>> “In Metrotown here in Burnaby, and in parts of Vancouver, at nighttime you’ll walk around and you’ll see the big apartment buildings, and there’s no lights on—because nobody’s there.”
I've been saying this for years. It is scary. I used to live on the north shore. In my old neighborhood perhaps 70% of houses are dark, either empty or under some stage of reconstruction. My generation has moved away, leaving an aging population of parents. Most of those are moving away once they sell their family homes. My old neighbors who have stayed might all be living in 1/2/3 million-dollar houses, but they feel very alone at night.
In many multi-family dwellings it takes a small fraction of units occupied to break even on taxes and maintenance. If the building is a place to park cash and collect appreciation in the future maybe a 40% occupancy is good enough.
Maybe there is a tax incentive to leave it empty? For a while people in Manhattan were puzzled by empty store fronts in popular neighborhoods. Then it hit the news that if you crank the rent up sky high on retail space so that no one can afford it because there can only be so many Gucci stores in Manhattan, the lost rent (that no one could have actually afforded) can be used as a tax deduction.
Is that really how tax law works in Manhattan? How far does that extend? If I own a 2 bedroom house, and the second bedroom is empty can I claim a tax deduction on hypothetical unpaid rent from a roommate?
It's only for retail space. Actually, I just went looking for a source explaining exactly how this works, and it seems to have been a little overblown. I think it might have been stories like this that are bit light on details that got this idea started:
But the only specifics I could find is that there is a tax on commercial retail rent in NYC on $250,000 a year or more rent, and now the rent has been pushed up so high that everyone is paying it, but ultimately landlords are just holding out for long term leases with big national brands, and many of them already have all the Manhattan locations they need. Apparently, there is a push to raise it to $500,000, or even put in a tax on empty retail to give landlords an incentive to take a chance renting on boutique or so-called "popup" stores.
The problem is the landlords who own multiple buildings, who would rather leave one building half empty than have rents go down in all their other full properties
A landlord putting all of their units on the rental market would have a negligible effect on total rental supply of any city-sized urban area, and thus the average rental rate. Therefore, it's in their financial interest to put as many rental properties on the market as they can.
Census data isnt the whole story. Many elderly people actually live in care homes, but thier residence/house sits waiting for them. So too with people who own houses to maintain a canadian "residence" when in reality they live overseas.
The Canadian census doesn't capture a specific snapshot in time?
When the census is held in Australia the data is collected about where you were on the night that it is held - if you're in a hotel or a care home then you're counted as living there for the night. If you're visiting friends you're counted at their residence.
2016 was a while ago now, but it'll be interested to see how the population holds up at the next one:
The US and Canadian census forms only care about your primary residence, if you have one. If you don't, then you mark your actual location on census day.
> My generation has moved away, leaving an aging population of parents.
I thought the spooky story was that these properties were owned by Chinese investment groups, not aging Canadian parents, and are empty for that reason.
> “Who are we building for? What income brackets can afford these units being put up in Vancouver?” asks Andy Yan, director of The City Program at Simon Fraser University in Vancouver.
That is such the wrong question to ask. We live in a market economy, no single person decides what sort of thing gets built - the market does.
Today's luxury apartment is tomorrow's affordable one. It is unfair and unrealistic to expect the market to build brand new and cheap apartments. Those words to not go together.
We can't just build more houses in the same size of city - it needs to expand outward. Stuffing more apartments in the same square mile won't do much.
The bigger issue is that "higher density" compared to the old status quo still isn't producing enough new housing to moderate prices; if prices remain high, there are only two fundamental methods to deal with high prices: increase supply or reduce demand.
> We can't just build more houses in the same size of city - it needs to expand outward. Stuffing more apartments in the same square mile won't do much.
Japan seems to be able to do this without house prices going out of control.
The goal is to build housing that is actually used as housing as opposed to a vehicle for speculation.
Legislative policies determine the type and terms of the "market economy" that is lived in.
If today's luxury apartment had a decent probability of being tomorrow's affordable one it would not have demand. Unless of course one assumes that luxury buyers are seeking to lose money.
It becomes approximately fifo. Oldest or otherwise least desirable housing becomes affordable housing as demand is met with newer more desirable housing being built. But if you're never building new housing, nothing gets pushed out the bottom to become affordable.
That's just noise as long as construction keeps up with or outpaces demand. The problem is some cities have held back construction for decades, so it will take significant construction to get to the other side of the supply curve.
As a thought experiment, what if you doubled the supply of housing units in Manhattan? Or 10x? 20x? I have a hard time believing housing prices would remain high.
A market with more homes per housing seeker is more likely to contain one for you.
As long as that ratio is less than one, some people are excluded. Price is what that looks like in a market. Under central planning it’s typically lotteries and waiting lists.
