters?
Ordinary middle class people and the young - make em rent! Why the sense of entitlement that people should be able to afford to buy a home, what are you a communist? Whose country do you think this is?
In fact put one giant price on the whole of Vancouver and sell it ALL in one big job lot.
No, souls != property. People sell their property and get money for it. Generally they do sell to the highest bidder. There is no collective ownership. You have no stake in other people selling their own property. There is no "we". How does a hot RE market imply things arent going to end well? Fairly big jump. Toronto is the only other hot mkt in the vast country of canada. Calgary and other cities are seeing falling RE prices.
Do you think the people buying these houses are so poorly off that they will sell when times get tough or do you think they incredibly rich and will laugh off market fluctuations?
Yes, they will sell. These people don't care about the price when they buy. They won't care about the price when they sell either.
The last time a property bubble in a developed economy fueled by Chinese speculators crashed, it crashed by 70%. [1]
People never see a property price crash coming.
Credit Suisse First Boston – 15 July 1997: [2]
We believe the supply demand imbalance will continue to drive residential prices during 4Q 1997 and into 1Q 1998. The two extremes will perform best; luxury residential prices should fare particularly well as we see flows of capital into the top end of this sector. Luxury property is also much less sensitive to affordability levels and much more geared to supply and price expectations. The smallest units (below 40 square metres) will also fare well as there is very limited supply at this level, yet they are the most affordable private sector flats.
The overheated property markets Vancouver & Sydney are fuelled by Chinese speculators. Why are they buying overseas when there's a perfectly sound economy right on their border, Hong Kong?
There's a property bubble in Hong Kong too, and it was getting expensive there, the Chinese went overseas to other well-off cities that are full of Chinese, Vancouver and Sydney. If Hong Kong was leading the price rise amongst the three cities, it might lead the price fall too.
At this very moment, Hong Kong's property prices are slumping:
One could argue, for all the many rich people buying in Vancouver who could shrug off market fluctuation, there are even more millionaires and billionaires in Hong Kong, which has the 4th highest billionaires per capita, who could shrug off even bigger market fluctuations. Yet it's property price is falling anyway.
One third of property buyers in Vancouver are Chinese. How many percent Chinese do you think are buying the property in Hong Kong?
The Fed investor immigration program was canned, but there's still a backdoor in Quebec letting in millionaire immigrants, as Quebec manages their own investor immigrant scheme.
Nearly all of these millionaire immigrants to Quebec move to BC.
That is unfortunate. There's been a long history of provinces just screwing each other (Sask just recently put two homeless men on a bus to vancouver).I wonder why the federal govt doesnt have full jurisdiction on immigrant visas.
Isn't this a bit like any statement. 'People who get hit by a car never saw it coming'. Or 'people diagnosed with cancer weeks before they died, never saw it coming'. Well sure, ignoring the people who did saw it coming, which are events we then ignore. i.e. there may have been various formations of bubbles, people saw it coming, adjusted their investments, and the bubble diminished.
Further, it's not like today, people don't realise there's a bubble in Vancouver. It's pretty much the opposite.
>> people don't realise there's a bubble in Vancouver.
Property price crash != property bubble.
Everyone knows there's a bubble in Vancouver. No one thinks the bubble is crashing next month or even this year.
You've got people on this very thread thinking Vancouver's people are selling their souls and never getting it back.
I think for a general statement, it's carries a lot more weight than the two examples you've given.
It's a general description of sentiment during a bubble, not a precise description of each person's state of mind. As a statement, I think it's fine as it is.
People always see the property price crash coming. People know, intuitively, housing can't go up 20% or 50% or whatever every year. It's just that they think they can make money and get out before the crash happens. Let me put on my Carnac the Magnificent turban and tell you there's definitely a property price crash coming in Toronto and Vancouver. Guaranteed.
The problem is you have to know when it's coming to cash in, and I can't help you there. If I could I'd be buying up million dollar houses. These things last way, way longer than I expect.
They will sell, just like they sold when the Japanese bubble popped. This has happened before, playing out in almost the exact same way (except the bubble is bigger this time, and more cities are involved).
Vancouver properties seem to be renting for around half the price of Sydney properties, where I live. [1] It seems relatively affordable to me. But then again, maybe I'm numb to it...
Depends a fair bit on location. Many of the 'cheap' places there aren't actually in Vancouver, but a 45 min drive away in a neighbooring city/ suburb.
Part of the problem is much of the central property has been redeveloped, also increasing prices. Its tough to find place at <$800/bedroom or <$1000 for a studio in central Vancouver.
Why rent to the riff-raff if you are so rich? It's such a hassle. The property values going up is enough of a return. Soon we will have an empty Vancouver that serves as a city sized trophy case for rich people.
I thought the bubble would of popped 9 years ago in 2007. It hasn't. Should I wait another decade for "bubble^2: faster, stronger" to not pop this time? Is the property value going up by about the canadian currency drop or more in the past 18 months a coincidence?
Did Vancouver or Canada recently experience a huge economic boom and increase it's residents income band to more than the Reno, NV levels than it currently is? Actually, the opposite is happening with alberta's oil industry currently imploding and every imported good going up %30 in price due to the property increase.
I moved away, like a lot of younger people, to somewhere somewhat more affordable, and I suggest anyone who is a software dev to do the same. The compensation delta is %100+.
What's that other somewhere? It can't be in Canada surely, because the only other tech hot spot I can think of is Toronto and it's not that much better here sadly. I don't know too much about Montreal.
Well ironically, even when alberta was in economic boom mode, it was more affordable to buy a house there than it was in vancouver. And it's still more affordable. Also montreal. The big RE bubble areas of canada are Toronto and Vancouver.
But for software devs, I definitely suggest the USA, either Seattle or even the SF Bay Area / NYC because the pay is so much more.
The problem is the bubble is being propped up by foreign investment. So much money is able to flow, and the buyers have no incentive to keep the prices down.
The correct stock/equity analogy of renting is that you don't own shares of XYZ; you do volunteer work for XYZ. You pay XYZ regular dividends instead of the other way around, you maintain the equipment of XYZ and so on.
It isn't but it is a hedge. You put that down payment in some other asset class (stocks?), pay about half of what a mortgage would be currently and then profit when the RE asset bubble pops and buy when it's cheaper. And while your waiting the stocks themselves will probably have a gain of some sort.
That's not shorting, in fact by renting you're financing the bubble. After all, valuation is done on the present value of future cash flows. Firms that earn a lot of money are thus valuable, as are firms that will grow into firms that make a lot of money. By renting, you're constructing that cash flow.
To pop the bubble you must not exercise any demand at all. And to short, you have to construct a financial scheme that benefits when the price goes down.
For example, you could 'borrow' a home, sell it at market price, then 10 years later when prices are much lower, buy it back, then give back the home to the person you lent it from. Or in fact, housing prices could rise, as long as they do not rise more than another guaranteed investment, it makes sense to short this stock and reinvest it into the other investment, and you'd still make money, interestingly, without having to need money in the first place. Of course in practice all of the above is tricky and risky, and so I appreciate that within the opportunity set of a normal citizen, renting is preferable to buying, but let's not call it the equivalent of shorting.
It depends on the rent price vs price to own. If renting is much cheaper, which it is in Vancouver unlike SF, then you are wrong. If the rent prices are equivalent to buying, like they are in the Bay Area, then you would be correct.
No it doesn't. If you're renting, you're financing someone else's ownership of the property. It doesn't matter if they own it outright, or if you're only paying 1/10th of their mortgage. It only matters in degrees.
>No it doesn't. If you're renting, you're financing someone else's ownership of the property.
That's only true if your rent covers their payment, which tends to not be true in a bubble. Where I am, in the years leading up to 2008 there were more rentals available than the market could really support. People were buying houses and getting rents that only covered part of the payment because they were counting on capital appreciation to make them money. If you were a renter it was a great deal. For $1600 you could rent a house that would sell for $700k, which isn't even close to covering the payment.
After the bubble popped the price of housing went down dramatically, and the price of rentals went up dramatically as people stopped buying houses assuming they would appreciate forever.
Also, people who've never owned a house drastically underestimate the costs associated with owning one. I bought my house after the crash, for cash. My housing outlay (with no mortgage) is about 75% of what I paid in rent. And that's not counting maintenance, like painting and appliance repair, or major stuff like a new roof. If the bubble had never popped I would have come out far ahead just staying in the apartment and investing the savings.
"That's not shorting, in fact by renting you're financing the bubble."
You're not financing the bubble.. The bubble is based on valuations that assume much higher income than what you provide by renting at going market rates.
I agree on the latter part of your statement, but that bubble valuation is based on an incorrect multiple and momentum of housing income, both of which are partially created and sustained by demand, which renting is, which is why I disagree on the former part of your statement. Bubbles usually start with actual high returns that are valued fairly, which attracts investors and turns it into a disproportionately large self-fulfilling prophecy. To keep renting in Vancouver now thereby definitely does contribute to the bubble, even though of course it doesn't create the bubble all by itself. If you want to short it, or do something with similar intentions, like the person I was replying to suggested, then I wouldn't recommend renting like that person suggested.
To the extent that the valuation is inaccurate, it's not based on the housing income created and sustained by demand. It's a based on a projection of the growth in that housing income. I believe you're mis-blaming real demand for rental units the for the mistakes being made by real estate investors in projecting growth in housing income.
No. Someone suggested that, to pop a bubble, you must 'short' by renting. I explained that no, that's technically not shorting, and no, if shorting the market is not an opportunity to you, then renting will indeed contribute to sustaining a bubble more relative to getting out of exercising demand on the market completely (i.e., not buying or renting but relocating). Both of those statements of mine are completely correct, and none of them imply that renting in and of itself creates a bubble, which are the words you seem to be putting in my mouth.
>then renting will indeed contribute to sustaining a bubble more relative to getting out of exercising demand on the market completely
True. In relative terms, and in this context, you could say it 'contributes' to the bubble.
I still maintain that the concept of normal (organic, non-speculative) demand contributing to a bubble is generally wrong. I don't think it's accurate to say that any and all sources of support for the price are contributing to the bubble. This conceptual framework will mislead people about the cause of a bubble.
But in the context you're using it, it could be considered accurate.
PS. you don't need to get hostile. I was explaining how I interpreted your statement, not 'putting words in your mouth'.
In #2, as residential properties are not usually completely fungible, it would have to be an "IOU this exact house".
As a result, I think there would have to be something more like this:
1. Alice owns a property that she would like to keep, but will not be using for X months.
2. Alice's default course of action would be to lease it out for those X months and get rental income.
3. Bob offers an alternative: Alice sells to Bob, who promises to sell it back after X months at the same price, while also paying the expected rental income for X months, plus an additional cash incentive.
4. Bob signs a note promising to give back that exact house after paying Alice the rent-equivalent every month for X months, and an escrow agent secures the note by putting a lien on the property equal to its current value plus Y%.
5. Bob can now attempt to short, by selling to someone else for the current value, and putting up Y% in cash as margin, to clear the lien. Bob also has to insert a panic clause giving him the option to rescind the sale by paying the buyers that Y% before the X months elapse.
6a. If the market value drops, Bob re-buys the property and transfers it back to Alice as promised. The escrow agent returns Bob's margin and the difference in sale prices.
6b. If the market value rises less than Y%, Bob buys the property back and transfers it back to Alice. The escrow agent returns the remainder of Bob's margin.
6c. If the market value rises more than Y%, Bob is unable to repurchase the property with pre-secured funds, and Alice might be pissed. The escrow agent could hand over all the cash to Alice, but the property itself would be worth more than that. To avoid this, the escrow agent will activate the panic clause immediately, using the escrowed cash, whenever increase in value approaches a fixed fraction of Y%.
Note that if Bob does not sell the property, the terms of the note and security instrument make the deal indistinguishable from a lease. Note also that there is so much friction in the real property markets that it is just a hell of a lot easier to short shares in any public company that owns a lot of developed land.
>Ordinary middle class people and the young - make em rent! Why the sense of entitlement that people should be able to afford to buy a home
Why indeed?
If there is a shortage of housing, why not build more houses?
