Essentially the tax targets secondary home ownership in certain non-tourism related hot housing markets of the province. A British Columbian that has a cabin in the woods somewhere is not terribly likely to be impacted.
There has been criticism from people saying "but I'm not 'speculating' I have a second home in Vancouver because (whatever reason)", but the tax seems generally popular so far. When so many don't own a single home, and with homelessness such a significant issue in Vancouver, I don't think there's much empathy for people upset that they'll be taxed on their second home.
I rent in the north shore. I'm glad rents are coming down and I'm glad I didnt buy last year when u was tempted. That said, I dont know anyone that thinks the market is slowing. The overseas money still props things up pretty well.
Housing prices are coming down in Toronto as well, and people who bought homes still under construction are finding out that that the prices are now lower than what they paid.[1]
Canada is generally has recourse laws, which means you can’t walk away from an underwater mortgage.
This is great news and may serve as a model for other cities facing similar housing shortages. Was the speculation tax a ballot measure or something passed at the city council level?
I believe the city has been adding different things for the last couple years trying to open up more rentals. If I recall correctly something like 25% of all condos downtown are unoccupied which is insane. They arent even available to rent, just sitting their empty.
It has had a real effect on employment, especially in tech. A friend of mine at hootsuite laments that sometimes they miss on great hires because even though the salary is competitive, there is literally nowhere within an hour of the office for the candidate to afford to live.
> If I recall correctly something like 25% of all condos downtown are unoccupied which is insane. They arent even available to rent, just sitting their empty.
The speculation tax was a Provincial level election promise by the NDP. Interestingly since it is a minority government that governs with the support of the BC Green party, the legislation needed to be tweaked slightly to gain Green Party support.
The City of Vancouver implemented an empty homes tax, which has similar impacts on demand, but they had to ask the province for new powers in order to levy that.
It's hard to draw direct comparisons between Vancouver and San Francisco's housing markets. Canada, as well as each of the provinces, local municipalities, and cities, have representational democracy, not a quasi-direct democracy like California.
The spike in affordability in Vancouver wasn't caused directly due to a shortage in housing stock and an influx of residents. It was caused by rampant speculation from people essentially using Vancouver as a safety net to park wealth.
I can't overstate how detrimental this is to a city. What you end up with are entire neighbourhoods which are occupied at 50% or less, and yet with the value of the homes exceeding $2-$4 million. It causes stores in those local neighbourhoods to close because there aren't enough customers. It taxes the fire department because no one is there to call 911 when a fire starts. It guts schools because there aren't enough kids to fill classrooms.
And with all of this going on, former local residents and young people are pushed further and further out of the urban core due to affordability. Vancouverites make less than half of what an average tech salary pays in the SF Bay Area, and the jobs are much harder to come by.
That said, yes, Airbnb and other vacation rentals were exacerbating the problem, and causing Vancouver to turn further into a vacation/tourism destination instead of a real working city. San Francisco suffers from this to a certain extent, however, its real problem is that it has a massive influx of workers due to a booming tech economy, and not enough housing stock to accommodate all of those workers.
Not sure about Canada, but I know in many places in America, schools are budgeted on a per student basis, so losing kids (who still are going to school, just somewhere else) strains the school they are leaving with less money and then strains the schools where they are migrating to as the infrastructure now has to support more kids without having time to ramp up.
I think that’s one of the reasons Amsterdam has an anti-squatting law which basically forces owners that don’t live at home for a certain period in a year to rent it.
I can't overstate how detrimental this is to a city. What you end up with are entire neighbourhoods which are occupied at 50% or less, and yet with the value of the homes exceeding $2-$4 million. It causes stores in those local neighbourhoods to close because there aren't enough customers.
I've read that this is the case in London, as well. And probably lots of other cities with names that are well known in China and Russia.
This is a garbage article when compared with the headline. The “experts” is two property managers who don’t even agree on what’s happening or why. The 20% figure comes from a quote that sounds like an off-the-too-of-my-head assessment from one of them:
”What we’re seeing is that rental rates have decreased up to 20 per cent from the spring of 2017, and it’s getting even worse.”
They also say they’ve never seen anything like this in their TEN whole years of property management!!
Rents might be dropping by this much, or even more, but this is hardly even evidence of that, let alone data from “experts”.
Better title: “One property manager estimates that some luxury property rents in Vancouver have declined by up to 20% over the past year.”