Supply/demand balance in the region is much more important than the characteristics of any particular unit, and that’s what pro-growth activism is targeting.
A dwelling has zero intrinsic value. Ultimately, it only has value if someone is living in it. Having real estate sit empty can only be a temporary affliction.
Supply & demand - it's the law.
---
Buying real estate to just hold is almost always a losing proposition because of taxes and the time value of money. It is not like a bond, because bonds have guaranteed payouts. Real estate fluctuates in value, quite a lot. It's very easy to lose pots of money in real estate.
Thinking that users will become more desperate is hoping that the government will prevent supply from increasing, or that customers don't simply find other solutions. I suggest looking up what happened when the Hunt Brothers tried to corner the silver market by buying up the supply. Buying up your competition to drive up prices pretty much never works unless the government makes entry of competitors illegal or very hard.
>> Ultimately, it only has value if someone is living in it.
I got kicked out of my unit vancouver unit (3500$/month) because my landlord wanted to sell. In Vancouver's market a unit with a renter is worth LESS than a vacant property. Clearing it out to repaint and upgrade a few faucets is worth more than the rent income. That's how twisted the market has become.
Professional landlords like paying tenants. Investors see them as potential problems, irritants and impediments to redevelopment or construction.
Selling a unit with a tenant is hard, even if the new buyer is planning to rent.
Typically before and after the sale there is work being done on a unit that can’t be done while it’s occupied. Also the new buyer might have different screening they want to do for a prospective tenant, or may want a different lease term, etc.
It’s worth losing a couple months rent to be able to show the unit when you want, to have it cleared out so the buyer can inspect it, and sell it without a lease attached that they may not like. It also limits the buyer pool to sell it already leased to someone a prospective buyer doesn’t know and doesn’t want to know.
>>The goal is to build housing that is actually used as housing as opposed to a vehicle for speculation.
You're completely ignoring Econ 101.
Housing that is used as housing and housing that is a vehicle for speculation are not mutually exclusive. Rental properties produce rental income and appreciation for their owners. More people looking to make money from real estate investments results in more capital investment going into expanding housing stock, and thus more rental supply, which drives down rental rates.
The places which suffer the most from lack of affordable housing tend to be those that put in place the most impediments to profit-motivated investment. In other words, they ignore basic economics.
> Today's luxury apartment is tomorrow's affordable one.
Housing ain’t exactly the same as the used car market. I don’t think there’s such thing as a house that was once going for $1M+ that is now “affordable” unless it’s in a horrible state of disrepair.
The crappy student apartments where I went to school housed upper-class families in their day (before suburbanization). It happens. Deteriorated grandeur has a certain charm.
More to the point, there are plenty of homes that were affordable and in disrepair not long ago, that are now going for $1M+ in exactly the same physical shape. San Francisco’s problem is definitely not that its housing stock is too nice.
That isn't even true of many cars. 20-30 year old luxury cars sell for tens of thousands -- which might be cheap or comparable to new low-end car, if you don't consider cost of ownership
The problem is the real estate market is very heavily regulated. So even if the market is demanding 50,000 more high-rise condo units be built...it can't happen if the area only approves 5,000 units. That's why it is so important to have smart regulations that promote growth. In real estate, it is easy for certain groups to be anti-building because they know it will skyrocket their existing real estate investments.
>Today's luxury apartment is tomorrow's affordable one
That isn't necessarily true. It is most obvious when a neighborhood is experiencing gentrification. For example, imagine a SRO hotel in which the rooms are no more than one or two hundred square feet. Buildings like this used to be incredibly common in the Skid Row neighborhood of Los Angeles and multiple neighborhoods in San Fransisco. Many of those buildings are being knocked down in order to replace them with high-rise luxury condos. Since the new buildings are high-rises replacing much smaller structures, the new units can have several times more space per unit and still increase the density of the lot. The problem is that a 1000 sqft unit with amenities like an in unit washer and dryer is never going to drop to the price of a 200 sqft SRO room that doesn't even have an in unit toilet and shower. The new and old homes are so far apart that they don't behave like they are part of the same market.
As a thought experiment, imagine the city tore down every other building in Chicago and filled every square inch of real estate with cookie cutter copies of the John Hancock center. The number of total available units in the city would skyrocket. Do you believe per unit price would remain the same?
The per unit price would obviously drop compared to the existing John Hancock Center. The per unit cost citywide might drop (I don't have enough information about Chicago to say for sure, but it is certainly feasible). But it is unlikely that any of these new units would be as cheap as the cheapest units that currently exist in Chicago. That is a problem that this market approach to affordable housing doesn't solve. Housing isn't a single market in which every unit is interchangeable. You need a wide variety of different housing options in order to house a wide variety of people.