Otherwise, if a person wants to exclusively use a piece of land, why shouldn't he have to outbid everybody else?
Unless of course an 'ordinary middle class' and 'the young' are somehow more valued than 'rich chinese people' and so should be given special privileges?
>In fact put one giant price on the whole of Vancouver and sell it ALL in one big job lot.
Well not everybody wants to sell obviously but if everybody does want to sell, why shouldn't they sell to 'rich chinese people'? Why should they not be paid the most for what is rightfully their property?
> Because the new houses built are intended to be bought buy people who have money at incredibly high prices.
The demand is not infinite. If these new luxury houses actually do sell to the people who have the money to pay the incredibly high prices, what happens to the existing houses that were not purpose-built to sell to the rich? If the new houses satisfy even a part of the demand, prices on the existing houses have to drop.
If there is a demand for both high price housing and low price housing, there would be builders for both.
This is like saying "all the rich chinese are buying up all the expensive top end iphones and now all the poor people of the earth and the seas can not have smartphones for their enjoyment".
Again and again I see the same 'fixed size pie' argument when somebody argues for special privileges for the 'special class' that they conveniently belong to.
What about all the canadians who bought their house 4 years ago and now have their property price increased 200%? Nobody talks about those guys. You only hear the 'evil rich foreigner chinese taking up out houses' narrative. If you are a rich foreigner you are taking our houses and if you are poor then you are taking our jobs.
At the end of the day these narratives are just appeal to group-identity and nationalism. They are very thinly veiled attempt at enraging people to get more 'engagement' 'views' 'clicks' or whatever. And they are clearly working because people who are sensible otherwise start losing their minds.
Those who have seen their housing valuations triple still need to live somewhere. If they want to collect that profit (paper profits otherwise, with sometimes very real taxes), they must sell. They then have to buy a new place to live and surprise, that 200% profit disappears real fast when you have to pay 200%extra for a home...
I'm not the commenter, but I'm going to go out on a limb and say that in this context, "Government of Canada" did also mean "the people of Canada".
It's not as solid of a distinction outside the U.S. where there is so much anti-government "them vs. us" mentality (rightly or wrongly).
If I say "the Government of Canada wants to legalize marijuana", it's generally safe to assume that is the will of the people unless evidence is presented to the contrary.
Of course, the government can and does occasionally go against the will of the people but that's more the exception than the rule.
> Because nurturing a foreign rentier class is not the best plan for retaining your sovereignty and keeping local people happy and wealthy?
I'm an Eastern European living in a relatively big Eastern European city, and I'm now writing this from an apartment that I'm a renting from a very cool French guy, the owner, who is in his late 50s or so. At the height of the local real estate bubble (in 2007) the Norwegian sovereign wealth fund invested in buying 500 apartments in a local project, the investment flopped (I don't petty the Norwegians, though, that fund is huge). And I could go on and on with other examples of foreign-owned properties in the city where I'm living in.
Point is, this is capitalism. I'm paying rent to the French owner of my apartment with the money I'm gaining from my current American oversees employer, and there's nothing wrong with that. You guys cannot choose which aspects of capitalism you want to like and which not, i.e. you cannot be allowed to invest freely in other parts of the globe (like Canada is now allowed to do) and in turn not allow other nations to invest in Canada (like not allowing Chinese real estate investors to buy property in Canada). Because if you do that you're economic colonialists.
Most people are suggesting things like a non-occupied housing property tax, so people rent out unoccupied properties. And stronger money laundering enforcement so kleptocrats don't use housing as a bank account.
"You guys cannot choose which aspects of capitalism you want to like and which not..."
Every country chooses which aspects of capitalism they want, via regulation, taxes, social programs. Even the most laissez-faire county does. There is no pure capitalism, it doesn't exist.
>You guys cannot choose which aspects of capitalism you want to like
Yes they can, all countries do this. Minimum wage laws, environmental protection laws, progressive taxation etc... All designed to restrict elements of capitalism we don't like.
>You cannot be allowed to invest freely in other parts of the globe
Their are all kinds of property restrictions on foreigners in many many countries. Until 6 months ago foreigners couldn't buy property in China without first living there for a year.
If a country wants to restrict foreign property purchases that's their business. They don't owe anything to other countries who let their citizens buy property. The reason those other countries allow foreigners to buy properties is not altruistic, it's to attract investment. They would continue to allow Canadians to buy homes even if Canada completely shut their citizens out. But if Canadians started driving up local home prices to the point that they are causing problems, they would add restrictions.
> The reason those other countries allow foreigners to buy properties is not altruistic, it's to attract investment.
So Canada doesn't want FDI, got it. Well, good for them, it means they're self sufficient.
It's interesting because when the going was good, meaning when Canada was making tons of money out of selling their mineral riches to China, I didn't use to hear so many bad stuff about the Chinese. Now, when some of those Chinese people want to invest their money back into Canada somehow it's bad for the middle class Canadians. I'm missing something, because I can't make sense of all this, but I'm just a programmer.
The situation is much more complicated then you are making it out to be. For one, this investment in high end residential property only really benefits a select few elites, not the general population. Of course it does generate some taxes - the debate is whether this small benefit is worth it considering the long term picture.
You're using the word "investment" to make it sound like they are starting local businesses that create well-paying long term jobs, grow the economy, and contribute to the community. The truth is that these houses sit empty 11 months of the year (or more).
Lastly, guess where that profit is going to end up when they sell? Not in the Canadian economy like it would have if a purchased by a Canadian. So again, is this a net gain? It's hard to say, but don't over simplify it.
> Unless of course an 'ordinary middle class' and 'the young' are somehow more valued than 'rich chinese people' and so should be given special privileges?
Citizens should be granted privileges over non-citizens.
Yes. The simplest way to solve all this is that you need to have been resident for > x years, or a national to be able to buy property. But governments won't bring that in until the bubble bursts because it'd burst the bubble prematurely.
Well, more than a certain amount of property. I think it's fine if a foreign national wants to buy a second home or whatever in another country. The problem comes when foreign nationals make up such a large portion of the market that they drive locals out of it.
They have been building, a lot actually. Condo prices as a result have been staying pretty stable until recently as a result. They need to build large condos that can take families although, something in the range of 1300-2000 sq ft and 3-5 bedrooms. And can handle kids jumping up and down and screaming/crying like they always do. Vast majority of condos are 1 or 2 bedroom places.
The same is now happening in Toronto. It's truly awful. So many great communities being destroyed by greed. Especially if you're someone who loves city life and does not want to move away.
>>Ordinary middle class people and the young - make em rent!
Let me know the address of this secret cabal that meets every evening plotting misery and pain for the young and the middle class.
On a more serious note, this is just capitalism and free market economy playing out against you.
Also remember those days when people screamed real estate being a bad investment from the roof tops, while people belittled real estate investments and glorified stocks, a section of people have quietly invested in this area.
The fact of the matter is these opportunities were available for every one, but just like other things like in life like age, education, marriage, kids- time is a critical factor in these things. If you don't make the right moves at the right time blaming others hardly makes sense. People can't buy expensive homes for the same reasons, people with no education can't go back in age and do their schooling.
Investments are all about time, in fact I'm sure there are good house deals at the outskirts which many people are investing in. The young and middle class isn't buying them because they are too far/<regular excuses>. And yet when the prices go up after a few years and that too becomes expensive, same people will come up with the same complaints.
I don't believe these numbers. I highly suspect that Canadian permanent residents or Chinese origin are included in these numbers. Ethnically Chinese people make up a large portion of the Vancouver area, and they get help with their down payments from their parents like most Canadians in urban areas.
I am curious about the downstream effects of house prices becoming increasing multiples of income in so many western countries. E.g. I suspect it will hit entrepreneurship. Younger generations are buying houses later and taking out massive loans when they do. For the boomers you'd often hear how they bought a house soon after college and paid it off by their early thirties. This would put people in a good place to leave their work for a couple of years to start a business. Now people have these huge mortgages where your ability to start a business is hampered by your ability to get a financial buffer to take a year or 2 off. And lets not forget most businesses are created form people mid-career, not the TV typical university dropout.
And small community business, how will they exist in the future. If someone wants to set up a local 'physical presence' vet/daycare type business that are typically mixed into residential areas the threshold is now so high ot exist and especially set up a new business. How can a daycare buy a million+ dollar house and expect to make money paying that back on having 30 local kids being looked after.
Also what is going to happen with retirement and periods of unemployment. I suspect society will be less stable as either the government has to foot high rent costs (unlikely) or we will see increased population movements during retirement, and now the government has to look after older people that before a family who lived nearby could help out with. And during low employment cycles society can absorb this downturn if people dont have large loans. Historically people cant 'tighten belts' for a year while things improve, harder when your neck deep in debt. So we will again see more movement of people, debt default etc. It will serve to exacerbate recessions etc.
Also these higher prices skew the economy. When people are tied up in these ever increasing loan/income ratios there will be less spending on dining, holidays, hobbies etc. It will weaken the economy by concentrating the spend in limited areas.
I believe we should look to ensure affordable housing for owner occupiers. Residential investment need to be discouraged (note I'm not saying stopped) as a speculative asset class. I've seen a few suggested methods to achieve this but I feel the simplest is to place a yearly 'asset tax' on non-owner occupied residential property (I would also include farms). Having a % tax would make it easy to adjust to find the right balance given economic cycles change. Also this would encourage property hoarders not in heavy debt to sell for lower taxed asset classes. This I feel is important as most solutions focus on controlling the investment lending side which is limiting in reach.
It typically has been. You haven't always been able to build an app in a day or spin up a few AWS instances to handle increased load on your webapp. This is a relatively new thing.
There aren't any small businesses anymore and for good reasons. The mom and pop shops are inefficient. They do not employ the highly efficient operational system that big businesses can employ so all your coffee shops are now starbucks or some other franchises.
>Also these higher prices skew the economy.
Pricing is how an economy works. It is the messaging system communicating changes in demand/supply balance. If it is 'skewing' the economy in the sense that it causes changes, then it is working as intended.
>When people are tied up in these ever increasing loan/income ratios
There is only so much land to go around so if you want to use a particular piece of land that is highly desirable then you ought to outbid everybody else.
>I believe we should look to ensure affordable housing for owner occupiers.
the solution to this is georgian land value tax. There is no reason otherwise to ensure 'afforable housing for owner occupiers' except your personal belief that society should subsidise a particular class of property ownership whereby the owners use the property directly. What is going to happen is that people who cant afford to own a house (or dont want to borrow money from banks to buy one) is going to have to pay the tax for renting.
> Pricing is how an economy works. It is the messaging system communicating changes in demand/supply balance. If it is 'skewing' the economy in the sense that it causes changes, then it is working as intended.
Price is one tool. Government skew pricing via subsidies and other to business all the time. Imagine primary schools in a pure capitalist system. It would be a mess. There is loads of intervention all through the economy that overrides pure pricing so I dont buy into this view.
> There is only so much land to go around so if you want to use a particular piece of land that is highly desirable then you ought to outbid everybody else.
Land supply is fixed. But demand is variable. If you reduce investment incentive for this limited land pool, prices should reduce via less competition freeing personal capital for other spending.
> What is going to happen is that people who cant afford to own a house (or dont want to borrow money from banks to buy one) is going to have to pay the tax for renting.
Maybe... 1) there were studies in Australia when the gov removed tax breaks on investment property. Some people made a claim similar to you this cost would be passed on. Empirical results were the majority of regions (some exceptions of course) found little to no impact on rental price and this cost was absorbed into investment returns. And 2) Don't forget this action will reduce house prices, so those that do buy residential property for investment will require lower rental return as the initial house price is lower.
Micro-managing regulations that distort property market very often cause more problems than they solve, especially if they become unremovable. The root cause for rising property price is monetary loosing by central banks. Once you create that much money you can't control where it flows.
Of course you can control where it flows, if you want to. Just one example: China doesn't allow Canadians to buy Chinese houses. I agree monetary tightening would help but it's a long way off. In the meantime Western governments are prioritising foreign speculators over their own citizens, at significant social cost.