This belief that market cycles are 10 years is the gamblers fallacy in action. Just because there is a "trend" of economic cycles occurring in 10 year periods doesn't mean the next one will occur 10 years after the last.
Also the entire purpose of laws an regulations like Dodd Frank is to prevent debt bubbles.
Whenever someone says that we are "Due" for a correction they are falling for the gambler's fallacy.
This is a garbage article when compared with the headline. The “experts” is two property managers who don’t even agree on what’s happening or why.
I read real estate press almost every day, and this is pretty much a universal constant. For every bull, there is a bear. For every person predicting a market crash, there is a person predicting things will get even better. Even articles that should be straight forward statistical pieces are usually based on data from some startup web site nobody's every heard of that pushed out an infographic to get clicks.
The more I observe the real estate industry, the more I'm convinced that it's mostly made up of people too damaged to sell used cars anymore.
sometimes qualitative information precedes quantitative. that's why speculative prices move ahead of fundamentals. it's definitely subjective, but that doesn't mean it might not be valuable or indicative of an noteworthy change.
> A $3 million house that would have rented for $5,000 a year ago
$5k/mo for a $3M home is a cap rate of just 2%. That's pretty terrible in itself. Now it's $4k/mo or 1.6%? How on earth is that financially sustainable at either amount?
In many cases the owners do not view it as an investment, it's a store of wealth that is difficult for the government of their home country to seize. Hence even if they lose money every year it's better then the alternative -
There's no value for the Chinese Government in seizing foreign personal homes of that sort. It's tens of billions of dollars, a trivial sum to them right now. They do not need that money. They need to strictly contain domestic capital from pouring overseas, which has largely been accomplished. And they need controls in place to restrict people from being able to easily flee, which they've also largely accomplished (social scores, heavy tracking, etc). For the most part it doesn't matter if you have a house in Vancouver if they can change a score and prevent you from ever flying away. If you have the audacity to try it anyway, they've probably got your family. Which is something they've used on many occasions to induce Chinese nationals to return.
You might be misunderstanding the use case. The Chinese with wealth moved their wealth out of China to real estate in London, Canada, and parts of the US specifically to put it out of reach of the Chinese government and to avoid the capital outflow controls you refer to.
Once safely outside of the PRC's reach, it's trivial to move the wealth around using corporate entity ownership (among other methods).
I don't misunderstand. I said that even if they've managed to get their capital outside of China, it doesn't matter. If they flee, China still can induce their return.
It's not trivial to move capital around using foreign corporate entities, when they track all of your communication within China. If they even so much as get a hint of that going on, and it bothers them in the least, they can do anything they like to you at that point. The hint of suspicion is more than enough, if it suits them. Being able to move capital around is meaningless, if you're not entirely physically free yourself as well.
Your scenario is only a sure thing, if you've escaped your capital and everyone you care about.
You’re assuming that the person trying to expropriate wealth cares about being able to spend it themselves, rather than e.g. their family who already lives in Canada being able to spend it while they sit in jail.
Think in terms of nobility: what’s more important, your head or your dynasty?
China has tried to fight against this by banning naked officials (whose families are abroad). There are still way too many exceptions, of course, as this is a pretty unworkable rule. It also doesn't apply to private business people on the other side of the corruption equation.
These houses weren’t purchased to rent out. They were safe deposit boxes for cash. The expectations were that they would just keep going up in value. Their rent value didn’t matter.
The house where I rent is owned by a woman in China who phoned up a local real estate management company, bought the first 20 houses on their list, and wired them the money.
It's probably more complicated than that, but that's the short form story the management company told me. The company also said it's very common.
And yet we're told by the MSM that foreign ownership is 5%, makes one wonder if situations like this are even statistically detectable.
If this article is remotely true and this is the start of a trend set off by having no rules whatsoever and then suddenly a whole bunch of not terribly well thought out rules, it's going to be interesting to see how this all plays out, especially when good old "fear is stronger than greed" investor psychology kicks in, all in an environment of steadily increasing interest rates.
makes one wonder if situations like this are even statistically detectable.
I don’t know about Canada, but forming as domestic shell company to make your real estate holdings look local is pretty easy in the United States, and can be done online.
Also, what's not mentioned in that report is the percentage of purchases by foreign-owners last year or the year before. The 4.8% number is total Vancouver residential foreign-ownership - it's just a snapshot.
> It's not just the MSM, it's the CMHC and Stats Canada.