Obviously in a real scenario different types of housing would be built. But if you increase the supply of total housing by 20x, then I feel confident some housing would be cheaper than the current cheapest housing. Even if that just means the current cheapest housing becomes cheaper than it is today. If you doubt this would happen at 20x, don't let me stifle your imagination. There could be 50x or 100x more units. Do you honestly believe there is no amount of supply that would result in significant housing price drops, even at the low end?
I am not sure what point you are really getting at here, but sure, if you increase the housing supply 100x there would be a significant drop in housing costs. I don't know how admitting to that fact impacts the real world considering actual growth rates are probably 4 orders of magnitude smaller. My original point still stands that we can't just leave things up to the market to fix the bottom of the housing market.
Ok, so we agree that at 100x the current supply the price would drop. What is stopping builders from creating 100x supply?
There's only two things I see that make sense as answers here.
One is regulation/zoning. Let's assume we could fix that.
The second would be if the sale price dropped below the nominal cost of constructing new units, with some wiggle room in there for opportunity cost to builders who might make more money by choosing to build elsewhere. Do you believe that's the case currently in NYC, Chicago, etc? Is the price so low that it's not even worth it for builders to bother creating new units, because they couldn't recoup their costs?
>The second would be if the sale price dropped below the nominal price of construction new units, with some wiggle room in there for opportunity cost to builders who might make more money by choosing to build elsewhere.
You also have to factor in the opportunity cost of the land/unit too which is where the argument starts to fall apart. Why build a unit that rents for $X when you can increase your build costs by Y% and charge a rent higher than $X + Y%. That is why new construction generally comes in at or near the top of the market. Construction costs generally don't make up most of the costs of new homes in places like San Francisco, Chicago, or Los Angeles.
But sure, if you want to create a world with no zoning laws and with 10000% increase in housing supply, I am sure it will solve all the problems with pure brute force.
There's not an infinite supply of wealthy people at the top of the market. The more of those units that get built, the tighter the margins get squeezed and the less attractive it becomes to build those.
Fixing zoning laws doesn't necessarily mean having no zoning laws.
Ok, building more housing is "brute force." The other option on the table seems to be a tiny sliver of poor people win the artificially low priced housing lottery. I understand why that might feel good, but I don't see how it actually solves the problem in the long run.
At the Hancock Center? Yes. People pay a premium to live there because it's near shopping and jobs and transit and the lake. Crap neighborhoods will continue to be crap, just with cheap housing that nobody wants to live in.
People aren't water. They don't flow to any available crevice. They go where the stuff they need and want is.
Another thing the new luxury unit does is it reduces competition for the units just below it on the value chain from wealthier buyers who now have more options at the higher scale.
This effect cascades all the way down the price curve. In macroeconomic terms, increasing supply shifts the whole curve below that point.
This is true so long as the new supply isn’t itself causing new demand, e.g. foreign investors leaving the unit empty.
>This is true so long as the new supply isn’t itself causing new demand
Which is where your argument falls apart. Cities aren't closed systems. The price reductions won't trickle down to the bottom of the market because at some point there is always going to be people who are willing to move in from neighboring neighborhoods, cities, or regions. It isn't like the only people who live in San Francisco are the only people who can afford it. There are plenty of people who could afford the worst possible home in San Francisco but decide not to move their because they can't afford a home they want. Once those middle of the market prices come down, people will move in to fill that new supply.
I think "just build denser housing" is tomorrow's "let's just add lanes to the freeways."
We have to consider the whole system - jobs, office space, etc. If more housing just makes a healthy job market grow even faster in a loop, you've changed a lot just to stand still affordability-wise.
Do we really need ever-growing city centers vs some more disperse way of working and living?
Even in the unlikely event that prices did stay the same after building massively more housing, it would still mean a whole lot more people able to live in a highly desirable area.
Who are you to tell people where and how they should work and live?
Increasing taxes on all landlords would cause upwards pressure on rents as lanlords would need to collect more money to cover their costs and hopefully save enough to be able to retire one day.
when my margins go down I will raise the rents. I currently could charge more but I believe charging slightly less than market gets me a better tenant and some goodwill since I am not a full time landlord.
Markets are a product of a lot of rules that favor one thing or the other. It's not a natural law that markets and the rules have to be exactly the way they are now.
It would be a peculiar question to ask if Vancouver was a closed system but it's not.
The reality is that many of these new condos are being marketed extensively in HK and other places where there are deep pocketed investors looking for good yields and which may not be able to participate in their own local market.
With this context, it's very appropriate to ask pointed questions about 'whom a development is for.' Is the development accessible by locals whose income is limited by the nature of the local economy, or is it intentionally developed for a global audience whose incomes a local may be incapable of reaching?
I'll take this "noise" as a success, considering that the previous few years saw insane 20% YoY growth. Crashing the market overnight was not the government's task.
