Is there a peak for Metro Vancouver housing prices? What about the question of (infinite) demand?

Balance needed in supply demand, CHW, Mar-2015Any Canadian public official who talks about affordable housing in Vancouver should be met with a demand to deal with DEMAND. (Adapted from a quote by urban thinker Joseph Jones — see below.)

(Updated) In the world today, the DEMAND for Vancouver’s land and housing appears to be virtually infinite, while the SUPPLY of Vancouver housing is finite. (Update: And a large part of that demand is money from corruption overseas and being laundered here in real estate. See “Chinese police secret operations in B.C. hunt allegedly corrupt officials, laundered money — much of it in real estate“)

Everyone is talking about the high cost of housing in Metro Vancouver. But in just 400 words, the Vancouver Sun editors expose what may be the most serious blind spot of the influential people and organizations in our region. See “Editorial: Is there a peak for Metro housing prices? Impossible to say” (Editorial, Vancouver Sun, 26-Feb-2015). We copy some excerpts below.

Increasing the SUPPLY of housing seems to be the fixation of most of the influential players in the urban planning and civic system. Yes, the SUPPLY of and DEMAND for housing are obviously major factors in land and housing prices.  And boosting the supply creates business for many players involved in the industry. So naturally they want to cut costs, reduce red tape, and maximize business and profits. Developers, construction firms, architects, consultants, and the newspapers (depending on advertising) all benefit. But what is best for society overall? Influential people in the industry are saying that the ordinary people have to reduce their expectations and get used to smaller places, while pushing our municipal governments to permit rezonings and developments to let them squeeze more people together with tighter density. Meanwhile, the City and industry appear to be fanning the flames of DEMAND by marketing Vancouver overseas as a commodity (see for example “Vancouver firm offers a one-stop real estate shop for Chinese investors in B.C.“).

Our policy makers are elected to make good policy that puts the public interest first. Can they introduce policies to address the DEMAND for housing? The industry, our academics and governments claim not to have enough data for this. (There even seems to be a consistent effort to avoid the topic, an intentional effort to “look the other way.”) From the perspective of the Vancouver housing market, is feels like global demand could be considered virtually infinite.

  • Interest rates are still at historic lows in Canada and around the world. The Chinese central bank just cut rates even more. There is a huge amount of money sloshing around the world, searching for a place to “park.”
  • The world’s wealthiest are not restrained by price, but local people on local salaries and wages certainly are. Are our policy makers abandoning their own citizens, leaving them to fend for themselves in the context of the global forces?
  • Canada and Vancouver are considered attractive places to park money, for having a stable democracy and economy.
  • Other jurisdictions are tightening up on foreign speculators, empty mansions, and absentee landlords. Vancouver’s policy makers are very passive on these issues, failing to even talk about them, and leaving the people who actually live here even more exposed to the forces of global money.
  • Our national and local governments are “flying blind,” with a lack of information about buyers and ownership of housing. This is no accident. It seems to be an intentional blind spot.

Some jurisdictions are getting proactive. Here is an article about what is going on elsewhere: Australia considers fees for foreign property buyers, The Telegraph (27-Nov-2014).

Vancouver Sun editorial…

Editorial: Is there a peak for Metro housing prices? Impossible to say (26-Feb-2015)

http://www.vancouversun.com/mobile/opinion/editorial/Editorial+there+peak+Metro+housing+prices+Impossible/10842773/story.html

Vancouver is reaching the outer limits of conceivable pricing for home buyers. That view, expressed recently by Business Council of B.C. executive vice-president Jock Finlayson, reflects the sentiments of many.
However, similar observations have been made in the past. Still, the cost of housing in the Vancouver area has kept climbing. It is impossible to predict when the pricing peak truly will be reached.

Greater Vancouver’s January home price index for a single detached home hit a record $1,010,000, up 8.4 per cent from one year earlier. The rental market is equally daunting, with a low vacancy rate and hefty rents, especially for condo units.

Behind the problem of unaffordability is, and always has been, the law of supply and demand. There is no indication this force soon will be diminishing. For wealthy foreign migrants, the housing situation likely poses no obstacle. But most local buyers and renters, and migrants from other provinces, are not in a position to pay high rents or $1 million-plus to purchase.

Influential architect Michael Geller recently played host to a Simon Fraser University lecture, titled: 12 Affordable Housing Ideas For Vancouver. Unsurprisingly, it was so well attended that many would-be registrants were turned away.

Geller is calling for a two-pronged approach that would have those wishing to live here reduce expectations about the size of housing they require and their need for two-car garages and granite countertops, and have city planners become more creative and flexible with zoning, building rules and regulations. [CityHallWatch comment: So he is saying we should reduce expectations, while finding ways to increase supply. No mention of controlling demand as in other jurisdictions.]

Specifically, Geller wants Vancouver-area planning departments to permit designs that maximize land use and have been tried successfully elsewhere.
Designs would, for example, allow construction of a cluster of small cottage-like homes on a single large residential lot, and designs that would extend construction of a house or apartment buildings right to side-lot property lines, as in dense European urban cores. Municipalities could more liberally permit construction and sale of micro suites of 300 to 400 square feet, laneway and coach houses and allow townhouses and duplexes to accommodate basements, which then could be rented as crucial mortgage-helpers.

The city of Vancouver is well aware it has a severe housing affordability problem, having established an arm’s length affordable housing agency in 2014 to find ways of supplying more housing at more reasonable prices. [CityHallWatch comment: Again, the emphasis here is on increasing supply!]

But the agency has yet to launch a much-needed public discussion about innovative proposals such as Geller’s. The public deserves a chance to digest the prospect of further densification. [Yes, the public must get involved!]

Early action clearly is needed in the face of the ever-escalating property prices. [Yes! Let’s see our policy makers have a serious discussion about policies to control the infinite demand, and to tap that money to build housing for our own citizens!]

****************

Updated: Joseph Jones  comment below is recommended reading, as well as his article in The Mainlander in 2011. Excerpt:

China seems to be developing an internal approach to housing affordability that Vancouver needs to emulate. Beijing has now prohibited residents from buying more than two dwelling units, and non-residents are required to show five years of tax documentation in order to make a purchase (Feb 25, 2011: “Vancouver Needs to Emulate Chinese Housing Policy”). Any Canadian public official who talks about affordable housing in Vancouver should be met with a demand to bring forward similar measures.

2 thoughts on “Is there a peak for Metro Vancouver housing prices? What about the question of (infinite) demand?

  1. An equation gets solved by a mathematics of balance. A surd gets produced by irrationality. Profiteers are prepared to sacrifice anything to “supply” their own Molochian greed. So it’s time to DEMAND an equation that balances.

    The current situation became clear at least FOUR YEARS ago:

    http://themainlander.com/2011/02/25/vancouver-needs-to-emulate-chinese-housing-policy/

    Lots more revolt has occurred since then, but still not enough to force our “leaders” into taking any policy action that impacts demand.

    Action is possible. Our quality of life is being sold down a false creek.

  2. There is much more ability to control supply than demand. There are significant limits (some constitutionally protected) to the extent which elected officials can restrict or halt someone who decides to move to this region to live. Any financial-oriented rules aimed at reducing demand only accomplish two things; regressively penalize those towards the lower net worth and enrich the agency who imposes the fees.

    The biggest solution to affordability is right in front of us; the vast areas of Vancouver (and the rest of the region), with low-density, lawn & driveway extensive, SFD blocks situated in areas with low volume streets and excess service (utilities) capacity. And the greatest demand is for low-rise townhouses.

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