The linked CMHC numbers are surveys of people's perceptions of the impact of foreign money, which is a hilariously useless metric.
Stats Canada is pretty careful about the wording they use, I imagine they run everything by the legal department before release to make sure they're not technically lying, they leave that up to the newspapers and TV to accidentally misreport repeatedly, until it becomes common knowledge.
Yes, precisely, a 'normal' market would have a 5-6% vacancy rate. If your vacancy rate is only 2% and 5% of the inventory is empty but not for sale or rent, that is a huge distortion.
It's not which is why many think these houses were bought not to rent out at all, but at inflated costs to park capital or launder money.
Now that there's a tax on empty housing and an upcoming speculation tax persons the carrying costs on empty homes is high enough that some are clearly looking to get out of their investment.
In the BC interior (say the Okanagan), where houses are cheaper, a $750K house would rent out for $3000/mo. In Vancouver proper, it's common to pay $3K for a nice 800 sq ft condo.
I understand it doesn't scale linearly and these are mostly foreign investors moving money out of their country, but still... I have a hard time believing you can rent a $3M mansion for just $5K a month anywhere near Vancouver.
Random data point, but you certainly can't in the bay area (I just checked a few listings around my place in Piedmont). a $3M house is around 8k/month.
Disagree. Our house here is just under $3M - not a mansion, but a big house with ocean view in a desirable neighborhood. We just finished renting it out for 4 years at $4500/month.
Makes no business sense, especially when you add taxes and maintenance.
BUT it makes sense if you have 40 such homes bought with drug or corruption money (hello China!) Who cares if you lose 4% a year (maybe rising values make up for it, maybe not) at least you have something in a relatively safe place and out of China /Russia.
Plus, it's not like the saved for 20 years to buy them...easy money.
Speculation tax hasn't even been implemented yet. We're seeing a 20% drop due a basket of measures such as CoV empty homes tax, airbnb regulations, provincial increased school tax on homes over $5M and a fear of the upcoming speculation tax.
Don’t forget the “stress test” required to get a mortgage since last year.
New buyer now have to qualify for a mortgage at the Bank of Canada rate plus 2%, which is close to to 6% now. Even though mortgages can be had for a little over 4%.
It was an effort by an independent govt body (OFSI) that is charged with managing risk with canadian banks.
Basically the number of uninsured mortgages had been climbing rapidly, so this instituted so that even with a fall in housing prices, loans are less likely to default.
Good I think from a banking risk mentality, but not so good for homeowners looking to buy.
I remember reading that a couple making $100k and 20% down could have bought an $850k home before the stress test. Now it’s my more like $650k.
I am curious how much lag Toronto has on Vancouver. Not quite the same problems, but very similar. TO seems to be about 1.5 years behind Vancouver markets
It's hard not to see the overall solution to the housing crisis in some North American cities as simply building more housing.
A speculation and/or vacancy tax makes sense in cities with a high number of foreign buyers like Vancouver and New York but in other cities it seems like the biggest road block is simply zoning restrictions that prevent supply to meet demand. There are second order effects that need to go w/ more building, such as adequate transportation, parking and services. But if your goal is simply to get the average down can you do better than simply building more? Rent control seems more like a band-aid for a small number of folks rather than a real solution.
Building more doesn't work.
Some areas in Toronto have 30% empty dwellings.
There are much more money available to speculate than available surface area.
Leverage was cheap (through housing) so everyone played that asset class on margin here. Now that the interest rates are going up, it will sort itself out.
I assume you mean Toronto, not Vancouver, based on the parent comment. Median household income in Toronto is $65,829 CAD as of 2015 [0], which is about $52,500 USD adjusted for purchasing power parity [1]. Chicago's median income from 2012 to 2016 was $50,434 [2].
I didn't take the time to find numbers that are perfectly apples-to-apples, but it definitely doesn't seem like Toronto's median income is materially lower than Chicago's.
Cities need to fund themselves through real estate rather than income taxes. Tax “the person who could live in a place” rather than “the person who does live in a place”. For actual residents, it’s a wash, but it severely penalizes the investment crowd.
It also severlely penalizes the elderly and retired, who don’t earn but certainly still vote.
In my city in Australia it’s common to see a single elderly retiree living in a rundown home on a large block, where the land alone could be worth close to a million dollars. When the property is sold it can often be split into two, and house two families in detached homes.