Now I'm curious, what do they mean in America? As a Canadian I think both words describe a single unit in a multi-story building, but say "apartment" if the entire building is owned by one company and all units are rented, and "condo" if each unit is sold to an individual owner (who may still rent it out privately if they want). I rent an apartment, I'd buy a condo. They're physically the same thing, just different ownership models. Most Canadians I know (Vancouver/Calgary) do the same.
What I have encountered is that the word apartment is accepted for any residential unit while words that specifically relate to the nature of occupancy are not always used because that may be ambiguous. Is an apartment the only residential unit in the building? Is an apartment a condo, joint or fractional ownership, rental, or timeshare? All of these tend to be referred to casually as apartments unless more is known and needs to be communicated.
In the market of people who would buy a house / condo with the proceeds of their job, you will see the cheap stuff bought first and go up in price while expensive stuff goes down until they reach an equilibrium point of pricing of whatever people can afford.
Yes, Vancouver downtown apartments were $1200/sq feet. Apparently you need at least $1 million US dollars to have a family of four living in downtown Vancouver. Crazy huh.
Totally a poor source of data, but i'm presently shocked by the number of my friends moving to the west coat. I decided id spend the summer in Victoria, and it appears 4 other friends, without having discussed it with each other are also doing the same thing.
Anecdotal, but I've had 20 (!) friends leave Vancouver over the past 5 years. 18 of them had young families and sought situations where they weren't grinding themselves into dust to make it work in a city/province that didn't appear to want them. 2 sought better professional opportunities in Toronto.
I think the end of the Chinese speculative bubble is having huge effect in previously crazy hot markets. Vancouver, California, Australia/NZ, HK have all finally come down in price in the last year. Is going to be a hell of a hangover.
They are moving to Europe / Germany, prices are sky rocketing here.
Right now, the discussion we have is : socialize private buildings and make them state owned ( I kid you not!)
No talk about new buildings, or law changes etc..
In my mind, the obvious solution is to require land owners be permanent residents of the country in which they are buying, and restrict the total properties owned by a specific entity. Do not allow foreign controlled corporations to purchase residential property.
Depends on what one's opinion of 'the housing problem' is.
The new taxes (coupled with stricter lending rules) have had a remarkable effect on land values. Detached home sales are at 20 year lows and we're seeing 25-30% declines in prices.
Rents haven't plunged, but there's evidence that the rises in rent have stalled out. The amount of multi-unit developments under construction is unprecedented[1], with tons in the pipeline, so I'd expect the sub 1% vacancy rate to rise and rents to moderate.
Thanks for those two interesting sources. It'd say prices are going down, sales are slowing because people are shying away from buying rapidly depreciating assets, but those homes are still way over what they should cost in general. When prices come down to match reasonable value from other similar areas (with perhaps some extra value for being in Vancouver) then sales will come back.
It's remarkable to me that major foreign media outlets such as the WSJ, Atlantic, NYT, Financial Times and Bloomberg have no issues calling a spade a spade, noting the obvious distortive impacts of foreign capital on Vancouver's real estate market, meanwhile if local media notes this same fact it invites an avalanche of pearl clutching comments about potential 'racism.'
I see a bunch of comments here saying basically that "today's luxury properties are tomorrow's affordable properties". I don't know where this myth originated but it's exactly that, a myth.
Look at Manhattan's most expensive buildings in terms of price per square foot (which can be north of $5000!). Some, like 15 Central Park West and One57 and some others on 57th Street, are new but many are not. Famously there's the San Remo building (which is ~100 years old), Walker Tower in Chelsea and a number of other buildings on Park Avenue and Fifth Avenue that are a century old, give or take, and not remotely affordable.
There are factors why these buildings will basically never be "affordable", namely:
- They may have ceilings in the order of 14-18'
- They may have floors and ceilings that are 1' thick or more;
- Land prices are extremely high.
So even though some of these apartments might be "only" 2000 square feet, they occupy the space of an apartment that might be as much as 2-4x as large due to the way the building is built. A stone's throw from Walker Tower you'll find postwars that sell for under $1500/sq ft, for example.
I'm actually a big fan of cities not becoming ghost towns of empty condos and houses that are nothing more than a place to park capital for the ultra-wealthy. Australia, for example, forbids foreign purchases of anything other than new builds.
Developers build ultra-luxury condos because it's way more profitable. Part of the reason is the demand but another part is the cost structure is wrong and New York City and state bear some of the blame for this eg [1]. That's just insurance. Construction itself has become unaffordable. Many capital projects exist in the US today that would simply be cost-prohibitive to build or replace now.