I've also been thinking about the long-term effects of the current situation and I don't see anything good. All this QE and low rates have caused people to borrow like crazy. I'd say people are either max'ed out or near that after 5-8 years of "partying". Even people who tripled their home value are at the trough taking out HELOCs (home equity line of credit). A debt is a claim on future income. If most of my future income is already spent, who the heck is going to spend in the future? The young (demographics in most developed countries aren't too great)? The professionals have significant student loans. Maybe the young who got cheap educations, earning great salaries able to live in low cost of living areas?
I am surprised the baby boomers aren't downsizing in droves at this point. They should be the ones getting out of homes, locking in their gains and grabbing a condo where they don't have to spend too much effort doing maintenance. I suspect some are holding onto their homes for their children's sake?
>I am surprised the baby boomers aren't downsizing in droves at this point.
Based on people I know, I think a lot of it is that if you own a typical suburban/exurban house and you have the house like you want it, you like the location, you have friends in the area, etc., for many, it's just not worth the trouble/expense of moving even if they could potentially downsize. The exceptions that come to mind are a few people who wanted to move to a warmer climate and/or adopt an urban lifestyle with their kids out of the house.
It is darkly amusing to me that land-use regulations purportedly designed to protect the poor and middle-class will wind up killing the prospects of their children. But that's what happens when you limit entrepreneurship to those who are already well-off.
Of note: At least in the US, baby boomers will start dying off.
What will happen to their houses? In some cases, they'll become their kids' residences. In other cases, their kids will now own TWO properties, and now they'll rent out the 2nd house, adding supply to the rental market. In still others, the reverse mortgage scumbags will own the property, and it'll add to the corporate-owned housing stock.
We stopped this last year. Non-citizens can't buy residential properties within town boundaries. Outside of town boundaries, they can buy residential property but must build a home within two years... and there's a minimum $ amount they have to spend building the home.
The law was enacted because locals just couldn't compete with the Chinese.
You'll end up with one Chinese guy with a citizenship holding proxy ownership for a hundred that are still in China. Just like it is in Vancouver. That's unless there is a massive tax penalty for owning secondary residencies.
May I ask where in Fiji you live? I traveled there a few decades ago and still have very fond memories. It's been in the back of my mind as a place to wind down after I'm done with the rat race ever since.
I live in a Southern Californian town with significant offshore property ownership. I must say it's not all that bad - the property taxes fund the local services and fairly high-ranked school districts, but the morning commute traffic is lighter and schools are not overcrowded, as funders are not here (yet) to take full advantage of services they pay for.
The downside is that absentee home ownership encourages property crime, and the most common item on the town's police blotter is "audible home alarm".
The problem is that Vancouver is boxed in on all sides by a combination of mountains, ocean and international border. Much like SF, there is literally no where left to expand. Young people will soon be leaving the city in droves.
Not quite. It is approximately 30 miles from the northern city limits of Blaine, Washington (which also happens to be the international border between Canada and the United States) to Waterfront Station/Canada Line on the northern part of the Vancouver proper, facing Burrard Inlet.
It takes me about 2.5 hours to drive from Seattle to the middle of Vancouver.
I really like Vancouver and I was asking around about opportunities for work there. It seems to be reasonably easy to get a Canadian work visa as an Australian, at least while I'm under 30. The rent/mortgage prices pretty much killed that idea - salaries seem about the same as where I am now (Canberra) but living expenses seem much higher. Which is really sad. I'd put the city on par (or better than) Melbourne, Australia for "culture" (Melbourne still beats most of the world for coffee shops, though!). Yaletown and Gastown are impressive, and also extremely expensive.
One of the other articles on Van said that people were leaving to Victoria - which is nice, but has the issue of being on an island, plus still very much feeling like a small town.
Someone says young people will soon be leaving in droves and you say this doesn't apply to you because...you don't think it's worth even moving there in the first place?
Correct me if I'm wrong but this just seems like the next wave of gentrification. If you make a place nice and safe, people with the most disposable income buy it all up.
Everybody feels this way about the next wave. I'm not unsympathetic and am similarly unable (and/or unwilling) to buy a house in this overheated bay area market.
(Dons evil thinking cap) I was considering starting a service to truck homeless people to a neighborhood where you want to buy property. It would be called Goober (rhymes with Uber)...
You may have to lobby local councils to make that legal first. In Westminster (a borough in central London), it's illegal to sleep on the street and illegal to "give people free food" on the street.
Things are getting so ridiculous and government shows absolutely no interest in doing anything about it, if I won the lottery I'd actually consider doing things like this just to be a massive societal troll.
middle class white people displacing brown and black people is called gentrification.
rich chinese people displacing middle class white people is called "this is totally unfair, why isn't this illegal?".
of course, guess who's making all the money selling these units? the rich white people (developers, bankers, politicians, contractors, lobbyists, lawyers) who decide what's legal and illegal. as per usual, they are the winners in this whole charade, while the middle and lower classes just blame the dirty foreigners. it's even better when they're chinese -- who doesn't hate the chinese??? so convenient. shhh, let's not mention the other 2/3rds of buyers.
the aforementioned elites are playing and winning a game as old as time, as they do.
As a comment posted above, all this hue and cry over 7 Chinese buyers. I've been disgusted by the incendiary media narratives.
How to prop up weapon sales? Sensationalize a crime (revenge/burglary) and say crime is on the rise with a linked article that says weapon owners/NRA members likely to repel break-ins.
I agree wholeheartedly with the rest of your comment but I don't think this qualifies as "gentrification":
"the process of renewal and rebuilding accompanying the influx of middle-class or affluent people into deteriorating areas that often displaces poorer residents." (Merriam-Webster)
There's no particular area in Vancouver that fits this description with regards to foreign buyers. They seem to have interest almost exclusively in established areas. Not so much "deteriorating" ones in need of "renewal and rebuilding".
i used the implication for dramatic and rhetorical effect, but i didn't call it gentrification either. ;) i agree that it isn't, since for the most part the new owners don't even live there and the previous owners were (basically) rich to begin with. it's basically just monopoly money being swapped around by rich people on two sides of the same ocean.
Most of Vancouver and Canada was already nice and safe since pretty much forever. It's really not traditional gentrification. There is no local or canadian economic boom driving this.
The difference between a housing shortage and a housing bubble is when rents disconnect from housing prices. Rent is about 1/2 or less compared to an equivalent mortgage in many parts of Vancouver.
Rents in Vancouver are 60% higher than Berlin, where as purchase prices are only ("only") 35% higher (net income is practically the same, with Vancouver being just ~4% higher than Berlin).
I've heard elsewhere that the reason for that pricing in Berlin (and/or Germany) is there a combination of policy and culture that makes houses unsuitable as investment vehicles. I forget what the exact mechanics are, but basically housing prices don't increase and no one expects them to. So there is almost no speculation in house prices: people buy houses if 1) they want to live there long term, or 2) they want to be landlords.
But this would suggest the opposite of reality - that rents increase faster than house prices.
In this case German house prices are relatively high & rising faster, when compared to rents.
In Berlin in particular purchase prices have increased by 8-10% per year in recent years where as rent prices have only increased by 3-5% per year (both are still cheap compared to Vancouver).
Sigh, smh. The statistical flaws in this "back of the envelope" calculation are something else.
This was a study based on "a Financial Times multiple choice survey of 77 high net worth and affluent mainland Chinese individuals, 'admittedly not a statistically significant sample size,'” According to this survey, 9 individuals out of these 77 Chinese bought property in Vancouver. After some more mathematical shenanigans, this is extrapolated to imply that Chinese mainlanders buy 33% of the Vancouver real estate market. Really?!? And this statistically baseless extrapolation becomes newsworthy?
When they say "Chinese" these discussions about real estate usually mean Chinese citizens, not ethnically Chinese locals. It doesn't seem to be explicitly said here but I'm pretty sure that's what he means, see the other paragraphs talking about government investigation into offshore buyers.
-9 out of 77 Chinese were asked if they have Vancouver property
-BS extrapolation leads to 33% figure
I believe it
Ladies and gentlemen, just remember that economic bubbles aren't only bubbles in assets, finance, and the structure of the economy, but also the psychology of the people.
You are underestimating. In Markham, ON, we recent found out that our offers on these million dollar homes (stretching us near the limits of good financial sense) were getting discarded because we had a condition of 5 days needed to confirm mortgage (the so called financing condition). People are apparently buying homes with "clean" offers. I call BS on this. The average buyer doesn't have a million dollars lying around their checking account. If I was an "upgrade" buyer (improving my existing home), I'd need time to sell my existing home.
Btw ... I am the child of immigrants so have no problems if these homes are being bought up by Chinese Canadians. I do have a very big problem if these homes are being bought by illicit funds or funds that have not been taxed correctly. I pay my share (and it is a big share .. every professional couple in Canada is essentially in the 1% and paying for it despite all the student loans we incurred). We have all these financial controls that apply to us about reporting foreign income and paying taxes, etc. This needs to be applied fairly and across the board.
One other datapoint: the listing agents in the area have websites in Chinese and with prices in Yuan. Any delusion I had that the money is coming from incomes earned in Canada is firmly gone.
People have talked about ideas such as taxing second homes and requiring residency or citizenship to buy a home. Both seem good ideas that will never be implemented. How about mortgage income tax relief for Canadians (like the US or even more aggressive than that)? Allow full borrowing against RRSPs and prevent buyers from discriminating against offers based on financing conditions. The freaking MLS data is regulated anyways so might as well.
They aren't holding cash. What they are doing is accepting the risk of not being able to finance the property. They're risking the 1% earnest money, but feel it's low risk because they have a good relationship with a bank or know they have good credit.
As for people selling and moving into a new house? Again, they're accepting the risk that they will be able to get bridge financing and sell their existing house.
Conditions have monetary value to both the purchaser and the seller. If you are losing out to people with clean offers, bump your offer by 5% and you'll find that sellers will wait another 2-4 weeks for their money. That's what I had to do to get a house in San Jose (just moved in!).
It's the same as the "discount for debit cards and cash" you can get in electronics stores.
Get a good real-estate agent that _knows_ the area, and listen to what they say the house will sell for. Ours was spot-on 100% of the time.
Next, you need to realize at what points in the sale the power in the relationship changes. Up to offer acceptance? The seller has the power, so offer more money to keep contingencies on the sale. After acceptance power starts to shift to the buyer. Here in California building reports are attached to the house, so a bad foundation is information everyone gets. This means the seller is likely to negotiate the price down or fix things if a bad report comes in. Of course, you have to spend $$ to find that out, and your mortgage application fees are then throw-away, so...
Finally, be honest about what you can afford. If you're not at the tippy-top of your price range, you will be able to stretch just a little bit to get that really sweet house you want.
Thanks for you thoughts. The challenge we're facing is whether the Mrs will do stay-at-home while the baby is young or not. If it is just my income, I know we'll have to stretch for a house we want. If we have both incomes, net of childcare, we should be okay. Canada has 5 year mortgage terms. That is distressing me to no end. If interest rates go to 5% in 5 years, we might have huge isues. If I had a 3.75%, 25 year US mortgage, I'd take it in a heart beat. I don't think a US lender will be willing to lend against Canadian property due to exchange rate risks (among other reasons).
It sort of depends on how long you intend to live in a house. For mortgages that are on 5yr terms, look at longer term averages.
For example, New Zealand (another market I'm familiar with) is currently running at 4%/yr for a 2yr mortgage and 5.5% for a 5yr. However, for budgeting purposes, most people will budget at 8%/yr, since that's the long-term average.
Just to completely freak you out, during the GFC, I hit 12% annual interest. My parents hit 20% during the Canadian inflation crisis of '81. :)
Go for the high end, don't be afraid of a smaller house, build up the equity and then move. However, be aware that closing costs are significant, so it's best to amortize them over several years - that's why housing calculators ask how long you will live in a house.
Frankly? If you're afraid of 5%, you probably don't want to own a house, or at least, you don't want to own _that_ house.
Mortgage income tax relief strongly punishes renters - my commercial landlord doesn't get any tax breaks, while you do. It also increases property prices, by reducing the cost of borrowing money.