It feels cold hearted to say elderly should be pushed out of homes they have lived in for 50 years. But it does make it harder for cities to grow - the carrot of higher prices doesn’t seem to work for people who just want to live out their days in the community and home they know.
The same sized property next door has a full sized home and three townhomes. So potentially one person living in the same space that is housing a dozen next door.
> It feels cold hearted to say elderly should be pushed out of homes they have lived in for 50 years.
More or less cold hearted than forcing three new dads to spend 15% of their waking hours getting back and forth to work, which means they only sees their kids when they are sleeping?
If you have a million bucks in assets, I don't care if you're 75. Our country has been ruined by boomers running the country into debt by way of cutting their taxes -- taxes that millennials will eventually have to pay. I have no qualms with taxing the "winners" of that generation. They owe it to us anyway.
> much more money available to speculate than available surface area
Doubtful, some of the biggest cities on earth have tiny geographic areas.
Build more and let them keep buying, a clear government policy that targets rezoning to keep price rises in-step with inflation would certainly make empty home investors think twice.
Real estate speculation is a gamble that governments won't accommodate growing populations and politically benefit from rising house prices. In many places on Earth they are likely right.
It is worth noting the story wasn't about building more housing, it attributed it to more taxes on speculation, rules, and one market effect, a slow down of home resales. "Resale" meaning not new housing units.
For the last 20 years Vancouver has been adding housing stock, mostly in the form of multi-family dwellings, at one of the highest rates in North America. We're adding as much as we can as fast as we can. The situation now is worse than ever, so "build more housing" is clearly not a solution, and in fact may be making things worse by adding a lot of investment vehicles that attract foreign capital.
Build more housing only works if you actually build enough to satisfy the demand — so it would be cool if we knew a number of houses built vs people trying to buy houses type of thing. Maybe you are right just I don’t know the data on the subject for Vancouver. I heard similar arguments while living in Bay Area that “we’ve tried to build our way out of this problem and it hasn’t worked for 20 years” but actually they were building one house for every 10 people moving there so, in that case it was a case that they under built for a long time because after people would move to their little corner of SF they would say ok no more people.. it’s good as is..
ultimately if you look at places like Dayton (good frontline episode on this recently), you see what happens when you build a ton of housing during a boom then factories leave and the houses then sell for basically $0.. often people are buying houses there for $5k, and buying 5 at a time then remodeling them. So overbuilding is bad as well as underbuilding.. my take is that the most sustainable building approach is to build in places that people still want to live in even when the economy is down. Like surprise surprise living 40 miles outside of Las Vegas next to a strip mall likely will drop in value when you can afford to buy a place that is more desirable closer to services and jobs and friends.
We need to be smart about where we want to invest housing in. People are living in cities now and Columbus has been bigger than Dayton for quite some time. Columbus will hit 1M people soon. Columbus has a diverse set of industry and is more of a service industry city, Dayton was always a one industry town.
Those factors alone likely explain much of the housing shortage. Make it legal to build the housing that people want to live in, and the housing will be built.
The construction industry is unable to staff itself to keep up with current demand. People I know working construction have been turning down excessive overtime for decades. It's not a zoning issue. The capacity to build more than we are now simply doesn't exist.
Changing zoning of course doesn't magically create houses and there's not much evidence that Vancouver is constrained by lack of zoned land. The parent is right. CoV and Metro Vancouver have been constantly rezoning and adding supply and massively adding multi-unit housing. The fact that there still remains low density land is not relevant.
The numbers of multi-unit under development in Metro Van at the moment is unprecedented.
>> A speculation and/or vacancy tax makes sense in cities with a high number of foreign buyers
A proper speculation/vacancy tax that disincentivized empty properties in SF, Vancouver, NY and other major cities that have that issue would probably result in a noticeable rippling effect to reducing values in smaller cities.
Regardless, an economy where many people are working just to pay exorbitant rent is not a healthy economy.
FWIW Seattle real estate market stalled out two months ago - inventory is rising, buyers are sitting on the sideline waiting for the first shoe to drop.
No source, just something I heard from a guy trying to sell.
It's real. It started in June. Inventory has risen every month since June and sales have stayed the same or declined. Seattle was insane before June though. Homes were receiving multiple offers within days of being listed and going between 10% and 30% over asking price with sellers throwing in all sorts of crazy contingencies (no inspections allowed, rent from buyer for 2-3 months at some ridiculously low rate, etc.)