I'm all for an extreme measure here: the world's large urban centers should start taxing homeowners on worldwide income. No double taxation. There are already mechanisms for this. You want to own property in NYC or Vancouver or San Francisco? Great. You're now a resident taxpayer. You can always seize the property if they won't pay.
One thing about Vancouver in particular, and this probably applies to Canada in general: WTF is up with a median wage of C$50k? How is it the US can afford to pay US$350k+ for a SWE in NYC or SF that might earn less than C$100k in Vancouver? How did that happen?
In the developed world there basically hasn't been an increase in real wages since 1980 while the ultra-wealthy get richer and richer. With no wars or revolutions in sight to redistribute that wealth (which, historically, has been what's happened when wealth inequality gets too out of whack), something needs to be done to address that.
Good points. It's surprising that these cities are facing such a major housing crisis, and still allow foreign purchases of residential property. If someone wants to buy a house, they should intend to live there. This is especially true for non-residents. Stop allowing your housing market to be a speculative tool for people who are not even a part of your community.
The reason these older apartments (known in NYC anyway as "pre-war") are in demand, though, is they were built with much higher quality - as you point out, high ceilings, thick walls, etc. All of those places have been renovated (many times in fact), but the value lies in the higher quality older construction, and importantly, that fact that that construction does not exist going forward is a big reason for the value in those apartments.
I personally have seen new "luxury" condos in a major American city built in 2000 being devalued because since that time there have been many more "more luxury" condos built, to the point where the older condos lack features that make it difficult to compete with the newer buildings.
It seems that literally every new condo for sale in Vancouver is marketed as "luxury". Doesn't have to be downtown. Doesn't have to be well built or have extra high ceilings. Everything is expensive here.
Not to defend the wacky compensation vs. house prices ratio, but the SWE who earns less than C$100k in Vancouver is not the same SWE who's going to make US$350k+ just by moving to NYC or SF. Not by a long shot, or they've been exceedingly bad at salary negotiation before and suddenly turn into an expert player upon emigration.
(That said, there does seem to be somewhat of a lack of higher-end developer jobs compared to parts of the US.)
Old apartments in hip neighborhoods usually rent for less than brand-new ones. At least that's what I found.
The luxury -> affordable saying is super simplified, yes. But brand-new "cheap" housing will certainly never exist without subsidies. Cheap older housing stock certainly does.
An average Canadian or American cannot compete with the ill-gotten wealth of corrupt individuals in China, Africa or anywhere else. Those corrupt individuals are investing in these properties taking advantage of the stable and lawful markets enabled by the common man- but they are also harming them. Ironic.
This article rests on much of the common ignorance around these counterintuitive issues. I'll try to address the biggest ones:
- New supply in a desperate shortage situation will always be expensive. Interpreting that as new supply being bad is the dumbest thing you can do!! Yet it's extremely common in the housing debate.
No! The new supply is expensive because of the desperate shortage! There is no magical way to build cheap housing in a shortage, liked no one would notice it somehow... The old housing is just as expensive! Keep the supply up, and prices will come down!
- "This is all the fault of foreigners and speculators".
No! We all have the impulse to blame our problems on evil outsiders who are different from us and don't care about human values like we do. That's xenophobic bullshit 9 times out of10. Vancouver just has too few homes for too many people. There is no foreigner conspiracy. Just build and and it will be alright, alright?
Probably didn't change anyone's mind, but I honestly think those are the two biggest points.
It's not xenophobic to say that money is flowing in to building ownership, and that this inflates prices. You might be able to find someone calling them evil but that's 9/10ths strawman. And it wouldn't be a conspiracy in the first place.
If that's an accurate description of what's actually happening, sure.
But I really doubt that's the case. Normally prices rise because supply is strangled by legal restrictions, controlled by the local property owning elites looking out for their property values. That's definitely the case here in California. I don't know Vancouver enough to say.
When that happens the secondary effect is that housing in that area becomes a great investment. This attracts investment capital from all over the world, much of it foreign, since it's a big world. This in turn probably drives up prices even faster.
And... I guess it's not even exactly wrong to say that the foreign money is driving up prices in that scenario. But it's also not at all a root cause!! Trying to regulate it is attacking a symptom, not the real problem, and will solve nothing.
The real solution is to "legalize housing", as the slogan goes. Make it legal to massively build the housing that is demanded, and there will be housing for everyone.
And as always in these situations, getting to the real solution is much harder, because there is real power in the way who benefits from the status quo.
If the root cause drives half the price increase, and the speculation drives the other half, regulation to fight speculation can do a lot! You certainly do want to fight both. And if it's harder to speculate, that might also reduce the pushback toward increasing supply.