Well, everyone has been blaming the prices on rich Chinese buying up everything, but this is the first actual evidence that I've seen no matter how flimsy it is.
EDIT: I should have been clearer that I never doubted that Chinese money was coming in, but I've previously seen nothing to convince me that it was significant or indicate how significant it was. Even if this estimate is of by a factor of two, it is still fairly significant.
Hmmm. Sorry, I don't think I agree with you. Sure, from a frequentist perspective this analysis is "unpublishable," but from a Bayesian perspective is yields some important insights.
First of all, the main point of the study is not to obtain am accurate point estimate of Chinese buyers in Vancouver. The main point is to underline the importance of more studies.
In other words your criticism kind of makes the analyst's point for him.
Second, you would be surprised at the amount of information even small sample sizes can provide when there is great uncertainty about the true data distribution.
Third, this analysis is in agreement with two other
In other words, don't get hung up on the exact %. Nobody really cares about the difference between 33% and 35%. What decision makers need to know is whether it's a lot or a little. This "quick and dirty" analysis supports the contention that it's a "lot", not a "little".
Furthermore, this study was not done in isolation. The NAR study and the urban planner's study both point in the same direction.
Taking all this evidence under consideration suggests that overseas buyers are likely a driving force in the run up in house prices in Vancouver. And that's newsworthy.
> Second, you would be surprised at the amount of information even small sample sizes can provide when there is great uncertainty about the true data distribution.
This isn't about sampling error, this is about inverting conditionals while ignoring base rates. This is like saying 'one third of surveyed Somalis in America report living in Minnesota, therefore, one-third of Minnesota is Somalian'. That conclusion doesn't follow, whether you surveyed 10 Somalis or 1000.
That is, there is no reason to expect P(Vancouver purchase|Chinese) = P(Chinese|Vancouver purchase) = 0.33.
If that number happens to be right, it is by coincidence; it only works if you are lucky enough that the relative sizes of Chinese buyers and Vancouver sales are just right. (Specifically, that the size of the Chinese buyer population is identical to the size of Vancouver sales; if there are a million Chinese buyers worldwide and a million Vancouver sales over that same period, and a third of Chinese buyers say they bought in Vancouver, then yes, a third of Vancouver sales will be to Chinese.)
If you knew two of the three variables of global Chinese size/Vancouver sales size/P(Vancouver purchase|Chinese), even if you just had a vague but defensible prior, you could (weakly) estimate the third. But in isolation, each variable means nothing.
> This isn't about sampling error, this is about inverting conditionals while ignoring base rates. This is like saying 'one third of surveyed Somalis in America report living in Minnesota, therefore, one-third of Minnesota is Somalian'. That conclusion doesn't follow, whether you surveyed 10 Somalis or 1000.
That's not even remotely what was done in the article by my reading. More like: 33% of Somalis * total number of Somalis / total people in Minnesota.
"That's not even remotely what was done in the article by my reading."
That's what it was described as in the grandparent:
"This was a study based on "a Financial Times multiple choice survey of 77 high net worth and affluent mainland Chinese individuals, 'admittedly not a statistically significant sample size,'” According to this survey, 9 individuals out of these 77 Chinese bought property in Vancouver."
'mainland Chinese' are a reference class much larger than 'Chinese buyers of Vancouver properties', as they are buying globally. If this description is wrong, then one should correct it - not introduce irrelevancies like how 'well with Bayesian reasoning this sorta small sample is OK!'
"More like: 33% of Somalis * total number of Somalis / total people in Minnesota."
Which is still wrong, since there are lots of Somalis not in Minnesota.
> 'mainland Chinese' are a reference class much larger than 'Chinese buyers of Vancouver properties', as they are buying globally.
And 9/77 of mainland Chinese are buying properties in Vancouver, so you multiply that by total number of people in mainland China (that are high net worth and affluent) and then multiply that by the average property value bought by them. That gets (a rough approximation of) the property value bought by Chinese mainlanders in Vancouver, now divide that by the total property market in Vancouver to get the percent of Vancouver being bought by Chinese mainlanders.
I don't know where you're getting anything else than this. The top level parent only described this as "some more mathematical shenanigans" yet you assume that therefore it has to be this nonesense of swapping P(A|B) with P(B|A). The article makes it clear that that's not the case, so I don't know who you're arguing with.
> Which is still wrong, since there are lots of Somalis not in Minnesota.
Yes, 67% of them in this hypothetical, as accounted for in the first factor. This process isn't inherently wrong, the debate is whether the small sample size makes the uncertainty too large to be useful.
> And 9/77 of mainland Chinese are buying properties in Vancouver, so you multiply that by total number of people in mainland China (that are high net worth and affluent) and then multiply that by the average property value bought by them. That gets (a rough approximation of) the property value bought by Chinese mainlanders in Vancouver, now divide that by the total property market in Vancouver to get the percent of Vancouver being bought by Chinese mainlanders.
And now you've done the correction for the base rates which I discussed in my original: once you know the relevant populations and fractions, then yes, you can get out the right fraction. But it's highly unlikely the correct version will just happen to equal the original fraction in the survey, and no correction was included in the summary. Let me quote again what I am criticizing:
"This was a study based on "a Financial Times multiple choice survey of 77 high net worth and affluent mainland Chinese individuals, 'admittedly not a statistically significant sample size,'” According to this survey, 9 individuals out of these 77 Chinese bought property in Vancouver."
Note there is nothing about 'total number of people in mainland China'. Nothing about 'average property value'. Nothing about 'total property market in Vancouver'. I don't know where you're getting all this. The procedure as described is just plain wrong, nothing to do with sample sizes or Bayesian methods.
> This process isn't inherently wrong, the debate is whether the small sample size makes the uncertainty too large to be useful.
That's what the comment thought they were defending, but they were wrong. They misunderstood the problem entirely. It was interpreting the survey meaning totally incorrectly by inverting the conditional, the problem was not precision/sampling error.
There's nothing the least bit mathematically fallacious about the line you quote: it's just stating the results of a survey. You are critiquing something that has to occur after that point.
The very next line from the source you're quoting:
> After some more mathematical shenanigans, this is extrapolated to imply that Chinese mainlanders buy 33% of the Vancouver real estate market.
I.e. "there's more that I'm not talking about because I already think the first step is so inaccurate that it doesn't matter what's next".
Which seems more likely? (A) that the above snarkily referred to what was done in the article, or (B) that the above referred to a mathematical fallacy that is otherwise entirely absent from anything anyone here is talking about until you showed up.
Even if the top poster were saying what you suggest, how were they supposed to get 33% out of 9/77 = 11%? Your suggested error would give 11% instead.
Vancouverite here. this estimate is low. In Richmond our southern towhship, Chinese immigrants held an official governmental meeting in mandarin. Beijingers are taking over here! Jobs in the meantime have been rapidly depressing with an average wage of about $50kUSD for tech jobs that pay $150k USD in SV.
It's the land. I'm not sure why people don't understand this. Without the location context this isn't a useful site.
Suitable land is artificially constrained, fiat money issuance is unconstrained, ergo prices are rocketing as rent seeker banks shift resources from wealth producers to themselves.
If this is indeed a problem, then raise property taxes on non-owner occupied homes. From the perspective of the host country, it's free money - the taxes are paid for by foreign residents, and can go towards supporting local citizens and services.
We should ban Chinese main landers from buying houses in Vancouver as it's destroying the city in the process. Unless we are okay with the city being basically unaffordable for the local population, and just enriching real estate agents and property investors at the cost of the city.
Is the city unable to build more housing? Why don't higher property taxes on non-owner occupied buildings solve the exact problem you're talking about?
Build more, to will sell to........ the highest bidder!
And the highest bidder is not middle class people.
And when you raise taxes that are directly levied against overseas buyers, then the government becomes addicted to those taxes and therefore addicted to overseas buyers.
Possibly you could circumvent that addiction by making the tax an LVT. Make the effect on locals neutral by reducing property taxes and/or PST by about the same amount as the revenues from LVT. Thus the only payers with an increased tax bill are non-resident owners.
I'm under the impression that any zoning changes would immediately cause land prices to skyrocket making any development (say a 30 story high rise that should have made some economical condos available) too expensive for the general public. It feels like a self-reinforcing downward spiral (or upward, depending on where you sit).
They should actually do that for foreigners. Ban the foreigners from buying except in certain regions a few hours away from the city made just for foreign property investment. You end up with best of both worlds.
A lot of people say this is happening in Silicon Valley too, particularly on the peninsula (I've heard Mtn View, etc). I don't understand the ramifications, though.
There is a similar story appearing in UK in places like London and in my home town of Cambridge. This isn't yet not he same scale, but it is affecting the property market.
In Cambridge 1 in 20 new-build properties is purchased by non-resident Chinese buyers, which has been one of the contributing factors that has seen prices rise by 50% since 2010 [1] and are 47% above 2007 pre-GFC peak [2]. Note - unlike Vancouver that has a a big (30%) local Chinese population, only about 1.4% of the Cambridge population is Chinese or of Chinese ethnic origin [3]
To some extent this is just about free markets and a movement of capital. But it is starting to price out many local people out of the property market that does have a social impact.
There are other factors at play including a booming tech & biotech sectors, restrictive planning, stock-piling of building plots etc, but the foreign buyers issue is a major contributor.
Let's grow some cabbage on the most expensive land on the planet?
Because forget money - it's cabbage that counts.
> And Cambridge is really not suited transportwise to becoming a big city.
We have this recurring thing that people only want to move to a very very small subset of cities. There are multiple solutions to be proposed, but just turning blind on this doesn't sound feasible.
It's hardly the most expensive land on the planet, it isn't even all that near to London let alone somewhere like Manhattan or Hong Kong.
Food security is not something that should be entirely handwaved away, although I agree that plenty of places manage to live entirely on imports.
I agree with the idea of not limiting ourselves to a few cities: that's why it makes little sense to try to turn Cambridge into a London suburb. It's a market town of historic buildings that was spared bombing. The tech industry growth there is great but somewhat accidental. I doubt you've been there, but there's very little that can be done about the traffic problems without demolishing a college. The building of a new railway station north of the river should help greatly though.
I'd suggest trying to build up tech industry in one of the 'post-industrial' cities instead. Maybe we could buy up the £1 houses in Stoke-on-Trent and market those to China at huge markups instead.
Many causes behind this - saying the Chinese are to blame is glossing over the issue IMO and is very much akin to saying tech workers are behind the property issues in SFO. There are more sides to this...
One of major contributors to rising property prices is the gutting of trust in the stock market or any speculative market for that matter, over the past two decades. Super low interest rates haven't helped either with people looking to park their cash left with property as the only safe place which provides a rate of return.
With regards to Chinese buyers, there is some truth (again stressing that it's only a part of the picture). For the past 20 years nearly every trading partner with China has incurred a massive balance of payments deficit. That money's coming home to roost (literally). The same thing happened in the 80s when Japan was an exporting powerhouse - they bought real estate and companies across the US and Europe, pushing up the price of real estate.
The problem is that those Chinese are pushing home prices to the sky, if they continue like this Vancouver will be no more than an empty city used for trading and no more...this is pathetic
Young professionals trying to create careers/long term lives here are completely priced out of the market. I'll be leaving soon. San Fransisco like property prices, with far, far less compensation.
You simply can't own a house unless you're a millionaire, and a small condo will be upwards of $200k for a mortgage when you don't own the property. It's just insane.
Even if I'm pulling in a quality $80k (high-ish by here standards), I'm nowhere near affording a $2mil property. I'll be lucky to have a small condo with 2 bedrooms. What's the incentive to stay?
"We have 540k as a down payment and we are going to take a 160k mortgage. Adding strata fees for the place we want its going to be 1200$ a month for the next 30 years, and we end up with a 950sq 2 bedroom in a decent condo off Davie."
$1200 / month (this is mortgage + condo fees) for 950 sq ft, and this is after putting down $540k - and it's not even a brand new building. And compared to SFH, condos are actually realatively reasonable priced, by Canadian standards at least.