As one anecdote, my neighbor had arguably one of the nicest homes in one of the more sought after neighborhoods in Seattle. They sold their home in September after it "sat" on the market for 12 days and sold exactly for ask. The price was 16% less than they were estimated at in July, which is what probably triggered them to sell I guess.
Depending on which real estate agent you ask, Seattle was absolutely insane before and now it's getting back to slightly above normal levels and will stay there for a while. Others will say if this continues for a few months it's a sure sign of the bubble popping. Inventory will probably go down a little bit in the next few months mostly due to eager profiters taking a break during the usually slow winter months. Buyers will probably decrease a little bit too due to interest rate hikes. Next spring will be the real test.
Condos and rental prices don't seem affected yet, but those tend to lag homes in my experience. Seattle does have horrible density so maybe condos will stay strong at their ridiculous $550k median price.
SFH sellers (and agents) dont seem to have accepted the change yet. No NWMLS data to back it up, but list pricing has stayed roughly at the same crazy high levels of spring 2018. Units are instead sitting for weeks or months. The rare ones that are relisted are reduced by maybe 1-2%. As you said, will be very curious to see what May 2019 looks like.
PS: IIRC it was the may 2018 sales and inventory data that deviated from the recent trend lines. Slightly earlier than June.
Oh, it's just the usual waiting game. Happens every time. Sellers will stubbornly hold on to the last "fair" prices they were told, even if they can't sell, the RE agents will suggest waiting out the winter and taking the house off the market till the next spring. Buyers are aware of the inventory increase are waiting to see if it grows further and the they snatch up a bargain from a desperate seller.
That's how it went down 10 years ago, it will be same this time - come spring and the "for sale" signs will pop up on every single corner. You can just count those signs to tell if it's the buyers or the sellers market.
However there are differences too. 10 years ago we were facing a catastrophic recession, including an unprecedented level of banking shenanigans (undermining business financing) and a huge hit on the employment (undermining consumption), but this time it seems pretty stable. So that's a bull development. On the bear side, strong overall economy might embolden the Fed to keep increasing the interest rates, decreasing housing affordability and pushing the prices further down. Also Seattle has seen a huge amount of construction recently, a lot of old properties on the Capitol Hill were torn down and rebuilt in the last 3-5 years (at this point we are talking not just a number of affected properties but a percentages of the entire inventory in the Madison-Aloha area), the downtown sees a large number of constructions and SLU has been a giant construction site since like 2010. Also notably there is no shortage of rental properties downtown and Capitol Hill at stable prices. The rental market was positively nuts in the run-up to the 2008 implosion which was somewhat distressing to me personally.
Oh Ive been in Seattle for about 8-9 years now. I've already thrown my money in to the crazy market based on expected long term residency, historical low interest rates, & diversification of assets. But some of the insanity in SFH the last year or two is just ... wow.
If there is a major housing market correction in the next few years I wouldnt mind "upgrading" or taking a flyer on a vacation/hobby property. On my infinite "todo" list to pay more attention to commercial/industrial space.
I want to point out that Vancouver’s municipal election is today (I’m standing in line for it), and many of the candidates are running on platforms related to the housing crisis.
Whatever you think of the issue, this particular article isn’t “about” the issue so much as it is a precisely-timed propaganda piece aimed at influencing the election.
It is great news, the Vancouver housing market is untenable in its current state. The rent:average income ratio is completely out of balance. This is propaganda to try and elect development friendly candidates in our election today
Won't increasing supply reduce prices though? It seems like rules such as taxing vacant properties, regulating home sharing (e.g. AirBnB) and increasing the number of houses is needed to make homes more affordable.
Are there prior examples of usage wherein one may 'plunge' in an upwards direction? Idiomatically, the word is most frequently used to describe (a) rapid motion into water and/or (b) rapid motion downwards. Personally, and perhaps consequentially, I have only ever encountered the term with respect to 'into' and 'downwards'. However, if the etymology of the word is consistent with a more general usage, I would be pleased to learn that.
Wow, that was idiotic of me. I misread the sentence in a weird way and failed to notice the normative interpretation; and yes, if I'd cared about the subject matter to read the article, I'd have noticed my error.
Unfortunately, it appears that we can't downvote our own comments here.
The Vancouver municipal election is today. This is a propaganda piece written by Glacier Media Real Estate. The goals of this piece is to muddy the water and convince people to not for candidates proposing an increase of housing supply.