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[ 2.5 ms ] story [ 152 ms ] threadI've been saying this for years. It is scary. I used to live on the north shore. In my old neighborhood perhaps 70% of houses are dark, either empty or under some stage of reconstruction. My generation has moved away, leaving an aging population of parents. Most of those are moving away once they sell their family homes. My old neighbors who have stayed might all be living in 1/2/3 million-dollar houses, but they feel very alone at night.
https://www.amny.com/opinion/the-sad-story-behind-nyc-vacant...
But the only specifics I could find is that there is a tax on commercial retail rent in NYC on $250,000 a year or more rent, and now the rent has been pushed up so high that everyone is paying it, but ultimately landlords are just holding out for long term leases with big national brands, and many of them already have all the Manhattan locations they need. Apparently, there is a push to raise it to $500,000, or even put in a tax on empty retail to give landlords an incentive to take a chance renting on boutique or so-called "popup" stores.
https://cityandstateny.com/articles/opinion/commentary/reduc...
When the census is held in Australia the data is collected about where you were on the night that it is held - if you're in a hotel or a care home then you're counted as living there for the night. If you're visiting friends you're counted at their residence.
2016 was a while ago now, but it'll be interested to see how the population holds up at the next one:
https://www12.statcan.gc.ca/census-recensement/2016/dp-pd/pr...
I thought the spooky story was that these properties were owned by Chinese investment groups, not aging Canadian parents, and are empty for that reason.
That is such the wrong question to ask. We live in a market economy, no single person decides what sort of thing gets built - the market does.
Today's luxury apartment is tomorrow's affordable one. It is unfair and unrealistic to expect the market to build brand new and cheap apartments. Those words to not go together.
We can't just build more houses in the same size of city - it needs to expand outward. Stuffing more apartments in the same square mile won't do much.
The bigger issue is that "higher density" compared to the old status quo still isn't producing enough new housing to moderate prices; if prices remain high, there are only two fundamental methods to deal with high prices: increase supply or reduce demand.
Japan seems to be able to do this without house prices going out of control.
Legislative policies determine the type and terms of the "market economy" that is lived in.
If today's luxury apartment had a decent probability of being tomorrow's affordable one it would not have demand. Unless of course one assumes that luxury buyers are seeking to lose money.
Housing that becomes affordable by the time I am dead is not really "affordable" housing for me.
As a thought experiment, what if you doubled the supply of housing units in Manhattan? Or 10x? 20x? I have a hard time believing housing prices would remain high.
As long as that ratio is less than one, some people are excluded. Price is what that looks like in a market. Under central planning it’s typically lotteries and waiting lists.
Supply/demand balance in the region is much more important than the characteristics of any particular unit, and that’s what pro-growth activism is targeting.
Housing isn't like a car. It doesn't depreciate as soon as the first person moves in.
- Holding an asset until users become more desperate
- Taking an asset off the market in order to drive up the price of other assets in the category
- Buying an asset to hold, if reliable bonds aren't available in your locale, or there are limits to what assets you can book locally
Not to mention ulterior motives:
- Money laundering
- A vehicle for bribes
Money is quite complicated actually.
Supply & demand - it's the law.
--- Buying real estate to just hold is almost always a losing proposition because of taxes and the time value of money. It is not like a bond, because bonds have guaranteed payouts. Real estate fluctuates in value, quite a lot. It's very easy to lose pots of money in real estate.
Thinking that users will become more desperate is hoping that the government will prevent supply from increasing, or that customers don't simply find other solutions. I suggest looking up what happened when the Hunt Brothers tried to corner the silver market by buying up the supply. Buying up your competition to drive up prices pretty much never works unless the government makes entry of competitors illegal or very hard.
I got kicked out of my unit vancouver unit (3500$/month) because my landlord wanted to sell. In Vancouver's market a unit with a renter is worth LESS than a vacant property. Clearing it out to repaint and upgrade a few faucets is worth more than the rent income. That's how twisted the market has become.
Professional landlords like paying tenants. Investors see them as potential problems, irritants and impediments to redevelopment or construction.
Typically before and after the sale there is work being done on a unit that can’t be done while it’s occupied. Also the new buyer might have different screening they want to do for a prospective tenant, or may want a different lease term, etc.
It’s worth losing a couple months rent to be able to show the unit when you want, to have it cleared out so the buyer can inspect it, and sell it without a lease attached that they may not like. It also limits the buyer pool to sell it already leased to someone a prospective buyer doesn’t know and doesn’t want to know.
You're completely ignoring Econ 101.
Housing that is used as housing and housing that is a vehicle for speculation are not mutually exclusive. Rental properties produce rental income and appreciation for their owners. More people looking to make money from real estate investments results in more capital investment going into expanding housing stock, and thus more rental supply, which drives down rental rates.
The places which suffer the most from lack of affordable housing tend to be those that put in place the most impediments to profit-motivated investment. In other words, they ignore basic economics.