To be fair, Davie is about as downtown as you can get. It's like an apartment overlooking New York's Central Park, except in a provincial backwater, instead of a world-class city.
Otherwise, condos within easy reach of downtown are somewhat affordable. Single-family homes in Vancouver are very much a 1% luxury item at this point.
Davie is a good neighborhood, but far from "an apartment overlooking New York's Central Park". Regardless, the question to me is, does the local economy (wages) justify these prices or is society continuously putting a larger and larger portion of their net worth into real estate, well beyond historical norms?
You can look at a very long term chart of real estate vs GDP growth and see something has recently gone askew, do low interest rates completely explain that? And if so, what would happen if interest rates normalized in a relatively short period of time?
I couldn't find anything authoritative on the matter so I hope I can ask this here with Canadians reading. I'm curious if the only reason for the large asian population in Vancouver is solely due to immigration from California around the turn of the 20th century.
The older population maybe, but the new immigration is typically a wife and children living here (going to school, enjoying subsidized health care, etc) while the husband stays in mainland China for work (paying no taxes in Canada of course).
Well but the husband works and lives in China, so it's natural to pay taxes there. I suppose wife and kids are supported financially by husband and she doesn't work, so why would they pay taxes?
They are paying property taxes and consumption taxes. Though I'm not sure how much money you can receive, as a dependent, from outside of the country before the CRA comes knocking.
Of course they are, but I assume they can easily circumvent income taxes by just using a card backed by the husband in China. Like a prolonged vacation where you rent the holiday home.
The question isn't why would they pay taxes, the question is should the host country ask them to contribute monetarily to the community in which they live and from which they benefit?
I think the answer to that is yes - a lot of people seem to disagree but seem reluctant to explain why.
Although this "study" was based on back of the envelope estimates, and the 1/3 estimate is probably inaccurate, there is anecdotal evidence of large-pursed foreign investors from around the world -- not just China but Australia, Russia, etc -- who are sustaining, if not increasing the demand for housing in populous areas.
This foreign investment is great for people who are trying to sell a home in one of these markets but horrible for buyers, who can't compete with all-cash fast-close-best-price offers. Further, the few realtors who are boots-on-the-ground for these investors have market insights -- they know what's potentially about to go on the market but hasn't yet, get insider information, etc -- and use this information asymmetry to their advantage by offering on homes even before any real home buyers have a chance or offer on the first day of listing! I have personally gone through losing multiple times to these sorts of customers while trying to buy a new home (in the NYC metropolitan area on the NJ side), not an investment property.
The experience of buying a home in a high-demand housing market where institutional/major investors are participating really challenges my thinking about whether free market practices should be allowed to operate in housing at all. Considering the rising cost of housing, it is tough to side with capitalism on this subject.
I'd like to see a study about the "artificial growth" of housing prices by investors. Interestingly to note is that such a study may conflict with the agenda of at least some leading universities who tend to publish reports about rising cost of housing after receiving generous funding from housing investors. NYU Furman, for instance, has a long-lasting public relationship with Capital One (and god knows who else in private).
> it is tough to side with capitalism on this subject
Assuming you mean "with the philosophy of free markets and individual rights" by the catch all "capitalism", it's not.
The foreign buyer is benefiting from state-provided services, such as the police providing some degree of safety from robbery and damage, safety from invasion and confiscation by the armed forces, and a sound legal framework and justice system that protects their property right.
Citizen pay for this via income taxes and their employer's corporate tax, as well as value-added taxes on products and services purchased (since there is no modern country that generally allocates a certain type of tax income to a certain type of spending). Non-resident owners do not. They get a free ride.
Thus, the free market, moral, individual rights protecting solution that might be Barry Goldwater approved is to charge the non-resident owners a yearly tax that covers the cost of services provided.
I think I've got a clear understanding of capitalism but let me know whether something is missing: https://goo.gl/DEIU6Y
Assuming what you mean by "a yearly tax that covers the cost" , which I have also quoted although it's obvious what was meant by what was said, it's not covering the "true cost to society". I don't have to stretch far to define this cost as there is a limited supply of housing and you know where this leads.
I like your suggestion that we charge investors, at least of the high-net-worth or institutional kind, for participating in housing. However, how we measure that tax needs to include variables other than taxes paid for waste management and law enforcement.
Oh this is good stuff. Thanks for contributing! ;)
> Citizen pay for this via income taxes and their employer's corporate tax
100% correct. The property tax rate in Vancouver is 0.35%, which is a small fraction of what other cities across North America pay, while income taxes are significantly higher on the middle class. NYC suburbs, for example Weschester, charge 1.93% of assessment, and even in California, property tax is 1.25%. Some Texas counties are 2+%.
In the absence of a reasonably high property tax, like in Vancouver, homes become much more like an expensive savings account. This is especially the case as interest rates falling below 0 in much of the Western world (some banks in Switzerland charge you to put your money there). And day-to-day services like police, schools and ambulatory are paid for by locals through income and sales taxes. UCLA professor says CA could get rid of income taxes through a 3% property tax. http://www.latimes.com/opinion/op-ed/la-oe-adv-welch-califor...
My suggestion to reduce property speculation is to reduce income taxes drastically (1/2 to 1/3), raise property taxes to at least 1.5% (5x) and provide basic tax assessment increase controls for owner-occupied dwellings, up to say $1m in value.
> My suggestion to reduce property speculation is to reduce income taxes drastically (1/2 to 1/3), raise property taxes to at least 1.5% (5x) and provide basic tax assessment increase controls for owner-occupied dwellings, up to say $1m in value.
Exactly. Unfortunately, the short term effect in most countries would be a brutal recession, probably some banks going under/being nationalised, a flight of capital out of the country, and so on - enough to dissuade any administration to try.
It does not help that most politicians are from the middle upper class and own large amounts of property. Few will have the courage to devalue their own net worth by double digit percent.
Thus I think it exceedingly unlikely that we will ever see a shift from production taxes and consumption taxes to "dead" asset taxes. In fact, the historical precedent is the other way round.
There are many others, but France's ISF (wealth tax, of 1.5% of the government-assessed asset value per year) is one of the reasons you can buy a large castle there for less than a studio in Sydney.
< It does not help that most politicians are from the middle upper class and own large amounts of property. Few will have the courage to devalue their own net worth by double digit percent. >
This is the real reason. As I've mentioned on other threads, California's main business is and always has been real estate.
The likely responses to this are a) a pied-a-terre tax on unoccupied residential structures, and b) authorizing a LOT more construction, probably by increasing permitted density, which will lead to a lot of single-family structures and townhouses being replaced by condominium towers.
There are similar issues in Toronto, but here we are building new towers on every corner, or near enough. Toronto, fortunately, has plenty of room to spread in three directions.
>which will lead to a lot of single-family structures and townhouses being replaced by condominium towers.
This is what's happening in Chicago right now. Single family homes and two story apartment buildings, which dominated Chicago and made it a pleasant place to live (lowish density, lots of room, decent sized backyards, etc) have been replaced in gentrying areas with super dense condos that are 3 to 6 units large on the same tiny lot. No yard, no parking, no front yard, tiny bedrooms, etc.
It really changes the character of the neighborhood and the system really can't handle this kind of density. You would have 3-4 people in a SFH which is now a lot with 6 condos with 18-24 people. This means not only higher pricing but more traffic, no parking, higher load on utilities, local parks being overfilled, etc.
No one talks about density it seems, but something very real happens when we quadruple density like this.
Everyone was happy with low inflation from low prices from cheap Chinese labour. Now they are crying into their iPhones about how they cannot afford to live in the most desirable cities.
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[ 3.1 ms ] story [ 263 ms ] threadhttp://www.zillow.com/homes/for_sale/pmf,pf_pt/house,townhou...
I could never afford it with my Google income but the real estate people who put up the ad believe a Googler in SF should be able to afford it.
As for everybody else... Not so much.
The owner -- possibly not even living there -- is only paying $1245 a year in property tax, or a rate of 0.06%.
If you buy and move in you'll be paying 25x that.
I continued to visit for various reasons at lead a week a year until just a few years ago. What started in the late 90s only continued.
Who gives a toss for community or society or cohesion. Sell everything.
As long as property sellers can take all that lovely cash and buy more and bigger homes then what else matters?
Ordinary middle class people and the young - make em rent! Why the sense of entitlement that people should be able to afford to buy a home, what are you a communist? Whose country do you think this is?
In fact put one giant price on the whole of Vancouver and sell it ALL in one big job lot.
This ain't going to end well.
The last time a property bubble in a developed economy fueled by Chinese speculators crashed, it crashed by 70%. [1]
People never see a property price crash coming.
Credit Suisse First Boston – 15 July 1997: [2]
We believe the supply demand imbalance will continue to drive residential prices during 4Q 1997 and into 1Q 1998. The two extremes will perform best; luxury residential prices should fare particularly well as we see flows of capital into the top end of this sector. Luxury property is also much less sensitive to affordability levels and much more geared to supply and price expectations. The smallest units (below 40 square metres) will also fare well as there is very limited supply at this level, yet they are the most affordable private sector flats.
[1] http://www.macrobusiness.com.au/wp-content/uploads/2013/04/H...
[2] http://www.businessinsider.com/hong-kong-property-did-you-se...
The overheated property markets Vancouver & Sydney are fuelled by Chinese speculators. Why are they buying overseas when there's a perfectly sound economy right on their border, Hong Kong?
There's a property bubble in Hong Kong too, and it was getting expensive there, the Chinese went overseas to other well-off cities that are full of Chinese, Vancouver and Sydney. If Hong Kong was leading the price rise amongst the three cities, it might lead the price fall too.
At this very moment, Hong Kong's property prices are slumping:
http://www.bloomberg.com/news/articles/2016-02-01/hong-kong-...
One could argue, for all the many rich people buying in Vancouver who could shrug off market fluctuation, there are even more millionaires and billionaires in Hong Kong, which has the 4th highest billionaires per capita, who could shrug off even bigger market fluctuations. Yet it's property price is falling anyway.
One third of property buyers in Vancouver are Chinese. How many percent Chinese do you think are buying the property in Hong Kong?
Nearly all of these millionaire immigrants to Quebec move to BC.
http://www.scmp.com/comment/blogs/article/1929324/study-reve...
Isn't this a bit like any statement. 'People who get hit by a car never saw it coming'. Or 'people diagnosed with cancer weeks before they died, never saw it coming'. Well sure, ignoring the people who did saw it coming, which are events we then ignore. i.e. there may have been various formations of bubbles, people saw it coming, adjusted their investments, and the bubble diminished.
Further, it's not like today, people don't realise there's a bubble in Vancouver. It's pretty much the opposite.
Property price crash != property bubble.
Everyone knows there's a bubble in Vancouver. No one thinks the bubble is crashing next month or even this year.
You've got people on this very thread thinking Vancouver's people are selling their souls and never getting it back.
I think for a general statement, it's carries a lot more weight than the two examples you've given.
It's a general description of sentiment during a bubble, not a precise description of each person's state of mind. As a statement, I think it's fine as it is.
FUN facts - IF the Vancouver housing market crashed by 70%
1] - A Vancouver detached house would still be valued at OVER the current Canadian national average selling price(2016-02) for detached homes of 503K
2] If you exclude Vancouver and Toronto sales out of the national housing sale, the average price of a home drops from 503K to 355k
SRC http://creastats.crea.ca/natl/index.htm
People always see the property price crash coming. People know, intuitively, housing can't go up 20% or 50% or whatever every year. It's just that they think they can make money and get out before the crash happens. Let me put on my Carnac the Magnificent turban and tell you there's definitely a property price crash coming in Toronto and Vancouver. Guaranteed.
The problem is you have to know when it's coming to cash in, and I can't help you there. If I could I'd be buying up million dollar houses. These things last way, way longer than I expect.
[1] https://vancouver.craigslist.ca/search/apa
Part of the problem is much of the central property has been redeveloped, also increasing prices. Its tough to find place at <$800/bedroom or <$1000 for a studio in central Vancouver.
I would expect to pay $2200 for a central Sydney studio.
My apartment, 2 bedroom with study, half hour from the city, costs $2200 too.