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[ 2.8 ms ] story [ 142 ms ] threadEssentially the tax targets secondary home ownership in certain non-tourism related hot housing markets of the province. A British Columbian that has a cabin in the woods somewhere is not terribly likely to be impacted.
There has been criticism from people saying "but I'm not 'speculating' I have a second home in Vancouver because (whatever reason)", but the tax seems generally popular so far. When so many don't own a single home, and with homelessness such a significant issue in Vancouver, I don't think there's much empathy for people upset that they'll be taxed on their second home.
Housing prices are coming down in Toronto as well, and people who bought homes still under construction are finding out that that the prices are now lower than what they paid.[1]
Canada is generally has recourse laws, which means you can’t walk away from an underwater mortgage.
[1]https://www.thestar.com/business/real_estate/2018/01/29/how-...
Empty-homes tax prompts sale of Vancouver condo
https://www.theglobeandmail.com/real-estate/vancouver/articl...
It has had a real effect on employment, especially in tech. A friend of mine at hootsuite laments that sometimes they miss on great hires because even though the salary is competitive, there is literally nowhere within an hour of the office for the candidate to afford to live.
You do not recall correctly. https://www.reuters.com/article/canada-housing-vancouver/nea...
1% vacancy
5% unoccupied but not open to rent
So of the houses that are unoccupied, only 20% are vacant?
(I actually read it as 1/6th but the point is where the confusion may have come from)
In 2011, I did an occupancy survey for a college group study, and yes we counted 31% vacancy in Coal Harbour
The City of Vancouver implemented an empty homes tax, which has similar impacts on demand, but they had to ask the province for new powers in order to levy that.
The spike in affordability in Vancouver wasn't caused directly due to a shortage in housing stock and an influx of residents. It was caused by rampant speculation from people essentially using Vancouver as a safety net to park wealth.
I can't overstate how detrimental this is to a city. What you end up with are entire neighbourhoods which are occupied at 50% or less, and yet with the value of the homes exceeding $2-$4 million. It causes stores in those local neighbourhoods to close because there aren't enough customers. It taxes the fire department because no one is there to call 911 when a fire starts. It guts schools because there aren't enough kids to fill classrooms.
And with all of this going on, former local residents and young people are pushed further and further out of the urban core due to affordability. Vancouverites make less than half of what an average tech salary pays in the SF Bay Area, and the jobs are much harder to come by.
That said, yes, Airbnb and other vacation rentals were exacerbating the problem, and causing Vancouver to turn further into a vacation/tourism destination instead of a real working city. San Francisco suffers from this to a certain extent, however, its real problem is that it has a massive influx of workers due to a booming tech economy, and not enough housing stock to accommodate all of those workers.
That one doesn’t sound bad at all. Every other school district complains about the reviser, too many kids and not enough teachers / tax dollars.
So I think the problem kind of goes both ways.
And on top of that, there were lots of real estate investors who weren't even trying to keep their places occupied?
Isn't that super irresponsible investing?
It’s not less irresponsible than buying Tesla stock.
https://vancouver.ca/home-property-development/empty-homes-t...
I've read that this is the case in London, as well. And probably lots of other cities with names that are well known in China and Russia.
”What we’re seeing is that rental rates have decreased up to 20 per cent from the spring of 2017, and it’s getting even worse.”
They also say they’ve never seen anything like this in their TEN whole years of property management!!
Rents might be dropping by this much, or even more, but this is hardly even evidence of that, let alone data from “experts”.
Better title: “One property manager estimates that some luxury property rents in Vancouver have declined by up to 20% over the past year.”
Also the entire purpose of laws an regulations like Dodd Frank is to prevent debt bubbles.
Whenever someone says that we are "Due" for a correction they are falling for the gambler's fallacy.
I read real estate press almost every day, and this is pretty much a universal constant. For every bull, there is a bear. For every person predicting a market crash, there is a person predicting things will get even better. Even articles that should be straight forward statistical pieces are usually based on data from some startup web site nobody's every heard of that pushed out an infographic to get clicks.
The more I observe the real estate industry, the more I'm convinced that it's mostly made up of people too damaged to sell used cars anymore.
$5k/mo for a $3M home is a cap rate of just 2%. That's pretty terrible in itself. Now it's $4k/mo or 1.6%? How on earth is that financially sustainable at either amount?