Housing ain’t exactly the same as the used car market. I don’t think there’s such thing as a house that was once going for $1M+ that is now “affordable” unless it’s in a horrible state of disrepair.
More to the point, there are plenty of homes that were affordable and in disrepair not long ago, that are now going for $1M+ in exactly the same physical shape. San Francisco’s problem is definitely not that its housing stock is too nice.
pick one
That isn't necessarily true. It is most obvious when a neighborhood is experiencing gentrification. For example, imagine a SRO hotel in which the rooms are no more than one or two hundred square feet. Buildings like this used to be incredibly common in the Skid Row neighborhood of Los Angeles and multiple neighborhoods in San Fransisco. Many of those buildings are being knocked down in order to replace them with high-rise luxury condos. Since the new buildings are high-rises replacing much smaller structures, the new units can have several times more space per unit and still increase the density of the lot. The problem is that a 1000 sqft unit with amenities like an in unit washer and dryer is never going to drop to the price of a 200 sqft SRO room that doesn't even have an in unit toilet and shower. The new and old homes are so far apart that they don't behave like they are part of the same market.
Case in point: The John Hancock Center in Chicago. 700 units of luxury living since 1969.
Apartments may depreciate, but in a good number of cases condos don't get any cheaper.
There's only two things I see that make sense as answers here.
One is regulation/zoning. Let's assume we could fix that.
The second would be if the sale price dropped below the nominal cost of constructing new units, with some wiggle room in there for opportunity cost to builders who might make more money by choosing to build elsewhere. Do you believe that's the case currently in NYC, Chicago, etc? Is the price so low that it's not even worth it for builders to bother creating new units, because they couldn't recoup their costs?
You also have to factor in the opportunity cost of the land/unit too which is where the argument starts to fall apart. Why build a unit that rents for $X when you can increase your build costs by Y% and charge a rent higher than $X + Y%. That is why new construction generally comes in at or near the top of the market. Construction costs generally don't make up most of the costs of new homes in places like San Francisco, Chicago, or Los Angeles.
But sure, if you want to create a world with no zoning laws and with 10000% increase in housing supply, I am sure it will solve all the problems with pure brute force.
Fixing zoning laws doesn't necessarily mean having no zoning laws.
Ok, building more housing is "brute force." The other option on the table seems to be a tiny sliver of poor people win the artificially low priced housing lottery. I understand why that might feel good, but I don't see how it actually solves the problem in the long run.
People aren't water. They don't flow to any available crevice. They go where the stuff they need and want is.
This effect cascades all the way down the price curve. In macroeconomic terms, increasing supply shifts the whole curve below that point.
This is true so long as the new supply isn’t itself causing new demand, e.g. foreign investors leaving the unit empty.
Which is where your argument falls apart. Cities aren't closed systems. The price reductions won't trickle down to the bottom of the market because at some point there is always going to be people who are willing to move in from neighboring neighborhoods, cities, or regions. It isn't like the only people who live in San Francisco are the only people who can afford it. There are plenty of people who could afford the worst possible home in San Francisco but decide not to move their because they can't afford a home they want. Once those middle of the market prices come down, people will move in to fill that new supply.
We have to consider the whole system - jobs, office space, etc. If more housing just makes a healthy job market grow even faster in a loop, you've changed a lot just to stand still affordability-wise.
Do we really need ever-growing city centers vs some more disperse way of working and living?
Who are you to tell people where and how they should work and live?
If you tax land to increase the cost of carry you will see prices fall. Taxes work.
Disclaimer: I am a landlord
Moreover, today's luxury apartment turns yesterday's luxury apartment into a less expensive one.
Markets are a product of a lot of rules that favor one thing or the other. It's not a natural law that markets and the rules have to be exactly the way they are now.
The reality is that many of these new condos are being marketed extensively in HK and other places where there are deep pocketed investors looking for good yields and which may not be able to participate in their own local market.
With this context, it's very appropriate to ask pointed questions about 'whom a development is for.' Is the development accessible by locals whose income is limited by the nature of the local economy, or is it intentionally developed for a global audience whose incomes a local may be incapable of reaching?
https://www.huffingtonpost.ca/2019/04/02/vancouver-house-pri...
And https://www.zolo.ca/vancouver-real-estate/trends shows overall trending downwards.
Seems like it's working.
It was really weird moving to the states and have people care which word I used.
(Extra) Fun Fact: Canadians do differentiate (a lot) between University and College. Something Americans do not do.
https://vallarino.ca/blog/downtown-vancouver-condo-price-gra...
Yes, Vancouver downtown apartments were $1200/sq feet. Apparently you need at least $1 million US dollars to have a family of four living in downtown Vancouver. Crazy huh.
I'd be interested to learn about other objective studies on this.