I rent out the bedroom at $1050 and the study (size of 3 single beds tucked together) at $800 as a side venture.
Did Vancouver or Canada recently experience a huge economic boom and increase it's residents income band to more than the Reno, NV levels than it currently is? Actually, the opposite is happening with alberta's oil industry currently imploding and every imported good going up %30 in price due to the property increase.
I moved away, like a lot of younger people, to somewhere somewhat more affordable, and I suggest anyone who is a software dev to do the same. The compensation delta is %100+.
But for software devs, I definitely suggest the USA, either Seattle or even the SF Bay Area / NYC because the pay is so much more.
To pop the bubble you must not exercise any demand at all. And to short, you have to construct a financial scheme that benefits when the price goes down.
For example, you could 'borrow' a home, sell it at market price, then 10 years later when prices are much lower, buy it back, then give back the home to the person you lent it from. Or in fact, housing prices could rise, as long as they do not rise more than another guaranteed investment, it makes sense to short this stock and reinvest it into the other investment, and you'd still make money, interestingly, without having to need money in the first place. Of course in practice all of the above is tricky and risky, and so I appreciate that within the opportunity set of a normal citizen, renting is preferable to buying, but let's not call it the equivalent of shorting.
Now, it doesn't matter which you do, either buy or rent. They are both wrong, because both are sky-high.
That's only true if your rent covers their payment, which tends to not be true in a bubble. Where I am, in the years leading up to 2008 there were more rentals available than the market could really support. People were buying houses and getting rents that only covered part of the payment because they were counting on capital appreciation to make them money. If you were a renter it was a great deal. For $1600 you could rent a house that would sell for $700k, which isn't even close to covering the payment.
After the bubble popped the price of housing went down dramatically, and the price of rentals went up dramatically as people stopped buying houses assuming they would appreciate forever.
Also, people who've never owned a house drastically underestimate the costs associated with owning one. I bought my house after the crash, for cash. My housing outlay (with no mortgage) is about 75% of what I paid in rent. And that's not counting maintenance, like painting and appliance repair, or major stuff like a new roof. If the bubble had never popped I would have come out far ahead just staying in the apartment and investing the savings.
You're not financing the bubble.. The bubble is based on valuations that assume much higher income than what you provide by renting at going market rates.
True. In relative terms, and in this context, you could say it 'contributes' to the bubble.
I still maintain that the concept of normal (organic, non-speculative) demand contributing to a bubble is generally wrong. I don't think it's accurate to say that any and all sources of support for the price are contributing to the bubble. This conceptual framework will mislead people about the cause of a bubble.
But in the context you're using it, it could be considered accurate.
PS. you don't need to get hostile. I was explaining how I interpreted your statement, not 'putting words in your mouth'.
1) Alice owns a property.
2) Bob borrows the property and gives Alice an 'IOU one house'.
3) Bob sells the property.
4) Market falls
5) Bob buys the property back, hands it back to Alice, and destroys the IOU.
As a result, I think there would have to be something more like this:
1. Alice owns a property that she would like to keep, but will not be using for X months.
2. Alice's default course of action would be to lease it out for those X months and get rental income.
3. Bob offers an alternative: Alice sells to Bob, who promises to sell it back after X months at the same price, while also paying the expected rental income for X months, plus an additional cash incentive.
4. Bob signs a note promising to give back that exact house after paying Alice the rent-equivalent every month for X months, and an escrow agent secures the note by putting a lien on the property equal to its current value plus Y%.
5. Bob can now attempt to short, by selling to someone else for the current value, and putting up Y% in cash as margin, to clear the lien. Bob also has to insert a panic clause giving him the option to rescind the sale by paying the buyers that Y% before the X months elapse.
6a. If the market value drops, Bob re-buys the property and transfers it back to Alice as promised. The escrow agent returns Bob's margin and the difference in sale prices.
6b. If the market value rises less than Y%, Bob buys the property back and transfers it back to Alice. The escrow agent returns the remainder of Bob's margin.
6c. If the market value rises more than Y%, Bob is unable to repurchase the property with pre-secured funds, and Alice might be pissed. The escrow agent could hand over all the cash to Alice, but the property itself would be worth more than that. To avoid this, the escrow agent will activate the panic clause immediately, using the escrowed cash, whenever increase in value approaches a fixed fraction of Y%.
Note that if Bob does not sell the property, the terms of the note and security instrument make the deal indistinguishable from a lease. Note also that there is so much friction in the real property markets that it is just a hell of a lot easier to short shares in any public company that owns a lot of developed land.
Why indeed?
If there is a shortage of housing, why not build more houses?
Otherwise, if a person wants to exclusively use a piece of land, why shouldn't he have to outbid everybody else?
Unless of course an 'ordinary middle class' and 'the young' are somehow more valued than 'rich chinese people' and so should be given special privileges?
>In fact put one giant price on the whole of Vancouver and sell it ALL in one big job lot.
Well not everybody wants to sell obviously but if everybody does want to sell, why shouldn't they sell to 'rich chinese people'? Why should they not be paid the most for what is rightfully their property?
Because the new houses built are intended to be bought buy people who have money at incredibly high prices.
This argument is the one the property developers put whenever citizens object to selling real estate overseas.
In effect "don't complain, just build us more houses to sell overseas! that will solve the problem"
The demand is not infinite. If these new luxury houses actually do sell to the people who have the money to pay the incredibly high prices, what happens to the existing houses that were not purpose-built to sell to the rich? If the new houses satisfy even a part of the demand, prices on the existing houses have to drop.
This is like saying "all the rich chinese are buying up all the expensive top end iphones and now all the poor people of the earth and the seas can not have smartphones for their enjoyment".
Again and again I see the same 'fixed size pie' argument when somebody argues for special privileges for the 'special class' that they conveniently belong to.
What about all the canadians who bought their house 4 years ago and now have their property price increased 200%? Nobody talks about those guys. You only hear the 'evil rich foreigner chinese taking up out houses' narrative. If you are a rich foreigner you are taking our houses and if you are poor then you are taking our jobs.
At the end of the day these narratives are just appeal to group-identity and nationalism. They are very thinly veiled attempt at enraging people to get more 'engagement' 'views' 'clicks' or whatever. And they are clearly working because people who are sensible otherwise start losing their minds.
If the chinese people are of Chinese nationality then that is exactly true, from the perspective of the government of Canada.
> Well not everybody wants to sell obviously but if everybody does want to sell, why shouldn't they sell to 'rich chinese people'?
Because nurturing a foreign rentier class is not the best plan for retaining your sovereignty and keeping local people happy and wealthy?
Their perspective might as well be that canadian citizens are tax-cows to be milked until dry.
We should care about the people not the government.
It's not as solid of a distinction outside the U.S. where there is so much anti-government "them vs. us" mentality (rightly or wrongly).
If I say "the Government of Canada wants to legalize marijuana", it's generally safe to assume that is the will of the people unless evidence is presented to the contrary.
Of course, the government can and does occasionally go against the will of the people but that's more the exception than the rule.
I'm an Eastern European living in a relatively big Eastern European city, and I'm now writing this from an apartment that I'm a renting from a very cool French guy, the owner, who is in his late 50s or so. At the height of the local real estate bubble (in 2007) the Norwegian sovereign wealth fund invested in buying 500 apartments in a local project, the investment flopped (I don't petty the Norwegians, though, that fund is huge). And I could go on and on with other examples of foreign-owned properties in the city where I'm living in.
Point is, this is capitalism. I'm paying rent to the French owner of my apartment with the money I'm gaining from my current American oversees employer, and there's nothing wrong with that. You guys cannot choose which aspects of capitalism you want to like and which not, i.e. you cannot be allowed to invest freely in other parts of the globe (like Canada is now allowed to do) and in turn not allow other nations to invest in Canada (like not allowing Chinese real estate investors to buy property in Canada). Because if you do that you're economic colonialists.
Every country chooses which aspects of capitalism they want, via regulation, taxes, social programs. Even the most laissez-faire county does. There is no pure capitalism, it doesn't exist.
Yes they can, all countries do this. Minimum wage laws, environmental protection laws, progressive taxation etc... All designed to restrict elements of capitalism we don't like.
>You cannot be allowed to invest freely in other parts of the globe
Their are all kinds of property restrictions on foreigners in many many countries. Until 6 months ago foreigners couldn't buy property in China without first living there for a year.
If a country wants to restrict foreign property purchases that's their business. They don't owe anything to other countries who let their citizens buy property. The reason those other countries allow foreigners to buy properties is not altruistic, it's to attract investment. They would continue to allow Canadians to buy homes even if Canada completely shut their citizens out. But if Canadians started driving up local home prices to the point that they are causing problems, they would add restrictions.
So Canada doesn't want FDI, got it. Well, good for them, it means they're self sufficient.
It's interesting because when the going was good, meaning when Canada was making tons of money out of selling their mineral riches to China, I didn't use to hear so many bad stuff about the Chinese. Now, when some of those Chinese people want to invest their money back into Canada somehow it's bad for the middle class Canadians. I'm missing something, because I can't make sense of all this, but I'm just a programmer.
You're using the word "investment" to make it sound like they are starting local businesses that create well-paying long term jobs, grow the economy, and contribute to the community. The truth is that these houses sit empty 11 months of the year (or more).
Lastly, guess where that profit is going to end up when they sell? Not in the Canadian economy like it would have if a purchased by a Canadian. So again, is this a net gain? It's hard to say, but don't over simplify it.
Citizens should be granted privileges over non-citizens.
CBC did a great piece on it: http://www.cbc.ca/doczone/episodes/the-condo-game
Let me know the address of this secret cabal that meets every evening plotting misery and pain for the young and the middle class.
On a more serious note, this is just capitalism and free market economy playing out against you.
Also remember those days when people screamed real estate being a bad investment from the roof tops, while people belittled real estate investments and glorified stocks, a section of people have quietly invested in this area.
The fact of the matter is these opportunities were available for every one, but just like other things like in life like age, education, marriage, kids- time is a critical factor in these things. If you don't make the right moves at the right time blaming others hardly makes sense. People can't buy expensive homes for the same reasons, people with no education can't go back in age and do their schooling.
Investments are all about time, in fact I'm sure there are good house deals at the outskirts which many people are investing in. The young and middle class isn't buying them because they are too far/<regular excuses>. And yet when the prices go up after a few years and that too becomes expensive, same people will come up with the same complaints.
And small community business, how will they exist in the future. If someone wants to set up a local 'physical presence' vet/daycare type business that are typically mixed into residential areas the threshold is now so high ot exist and especially set up a new business. How can a daycare buy a million+ dollar house and expect to make money paying that back on having 30 local kids being looked after.
Also what is going to happen with retirement and periods of unemployment. I suspect society will be less stable as either the government has to foot high rent costs (unlikely) or we will see increased population movements during retirement, and now the government has to look after older people that before a family who lived nearby could help out with. And during low employment cycles society can absorb this downturn if people dont have large loans. Historically people cant 'tighten belts' for a year while things improve, harder when your neck deep in debt. So we will again see more movement of people, debt default etc. It will serve to exacerbate recessions etc.
Also these higher prices skew the economy. When people are tied up in these ever increasing loan/income ratios there will be less spending on dining, holidays, hobbies etc. It will weaken the economy by concentrating the spend in limited areas.
I believe we should look to ensure affordable housing for owner occupiers. Residential investment need to be discouraged (note I'm not saying stopped) as a speculative asset class. I've seen a few suggested methods to achieve this but I feel the simplest is to place a yearly 'asset tax' on non-owner occupied residential property (I would also include farms). Having a % tax would make it easy to adjust to find the right balance given economic cycles change. Also this would encourage property hoarders not in heavy debt to sell for lower taxed asset classes. This I feel is important as most solutions focus on controlling the investment lending side which is limiting in reach.
I agree. Entrepreneurship will increasingly become the domain of the rich (or rather, the children of the rich).
>Also these higher prices skew the economy.
Pricing is how an economy works. It is the messaging system communicating changes in demand/supply balance. If it is 'skewing' the economy in the sense that it causes changes, then it is working as intended.