Once safely outside of the PRC's reach, it's trivial to move the wealth around using corporate entity ownership (among other methods).
It's not trivial to move capital around using foreign corporate entities, when they track all of your communication within China. If they even so much as get a hint of that going on, and it bothers them in the least, they can do anything they like to you at that point. The hint of suspicion is more than enough, if it suits them. Being able to move capital around is meaningless, if you're not entirely physically free yourself as well.
Your scenario is only a sure thing, if you've escaped your capital and everyone you care about.
Think in terms of nobility: what’s more important, your head or your dynasty?
The house where I rent is owned by a woman in China who phoned up a local real estate management company, bought the first 20 houses on their list, and wired them the money.
It's probably more complicated than that, but that's the short form story the management company told me. The company also said it's very common.
If this article is remotely true and this is the start of a trend set off by having no rules whatsoever and then suddenly a whole bunch of not terribly well thought out rules, it's going to be interesting to see how this all plays out, especially when good old "fear is stronger than greed" investor psychology kicks in, all in an environment of steadily increasing interest rates.
I don’t know about Canada, but forming as domestic shell company to make your real estate holdings look local is pretty easy in the United States, and can be done online.
Also, what's not mentioned in that report is the percentage of purchases by foreign-owners last year or the year before. The 4.8% number is total Vancouver residential foreign-ownership - it's just a snapshot.
The linked CMHC numbers are surveys of people's perceptions of the impact of foreign money, which is a hilariously useless metric.
Stats Canada is pretty careful about the wording they use, I imagine they run everything by the legal department before release to make sure they're not technically lying, they leave that up to the newspapers and TV to accidentally misreport repeatedly, until it becomes common knowledge.
When non-residents own 5% of a market that typically only has 1-2% listed at any time, prices quadruple like in Vancouver.
Now that there's a tax on empty housing and an upcoming speculation tax persons the carrying costs on empty homes is high enough that some are clearly looking to get out of their investment.
It’s far cheaper to rent in Vancouver than to buy.
I understand it doesn't scale linearly and these are mostly foreign investors moving money out of their country, but still... I have a hard time believing you can rent a $3M mansion for just $5K a month anywhere near Vancouver.
I rent a 1500sqft condo in this building for 3k a month (listed at 2M) https://bccondos.net/1238-richards
BUT it makes sense if you have 40 such homes bought with drug or corruption money (hello China!) Who cares if you lose 4% a year (maybe rising values make up for it, maybe not) at least you have something in a relatively safe place and out of China /Russia.
Plus, it's not like the saved for 20 years to buy them...easy money.
1. So was the theory that the housing price spike was driven by foreign buyers who didn’t occupy their homes accurate?
2. So did the speculation tax work?
New buyer now have to qualify for a mortgage at the Bank of Canada rate plus 2%, which is close to to 6% now. Even though mortgages can be had for a little over 4%.
That shutdown a lot of buyers very quickly.
Basically the number of uninsured mortgages had been climbing rapidly, so this instituted so that even with a fall in housing prices, loans are less likely to default.
Good I think from a banking risk mentality, but not so good for homeowners looking to buy.
I remember reading that a couple making $100k and 20% down could have bought an $850k home before the stress test. Now it’s my more like $650k.
$100k after taxes is $65? Maybe less?
$650 after 20% does is $520 to pay off?
I know there is no magical answer but that feels right to me if I were a homeowner.
A speculation and/or vacancy tax makes sense in cities with a high number of foreign buyers like Vancouver and New York but in other cities it seems like the biggest road block is simply zoning restrictions that prevent supply to meet demand. There are second order effects that need to go w/ more building, such as adequate transportation, parking and services. But if your goal is simply to get the average down can you do better than simply building more? Rent control seems more like a band-aid for a small number of folks rather than a real solution.
There are much more money available to speculate than available surface area.
Leverage was cheap (through housing) so everyone played that asset class on margin here. Now that the interest rates are going up, it will sort itself out.
I didn't take the time to find numbers that are perfectly apples-to-apples, but it definitely doesn't seem like Toronto's median income is materially lower than Chicago's.
[0] https://www.toronto.ca/wp-content/uploads/2017/10/8f41-2016-...
[1] https://data.oecd.org/conversion/purchasing-power-parities-p...
[2] https://www.census.gov/quickfacts/fact/table/chicagocityilli...