Right now, the discussion we have is : socialize private buildings and make them state owned ( I kid you not!) No talk about new buildings, or law changes etc..
https://www.smartcitiesdive.com/ex/sustainablecitiescollecti...
The new taxes (coupled with stricter lending rules) have had a remarkable effect on land values. Detached home sales are at 20 year lows and we're seeing 25-30% declines in prices.
https://twitter.com/SteveSaretsky/status/1126176658816290816
Rents haven't plunged, but there's evidence that the rises in rent have stalled out. The amount of multi-unit developments under construction is unprecedented[1], with tons in the pipeline, so I'd expect the sub 1% vacancy rate to rise and rents to moderate.
[1] https://twitter.com/YVRHousing/status/1126269398606438400
Look at Manhattan's most expensive buildings in terms of price per square foot (which can be north of $5000!). Some, like 15 Central Park West and One57 and some others on 57th Street, are new but many are not. Famously there's the San Remo building (which is ~100 years old), Walker Tower in Chelsea and a number of other buildings on Park Avenue and Fifth Avenue that are a century old, give or take, and not remotely affordable.
There are factors why these buildings will basically never be "affordable", namely:
- They may have ceilings in the order of 14-18'
- They may have floors and ceilings that are 1' thick or more;
- Land prices are extremely high.
So even though some of these apartments might be "only" 2000 square feet, they occupy the space of an apartment that might be as much as 2-4x as large due to the way the building is built. A stone's throw from Walker Tower you'll find postwars that sell for under $1500/sq ft, for example.
I'm actually a big fan of cities not becoming ghost towns of empty condos and houses that are nothing more than a place to park capital for the ultra-wealthy. Australia, for example, forbids foreign purchases of anything other than new builds.
Developers build ultra-luxury condos because it's way more profitable. Part of the reason is the demand but another part is the cost structure is wrong and New York City and state bear some of the blame for this eg [1]. That's just insurance. Construction itself has become unaffordable. Many capital projects exist in the US today that would simply be cost-prohibitive to build or replace now.
I'm all for an extreme measure here: the world's large urban centers should start taxing homeowners on worldwide income. No double taxation. There are already mechanisms for this. You want to own property in NYC or Vancouver or San Francisco? Great. You're now a resident taxpayer. You can always seize the property if they won't pay.
One thing about Vancouver in particular, and this probably applies to Canada in general: WTF is up with a median wage of C$50k? How is it the US can afford to pay US$350k+ for a SWE in NYC or SF that might earn less than C$100k in Vancouver? How did that happen?
In the developed world there basically hasn't been an increase in real wages since 1980 while the ultra-wealthy get richer and richer. With no wars or revolutions in sight to redistribute that wealth (which, historically, has been what's happened when wealth inequality gets too out of whack), something needs to be done to address that.
[1] https://www.constructiondive.com/news/critics-blame-nycs-sca...
I personally have seen new "luxury" condos in a major American city built in 2000 being devalued because since that time there have been many more "more luxury" condos built, to the point where the older condos lack features that make it difficult to compete with the newer buildings.
(That said, there does seem to be somewhat of a lack of higher-end developer jobs compared to parts of the US.)
The luxury -> affordable saying is super simplified, yes. But brand-new "cheap" housing will certainly never exist without subsidies. Cheap older housing stock certainly does.
- New supply in a desperate shortage situation will always be expensive. Interpreting that as new supply being bad is the dumbest thing you can do!! Yet it's extremely common in the housing debate.
No! The new supply is expensive because of the desperate shortage! There is no magical way to build cheap housing in a shortage, liked no one would notice it somehow... The old housing is just as expensive! Keep the supply up, and prices will come down!
- "This is all the fault of foreigners and speculators".
No! We all have the impulse to blame our problems on evil outsiders who are different from us and don't care about human values like we do. That's xenophobic bullshit 9 times out of10. Vancouver just has too few homes for too many people. There is no foreigner conspiracy. Just build and and it will be alright, alright?
Probably didn't change anyone's mind, but I honestly think those are the two biggest points.
But I really doubt that's the case. Normally prices rise because supply is strangled by legal restrictions, controlled by the local property owning elites looking out for their property values. That's definitely the case here in California. I don't know Vancouver enough to say.
When that happens the secondary effect is that housing in that area becomes a great investment. This attracts investment capital from all over the world, much of it foreign, since it's a big world. This in turn probably drives up prices even faster.
And... I guess it's not even exactly wrong to say that the foreign money is driving up prices in that scenario. But it's also not at all a root cause!! Trying to regulate it is attacking a symptom, not the real problem, and will solve nothing.
The real solution is to "legalize housing", as the slogan goes. Make it legal to massively build the housing that is demanded, and there will be housing for everyone.
And as always in these situations, getting to the real solution is much harder, because there is real power in the way who benefits from the status quo.