>When people are tied up in these ever increasing loan/income ratios
There is only so much land to go around so if you want to use a particular piece of land that is highly desirable then you ought to outbid everybody else.
>I believe we should look to ensure affordable housing for owner occupiers.
the solution to this is georgian land value tax. There is no reason otherwise to ensure 'afforable housing for owner occupiers' except your personal belief that society should subsidise a particular class of property ownership whereby the owners use the property directly. What is going to happen is that people who cant afford to own a house (or dont want to borrow money from banks to buy one) is going to have to pay the tax for renting.
Price is one tool. Government skew pricing via subsidies and other to business all the time. Imagine primary schools in a pure capitalist system. It would be a mess. There is loads of intervention all through the economy that overrides pure pricing so I dont buy into this view.
> There is only so much land to go around so if you want to use a particular piece of land that is highly desirable then you ought to outbid everybody else.
Land supply is fixed. But demand is variable. If you reduce investment incentive for this limited land pool, prices should reduce via less competition freeing personal capital for other spending.
> What is going to happen is that people who cant afford to own a house (or dont want to borrow money from banks to buy one) is going to have to pay the tax for renting.
Maybe... 1) there were studies in Australia when the gov removed tax breaks on investment property. Some people made a claim similar to you this cost would be passed on. Empirical results were the majority of regions (some exceptions of course) found little to no impact on rental price and this cost was absorbed into investment returns. And 2) Don't forget this action will reduce house prices, so those that do buy residential property for investment will require lower rental return as the initial house price is lower.
I am surprised the baby boomers aren't downsizing in droves at this point. They should be the ones getting out of homes, locking in their gains and grabbing a condo where they don't have to spend too much effort doing maintenance. I suspect some are holding onto their homes for their children's sake?
Based on people I know, I think a lot of it is that if you own a typical suburban/exurban house and you have the house like you want it, you like the location, you have friends in the area, etc., for many, it's just not worth the trouble/expense of moving even if they could potentially downsize. The exceptions that come to mind are a few people who wanted to move to a warmer climate and/or adopt an urban lifestyle with their kids out of the house.
It's tragic any way you slice it.
What will happen to their houses? In some cases, they'll become their kids' residences. In other cases, their kids will now own TWO properties, and now they'll rent out the 2nd house, adding supply to the rental market. In still others, the reverse mortgage scumbags will own the property, and it'll add to the corporate-owned housing stock.
We stopped this last year. Non-citizens can't buy residential properties within town boundaries. Outside of town boundaries, they can buy residential property but must build a home within two years... and there's a minimum $ amount they have to spend building the home.
The law was enacted because locals just couldn't compete with the Chinese.
If you last visited a few decades ago, then a lot has changed since then (and probably not in a good way)
The downside is that absentee home ownership encourages property crime, and the most common item on the town's police blotter is "audible home alarm".
It takes me about 2.5 hours to drive from Seattle to the middle of Vancouver.
The "city" of Vancouver technically lies about 20 minutes north of the border.
I really like Vancouver and I was asking around about opportunities for work there. It seems to be reasonably easy to get a Canadian work visa as an Australian, at least while I'm under 30. The rent/mortgage prices pretty much killed that idea - salaries seem about the same as where I am now (Canberra) but living expenses seem much higher. Which is really sad. I'd put the city on par (or better than) Melbourne, Australia for "culture" (Melbourne still beats most of the world for coffee shops, though!). Yaletown and Gastown are impressive, and also extremely expensive.
One of the other articles on Van said that people were leaving to Victoria - which is nice, but has the issue of being on an island, plus still very much feeling like a small town.
Everybody feels this way about the next wave. I'm not unsympathetic and am similarly unable (and/or unwilling) to buy a house in this overheated bay area market.
Reminds me of an article I recently read: http://www.atlantamagazine.com/homeandgarden/the-gentrifier/
Nevada beat me to it though: http://www.motherjones.com/mojo/2015/10/nevada-settles-busin...
why instead not try to make some non-nice non-safe area a nice and safe one?
rich chinese people displacing middle class white people is called "this is totally unfair, why isn't this illegal?".
of course, guess who's making all the money selling these units? the rich white people (developers, bankers, politicians, contractors, lobbyists, lawyers) who decide what's legal and illegal. as per usual, they are the winners in this whole charade, while the middle and lower classes just blame the dirty foreigners. it's even better when they're chinese -- who doesn't hate the chinese??? so convenient. shhh, let's not mention the other 2/3rds of buyers.
the aforementioned elites are playing and winning a game as old as time, as they do.
How to prop up weapon sales? Sensationalize a crime (revenge/burglary) and say crime is on the rise with a linked article that says weapon owners/NRA members likely to repel break-ins.
"the process of renewal and rebuilding accompanying the influx of middle-class or affluent people into deteriorating areas that often displaces poorer residents." (Merriam-Webster)
There's no particular area in Vancouver that fits this description with regards to foreign buyers. They seem to have interest almost exclusively in established areas. Not so much "deteriorating" ones in need of "renewal and rebuilding".
The difference between a housing shortage and a housing bubble is when rents disconnect from housing prices. Rent is about 1/2 or less compared to an equivalent mortgage in many parts of Vancouver.
Rents in Vancouver are 60% higher than Berlin, where as purchase prices are only ("only") 35% higher (net income is practically the same, with Vancouver being just ~4% higher than Berlin).
[0] http://www.numbeo.com/cost-of-living/compare_cities.jsp?coun...
In this case German house prices are relatively high & rising faster, when compared to rents.
In Berlin in particular purchase prices have increased by 8-10% per year in recent years where as rent prices have only increased by 3-5% per year (both are still cheap compared to Vancouver).
This was a study based on "a Financial Times multiple choice survey of 77 high net worth and affluent mainland Chinese individuals, 'admittedly not a statistically significant sample size,'” According to this survey, 9 individuals out of these 77 Chinese bought property in Vancouver. After some more mathematical shenanigans, this is extrapolated to imply that Chinese mainlanders buy 33% of the Vancouver real estate market. Really?!? And this statistically baseless extrapolation becomes newsworthy?
http://www.vancouversun.com/business/chinese+investors+third...
Seeing this touted feel like reading: Breaking news, a city with 100% Caucasian population does not see a single Chinese buyer!
Ladies and gentlemen, just remember that economic bubbles aren't only bubbles in assets, finance, and the structure of the economy, but also the psychology of the people.
The number is actually closer to 1-2%.
Btw ... I am the child of immigrants so have no problems if these homes are being bought up by Chinese Canadians. I do have a very big problem if these homes are being bought by illicit funds or funds that have not been taxed correctly. I pay my share (and it is a big share .. every professional couple in Canada is essentially in the 1% and paying for it despite all the student loans we incurred). We have all these financial controls that apply to us about reporting foreign income and paying taxes, etc. This needs to be applied fairly and across the board.
One other datapoint: the listing agents in the area have websites in Chinese and with prices in Yuan. Any delusion I had that the money is coming from incomes earned in Canada is firmly gone.
People have talked about ideas such as taxing second homes and requiring residency or citizenship to buy a home. Both seem good ideas that will never be implemented. How about mortgage income tax relief for Canadians (like the US or even more aggressive than that)? Allow full borrowing against RRSPs and prevent buyers from discriminating against offers based on financing conditions. The freaking MLS data is regulated anyways so might as well.
As for people selling and moving into a new house? Again, they're accepting the risk that they will be able to get bridge financing and sell their existing house.
Conditions have monetary value to both the purchaser and the seller. If you are losing out to people with clean offers, bump your offer by 5% and you'll find that sellers will wait another 2-4 weeks for their money. That's what I had to do to get a house in San Jose (just moved in!).
It's the same as the "discount for debit cards and cash" you can get in electronics stores.
Get a good real-estate agent that _knows_ the area, and listen to what they say the house will sell for. Ours was spot-on 100% of the time.
Next, you need to realize at what points in the sale the power in the relationship changes. Up to offer acceptance? The seller has the power, so offer more money to keep contingencies on the sale. After acceptance power starts to shift to the buyer. Here in California building reports are attached to the house, so a bad foundation is information everyone gets. This means the seller is likely to negotiate the price down or fix things if a bad report comes in. Of course, you have to spend $$ to find that out, and your mortgage application fees are then throw-away, so...
Finally, be honest about what you can afford. If you're not at the tippy-top of your price range, you will be able to stretch just a little bit to get that really sweet house you want.
For example, New Zealand (another market I'm familiar with) is currently running at 4%/yr for a 2yr mortgage and 5.5% for a 5yr. However, for budgeting purposes, most people will budget at 8%/yr, since that's the long-term average.
Just to completely freak you out, during the GFC, I hit 12% annual interest. My parents hit 20% during the Canadian inflation crisis of '81. :)
Go for the high end, don't be afraid of a smaller house, build up the equity and then move. However, be aware that closing costs are significant, so it's best to amortize them over several years - that's why housing calculators ask how long you will live in a house.
Frankly? If you're afraid of 5%, you probably don't want to own a house, or at least, you don't want to own _that_ house.
are there any meta-journalism news site offering analysis like yours?
..but I'm not sure who checks the fact check site!
1. http://www.nhs.uk/news/Pages/NewsIndex.aspx
EDIT: I should have been clearer that I never doubted that Chinese money was coming in, but I've previously seen nothing to convince me that it was significant or indicate how significant it was. Even if this estimate is of by a factor of two, it is still fairly significant.
First of all, the main point of the study is not to obtain am accurate point estimate of Chinese buyers in Vancouver. The main point is to underline the importance of more studies.
In other words your criticism kind of makes the analyst's point for him.
Second, you would be surprised at the amount of information even small sample sizes can provide when there is great uncertainty about the true data distribution.
Third, this analysis is in agreement with two other
In other words, don't get hung up on the exact %. Nobody really cares about the difference between 33% and 35%. What decision makers need to know is whether it's a lot or a little. This "quick and dirty" analysis supports the contention that it's a "lot", not a "little".
Furthermore, this study was not done in isolation. The NAR study and the urban planner's study both point in the same direction.
Taking all this evidence under consideration suggests that overseas buyers are likely a driving force in the run up in house prices in Vancouver. And that's newsworthy.
This isn't about sampling error, this is about inverting conditionals while ignoring base rates. This is like saying 'one third of surveyed Somalis in America report living in Minnesota, therefore, one-third of Minnesota is Somalian'. That conclusion doesn't follow, whether you surveyed 10 Somalis or 1000.
That is, there is no reason to expect P(Vancouver purchase|Chinese) = P(Chinese|Vancouver purchase) = 0.33.
If that number happens to be right, it is by coincidence; it only works if you are lucky enough that the relative sizes of Chinese buyers and Vancouver sales are just right. (Specifically, that the size of the Chinese buyer population is identical to the size of Vancouver sales; if there are a million Chinese buyers worldwide and a million Vancouver sales over that same period, and a third of Chinese buyers say they bought in Vancouver, then yes, a third of Vancouver sales will be to Chinese.)
If you knew two of the three variables of global Chinese size/Vancouver sales size/P(Vancouver purchase|Chinese), even if you just had a vague but defensible prior, you could (weakly) estimate the third. But in isolation, each variable means nothing.
That's not even remotely what was done in the article by my reading. More like: 33% of Somalis * total number of Somalis / total people in Minnesota.
That's what it was described as in the grandparent:
"This was a study based on "a Financial Times multiple choice survey of 77 high net worth and affluent mainland Chinese individuals, 'admittedly not a statistically significant sample size,'” According to this survey, 9 individuals out of these 77 Chinese bought property in Vancouver."
'mainland Chinese' are a reference class much larger than 'Chinese buyers of Vancouver properties', as they are buying globally. If this description is wrong, then one should correct it - not introduce irrelevancies like how 'well with Bayesian reasoning this sorta small sample is OK!'
"More like: 33% of Somalis * total number of Somalis / total people in Minnesota."
Which is still wrong, since there are lots of Somalis not in Minnesota.