In my city in Australia it’s common to see a single elderly retiree living in a rundown home on a large block, where the land alone could be worth close to a million dollars. When the property is sold it can often be split into two, and house two families in detached homes.
It feels cold hearted to say elderly should be pushed out of homes they have lived in for 50 years. But it does make it harder for cities to grow - the carrot of higher prices doesn’t seem to work for people who just want to live out their days in the community and home they know.
The same sized property next door has a full sized home and three townhomes. So potentially one person living in the same space that is housing a dozen next door.
More or less cold hearted than forcing three new dads to spend 15% of their waking hours getting back and forth to work, which means they only sees their kids when they are sleeping?
Doubtful, some of the biggest cities on earth have tiny geographic areas.
Build more and let them keep buying, a clear government policy that targets rezoning to keep price rises in-step with inflation would certainly make empty home investors think twice.
Real estate speculation is a gamble that governments won't accommodate growing populations and politically benefit from rising house prices. In many places on Earth they are likely right.
This is not even remotely true. Much of the city is still zoned exclusively for single-family housing, although that may be (very slowly—too slowly) changing: https://www.sightline.org/2018/08/14/vancouver-housing-of-al....
About two-thirds of Seattle is also single-family only: https://www.seattletimes.com/business/real-estate/amid-seatt....
Those factors alone likely explain much of the housing shortage. Make it legal to build the housing that people want to live in, and the housing will be built.
The numbers of multi-unit under development in Metro Van at the moment is unprecedented.
A proper speculation/vacancy tax that disincentivized empty properties in SF, Vancouver, NY and other major cities that have that issue would probably result in a noticeable rippling effect to reducing values in smaller cities.
Regardless, an economy where many people are working just to pay exorbitant rent is not a healthy economy.
No source, just something I heard from a guy trying to sell.
As one anecdote, my neighbor had arguably one of the nicest homes in one of the more sought after neighborhoods in Seattle. They sold their home in September after it "sat" on the market for 12 days and sold exactly for ask. The price was 16% less than they were estimated at in July, which is what probably triggered them to sell I guess.
Depending on which real estate agent you ask, Seattle was absolutely insane before and now it's getting back to slightly above normal levels and will stay there for a while. Others will say if this continues for a few months it's a sure sign of the bubble popping. Inventory will probably go down a little bit in the next few months mostly due to eager profiters taking a break during the usually slow winter months. Buyers will probably decrease a little bit too due to interest rate hikes. Next spring will be the real test.
Condos and rental prices don't seem affected yet, but those tend to lag homes in my experience. Seattle does have horrible density so maybe condos will stay strong at their ridiculous $550k median price.
PS: IIRC it was the may 2018 sales and inventory data that deviated from the recent trend lines. Slightly earlier than June.
That's how it went down 10 years ago, it will be same this time - come spring and the "for sale" signs will pop up on every single corner. You can just count those signs to tell if it's the buyers or the sellers market.
However there are differences too. 10 years ago we were facing a catastrophic recession, including an unprecedented level of banking shenanigans (undermining business financing) and a huge hit on the employment (undermining consumption), but this time it seems pretty stable. So that's a bull development. On the bear side, strong overall economy might embolden the Fed to keep increasing the interest rates, decreasing housing affordability and pushing the prices further down. Also Seattle has seen a huge amount of construction recently, a lot of old properties on the Capitol Hill were torn down and rebuilt in the last 3-5 years (at this point we are talking not just a number of affected properties but a percentages of the entire inventory in the Madison-Aloha area), the downtown sees a large number of constructions and SLU has been a giant construction site since like 2010. Also notably there is no shortage of rental properties downtown and Capitol Hill at stable prices. The rental market was positively nuts in the run-up to the 2008 implosion which was somewhat distressing to me personally.
Fun times!
Are you looking for a place to settle down?
If there is a major housing market correction in the next few years I wouldnt mind "upgrading" or taking a flyer on a vacation/hobby property. On my infinite "todo" list to pay more attention to commercial/industrial space.
Whatever you think of the issue, this particular article isn’t “about” the issue so much as it is a precisely-timed propaganda piece aimed at influencing the election.
Slowdown of detached home sales, speculation-tax avoidance, Airbnb rules bring flood of high-end houses onto rental market, creating “desperation” as owners slash rents
Unfortunately, it appears that we can't downvote our own comments here.
This article should be flagged.
Your claim seems plausible, even if missing the word 'vote,' but I can't evaluate without more evidence.