And 9/77 of mainland Chinese are buying properties in Vancouver, so you multiply that by total number of people in mainland China (that are high net worth and affluent) and then multiply that by the average property value bought by them. That gets (a rough approximation of) the property value bought by Chinese mainlanders in Vancouver, now divide that by the total property market in Vancouver to get the percent of Vancouver being bought by Chinese mainlanders.
I don't know where you're getting anything else than this. The top level parent only described this as "some more mathematical shenanigans" yet you assume that therefore it has to be this nonesense of swapping P(A|B) with P(B|A). The article makes it clear that that's not the case, so I don't know who you're arguing with.
> Which is still wrong, since there are lots of Somalis not in Minnesota.
Yes, 67% of them in this hypothetical, as accounted for in the first factor. This process isn't inherently wrong, the debate is whether the small sample size makes the uncertainty too large to be useful.
And now you've done the correction for the base rates which I discussed in my original: once you know the relevant populations and fractions, then yes, you can get out the right fraction. But it's highly unlikely the correct version will just happen to equal the original fraction in the survey, and no correction was included in the summary. Let me quote again what I am criticizing:
"This was a study based on "a Financial Times multiple choice survey of 77 high net worth and affluent mainland Chinese individuals, 'admittedly not a statistically significant sample size,'” According to this survey, 9 individuals out of these 77 Chinese bought property in Vancouver."
Note there is nothing about 'total number of people in mainland China'. Nothing about 'average property value'. Nothing about 'total property market in Vancouver'. I don't know where you're getting all this. The procedure as described is just plain wrong, nothing to do with sample sizes or Bayesian methods.
> This process isn't inherently wrong, the debate is whether the small sample size makes the uncertainty too large to be useful.
That's what the comment thought they were defending, but they were wrong. They misunderstood the problem entirely. It was interpreting the survey meaning totally incorrectly by inverting the conditional, the problem was not precision/sampling error.
The very next line from the source you're quoting:
> After some more mathematical shenanigans, this is extrapolated to imply that Chinese mainlanders buy 33% of the Vancouver real estate market.
I.e. "there's more that I'm not talking about because I already think the first step is so inaccurate that it doesn't matter what's next".
Which seems more likely? (A) that the above snarkily referred to what was done in the article, or (B) that the above referred to a mathematical fallacy that is otherwise entirely absent from anything anyone here is talking about until you showed up.
Even if the top poster were saying what you suggest, how were they supposed to get 33% out of 9/77 = 11%? Your suggested error would give 11% instead.
Suitable land is artificially constrained, fiat money issuance is unconstrained, ergo prices are rocketing as rent seeker banks shift resources from wealth producers to themselves.
And the highest bidder is not middle class people.
And when you raise taxes that are directly levied against overseas buyers, then the government becomes addicted to those taxes and therefore addicted to overseas buyers.
Jobs tend to concentrate in urban centers. Building 1 or 2 hours out is a shitty commute and frankly a shitty solution.
In Cambridge 1 in 20 new-build properties is purchased by non-resident Chinese buyers, which has been one of the contributing factors that has seen prices rise by 50% since 2010 [1] and are 47% above 2007 pre-GFC peak [2]. Note - unlike Vancouver that has a a big (30%) local Chinese population, only about 1.4% of the Cambridge population is Chinese or of Chinese ethnic origin [3]
To some extent this is just about free markets and a movement of capital. But it is starting to price out many local people out of the property market that does have a social impact.
There are other factors at play including a booming tech & biotech sectors, restrictive planning, stock-piling of building plots etc, but the foreign buyers issue is a major contributor.
[1] http://www.theguardian.com/cities/2016/mar/22/china-cambridg...
[2] http://www.thisismoney.co.uk/money/mortgageshome/article-328...
[3] Guardian data - available in a Google doc https://docs.google.com/spreadsheets/d/1yc8W1SiCbWd9V4I9KmTl...
Let's grow some cabbage on the most expensive land on the planet?
Because forget money - it's cabbage that counts.
> And Cambridge is really not suited transportwise to becoming a big city.
We have this recurring thing that people only want to move to a very very small subset of cities. There are multiple solutions to be proposed, but just turning blind on this doesn't sound feasible.
It doesn't make sense that a small town is so congested. Public transportation needs a serious upgrade.
It's a shame a fantastic place to do science and business is getting a bit held back by congestion and expensive real estate.
Food security is not something that should be entirely handwaved away, although I agree that plenty of places manage to live entirely on imports.
I agree with the idea of not limiting ourselves to a few cities: that's why it makes little sense to try to turn Cambridge into a London suburb. It's a market town of historic buildings that was spared bombing. The tech industry growth there is great but somewhat accidental. I doubt you've been there, but there's very little that can be done about the traffic problems without demolishing a college. The building of a new railway station north of the river should help greatly though.
I'd suggest trying to build up tech industry in one of the 'post-industrial' cities instead. Maybe we could buy up the £1 houses in Stoke-on-Trent and market those to China at huge markups instead.
One of major contributors to rising property prices is the gutting of trust in the stock market or any speculative market for that matter, over the past two decades. Super low interest rates haven't helped either with people looking to park their cash left with property as the only safe place which provides a rate of return.
With regards to Chinese buyers, there is some truth (again stressing that it's only a part of the picture). For the past 20 years nearly every trading partner with China has incurred a massive balance of payments deficit. That money's coming home to roost (literally). The same thing happened in the 80s when Japan was an exporting powerhouse - they bought real estate and companies across the US and Europe, pushing up the price of real estate.
There was actually an excellent piece in the Prospect by Andy Grove (former Intel CEO) which lamented the loss of manufacturing in the US and the effects it would cause: http://prospect.org/article/andy-grove-trade-globalization-a...
Again just a facet to the picture, but you put all these pieces together and you can see the problem a lot more clearly.
The Japanese were like the Chinese at one point too, selling crappy electronics in the 60s and being seen as extremely wealthy in the early 90s.
You simply can't own a house unless you're a millionaire, and a small condo will be upwards of $200k for a mortgage when you don't own the property. It's just insane.
http://www.payscale.com/research/CA/Location=Vancouver-Briti...
Even if I'm pulling in a quality $80k (high-ish by here standards), I'm nowhere near affording a $2mil property. I'll be lucky to have a small condo with 2 bedrooms. What's the incentive to stay?
Ha!
https://www.reddit.com/r/vancouver/comments/4bo9wz/were_buyi...
"We have 540k as a down payment and we are going to take a 160k mortgage. Adding strata fees for the place we want its going to be 1200$ a month for the next 30 years, and we end up with a 950sq 2 bedroom in a decent condo off Davie."
$1200 / month (this is mortgage + condo fees) for 950 sq ft, and this is after putting down $540k - and it's not even a brand new building. And compared to SFH, condos are actually realatively reasonable priced, by Canadian standards at least.
Beyond insane.
Otherwise, condos within easy reach of downtown are somewhat affordable. Single-family homes in Vancouver are very much a 1% luxury item at this point.
You can look at a very long term chart of real estate vs GDP growth and see something has recently gone askew, do low interest rates completely explain that? And if so, what would happen if interest rates normalized in a relatively short period of time?
I think the answer to that is yes - a lot of people seem to disagree but seem reluctant to explain why.
Although this "study" was based on back of the envelope estimates, and the 1/3 estimate is probably inaccurate, there is anecdotal evidence of large-pursed foreign investors from around the world -- not just China but Australia, Russia, etc -- who are sustaining, if not increasing the demand for housing in populous areas.
This foreign investment is great for people who are trying to sell a home in one of these markets but horrible for buyers, who can't compete with all-cash fast-close-best-price offers. Further, the few realtors who are boots-on-the-ground for these investors have market insights -- they know what's potentially about to go on the market but hasn't yet, get insider information, etc -- and use this information asymmetry to their advantage by offering on homes even before any real home buyers have a chance or offer on the first day of listing! I have personally gone through losing multiple times to these sorts of customers while trying to buy a new home (in the NYC metropolitan area on the NJ side), not an investment property.
The experience of buying a home in a high-demand housing market where institutional/major investors are participating really challenges my thinking about whether free market practices should be allowed to operate in housing at all. Considering the rising cost of housing, it is tough to side with capitalism on this subject.
I'd like to see a study about the "artificial growth" of housing prices by investors. Interestingly to note is that such a study may conflict with the agenda of at least some leading universities who tend to publish reports about rising cost of housing after receiving generous funding from housing investors. NYU Furman, for instance, has a long-lasting public relationship with Capital One (and god knows who else in private).
Assuming you mean "with the philosophy of free markets and individual rights" by the catch all "capitalism", it's not.
The foreign buyer is benefiting from state-provided services, such as the police providing some degree of safety from robbery and damage, safety from invasion and confiscation by the armed forces, and a sound legal framework and justice system that protects their property right.
Citizen pay for this via income taxes and their employer's corporate tax, as well as value-added taxes on products and services purchased (since there is no modern country that generally allocates a certain type of tax income to a certain type of spending). Non-resident owners do not. They get a free ride.
Thus, the free market, moral, individual rights protecting solution that might be Barry Goldwater approved is to charge the non-resident owners a yearly tax that covers the cost of services provided.
Assuming what you mean by "a yearly tax that covers the cost" , which I have also quoted although it's obvious what was meant by what was said, it's not covering the "true cost to society". I don't have to stretch far to define this cost as there is a limited supply of housing and you know where this leads.
I like your suggestion that we charge investors, at least of the high-net-worth or institutional kind, for participating in housing. However, how we measure that tax needs to include variables other than taxes paid for waste management and law enforcement.
Oh this is good stuff. Thanks for contributing! ;)
100% correct. The property tax rate in Vancouver is 0.35%, which is a small fraction of what other cities across North America pay, while income taxes are significantly higher on the middle class. NYC suburbs, for example Weschester, charge 1.93% of assessment, and even in California, property tax is 1.25%. Some Texas counties are 2+%.
In the absence of a reasonably high property tax, like in Vancouver, homes become much more like an expensive savings account. This is especially the case as interest rates falling below 0 in much of the Western world (some banks in Switzerland charge you to put your money there). And day-to-day services like police, schools and ambulatory are paid for by locals through income and sales taxes. UCLA professor says CA could get rid of income taxes through a 3% property tax. http://www.latimes.com/opinion/op-ed/la-oe-adv-welch-califor...
My suggestion to reduce property speculation is to reduce income taxes drastically (1/2 to 1/3), raise property taxes to at least 1.5% (5x) and provide basic tax assessment increase controls for owner-occupied dwellings, up to say $1m in value.
Exactly. Unfortunately, the short term effect in most countries would be a brutal recession, probably some banks going under/being nationalised, a flight of capital out of the country, and so on - enough to dissuade any administration to try.
It does not help that most politicians are from the middle upper class and own large amounts of property. Few will have the courage to devalue their own net worth by double digit percent.
Thus I think it exceedingly unlikely that we will ever see a shift from production taxes and consumption taxes to "dead" asset taxes. In fact, the historical precedent is the other way round.
There are many others, but France's ISF (wealth tax, of 1.5% of the government-assessed asset value per year) is one of the reasons you can buy a large castle there for less than a studio in Sydney.
This is the real reason. As I've mentioned on other threads, California's main business is and always has been real estate.
It looks like salary / rent is still much more sane in Vancouver than in London.
I would guess London is in a much advanced stage of this problem?
But I like the salary / rent more as I am not planning to buy in either cities
There are similar issues in Toronto, but here we are building new towers on every corner, or near enough. Toronto, fortunately, has plenty of room to spread in three directions.
This is what's happening in Chicago right now. Single family homes and two story apartment buildings, which dominated Chicago and made it a pleasant place to live (lowish density, lots of room, decent sized backyards, etc) have been replaced in gentrying areas with super dense condos that are 3 to 6 units large on the same tiny lot. No yard, no parking, no front yard, tiny bedrooms, etc.
It really changes the character of the neighborhood and the system really can't handle this kind of density. You would have 3-4 people in a SFH which is now a lot with 6 condos with 18-24 people. This means not only higher pricing but more traffic, no parking, higher load on utilities, local parks being overfilled, etc.
No one talks about density it seems, but something very real happens when we quadruple density like this.