Thursday Numbers

There were 315 new listings Thursday, and 205 sales, for a sell/list of 65.08%.  There were 92 price changes.  Over 90s dropped to 1,824, (15.31%) while inventory also dropped to 11,911.

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110 Comments

Filed under Daily Numbers

110 responses to “Thursday Numbers

  1. Fozzie

    I would think that higher mortgage rates will put downward pressure on house prices.

    However, I have a co-worker that is adamant that historically there has been no significant direct correlation between i-rates and house prices. Yes, higher rates mean bigger mortgage payments, but his position is that other factors (inflation, migration, employment, overall economy etc…) can more than off-set the effects of higher rates.

    Does anyone have any hard numbers (or a graph) that would support or dispute this?

    BTW, my co-worker owns a house and at least 3 investment properties that I know of, while I am still renting. Although his reasoning on this issue seems counter-intuitive to me, it’s hard for me to ignore his real estate advice given his success.

  2. WoW

    Rob – your stats are very much appreciated – just wanted to let you know that a lot of us highly value your (mostly) daily updates – cheers.

  3. Domus

    Fozzie,

    a good source of reliable facts and figures is this

    http://calculatedrisk.blogspot.com/

    You will occasionally find discussions on interest rates. This guys is often cited by Professor Roubini at NYU and Professor Hamilton at University of San Diego. I think he is a goldmine.

    RE your investor friend: if he is leveraged on those 3 properties, he better start thinking about selling them and cash in. Within 12 months mortgages are going to sting.

  4. robchipman

    WoW:

    Thanks for the kind words!

    Fozzie:

    Reminds me of the story where you tell the client all the reasons why he should do what you say, and he doesn’t commit, and you conclude that he just doesn’t understand. Then you get in your Volkswagen and drive away and he gets in his Caddy and drives away.

    It has happened in the past that when rates go up so do sales, but there are a lot of different variables. Right now we might get a bump due to fear (if I don’t buy now rates will go even higher and I’ll get less), but prices are already quite high. Also, there is the “I better use my pre-approved rate since its lower than current rates” dynamic, but that’s a three month bump, tops. If other investments (plummeting stock market, for example) look worse, real estate (“At least it doesn’t go anywhere”) looks better, despite higher rates. Bottom line: higher rates make real estate more expensive even at lower prices, but there are other ingredients. We had stable rates and prices rose, correct? Shouldn’t they have stayed stable? Its simply not a simple picture.

  5. robchipman

    Domus:

    “RE your investor friend: if he is leveraged on those 3 properties, he better start thinking about selling them and cash in. ”

    How can you give that kind of advice? Seriously? What if he’s leveraged 50% over all three properties and has 3 years left on the mortgages, and has positive cash flow? Are you perhaps not over-estimating your power of analysis?

    If he had a mortgage of $171,000 @5% serviced by $1,000 net rent, and he’s raised that 3.5% per year over the last 4 years, he now has $1,109 per month. If he raises it from year 5 to year 6 by 3.5% he’s at $1187 net rent. If he had a 5 year term his OSB will be $152,178.

    If he remortgages $152,178 and makes the payment $1,187 his 5 year rate can go to about 7.25% before he feels any pinch (and that’s the real rate, not the posted rate). 5 years are going at about 5.24% now (just got one). We need a full 2 point hike for the guy in this example to stay even. 3 full points will cost him about $100/month (which is, of course, a tax deduction, so reduce that somewhat).

  6. Domus

    Rob,

    your examples make sense. It might also be that he is leverage 80% on all 3 properties, and bought in the past 3 years.

    What then? Of course he shouldn’t sell if he is making money out of them. But leverage is a dangerous thing to play with, it has ruined more than one person.

  7. Noname

    Rob,

    So, your basic argument is that “It’s not that simple, there is no way of knowing what will happen”?

    Based on this, we should just stop thinking right now. Every decision we make in life is not “that simple” and there is no way of know what will happen.

    No offence Rob, I greatly appreciate your numbers but when you try to dismiss info that will more than likely affect the real estate market (at least the prices) in a negative fashion you simply dismiss it as “it’s not that simple” . Of course, interest rates may not fully affect the market but let’s be honest that the LIKELYHOOD in the longer term (as long as higher interest rates persist) is NEGATIVE for prices. Noone is saying that it WILL affect prices in a negative way, we are saying that it is LIKELY to affect prices in a negative way.

    Weren’t you the one talking about possible lower interest rates a couple of month ago and how it can boost the market even more?

    Lower interest rates good for RE, but higher ones are “not that simple”?

    I sometimes honestly wonder whether you believe what you are saying, or whether it’s part of your ‘act’ in order to do your best to ensure your and your client’s interests.

    Noname

  8. awum

    Thanks again for the stats, Rob.

    Today’s inventory number doesn’t look too trustworthy, though. It’s a heckuva drop when listings outpace sales by 100+. I bet you’ll see a bump back up tomorrow.

    I doubt mortgage rates affect sales all that quickly either way. I bet the immediate effect of higher rates, though, like you say, is actually a bump in sales. Long term, high rates probably depresses sales, but its all in context — it may be accompanied by high employment, wage increases, etc.

  9. Fozzie

    Domus & Rob,

    Thanks for the comments. I’m not going to wade into this debate, I don’t really have any expertise in this field.

    However, as far as my investor friend goes, I’m pretty sure he’ll be okay. 2 of his 3 properties are in Calgary, both of which he bought at least 4 years ago. One of them is a four-plex and I believe the other is a house. I don’t have any financial details, but I know he has done extremely well on these investments. Also, he’s actually one of the most conservative guys I know. He would not have over-leveraged himself.

  10. awum

    …or maybe it was yesterday’s inventory numbers that were suspect. Inventory was up 108, when listings exceeded sales by 109. Either way, if these 100+ listings over sales days continue, the inventory could get pretty impressive pretty quick.

    Rob, you have commented plenty on sales, but haven’t said anywhere (that I remember seeing, anyway) why you think the inventory & number of listings is up. Do you have any insights?

  11. Domus

    Fozzie,

    maybe your friend had cash to invest before buying, and loads of it. it comes with being conservative.

    The bottom line is: if you are in a 80% mortgage and rates go up by 1%, you are not going to feel good about it. Unless your earnings go up (be it labor, rent or whatever) you are going to feel a pinch. If you have people with 3 properties, multiply by three.

    Now, interest rates are going to go up for the foreseeable future (at least one year, if you believe in future contracts). That’s a BIG drag on prices. You can try to see different angles and come up with creative stories about locking in interest but the bottom line is: interest rates up, housing prices down. This is an historical correlation. But of course, the world has changed…..

  12. robchipman

    Domus:

    He might be 110% leveraged. My point is that you really can’t be giving credible advice like “you better sell now” when you don’t have enough information. I know you feel that rising rates will cause a lot of pain. The numbers don’t support that. They will cause pain for some people. The pain will not be universal, and for it to be widespread the rate hikes need to be huge. Some might say that you’re fear-mongering just a tad.

    Noname:

    I think you’re reading more into the comment than is really there.

    I pretty much assume that everyone knows that i% hikes are a negative pressure on RE prices. I don’t think there is a simple correlation however(whether its lower or higher rates, btw). In addition to the variables I mentioned I think I proved with math that higher rates don’t hurt quite as much as some assume.

    If you think I dismiss any analysis of negative impacts on real estate prices I have to apologize. I don’t mean to do that. I have stated, many times, that the market will change, and that prices can and will go down, and that current rates of appreciation can’t continue forever. Maybe its the analysis that needs more work (“Sell now, rate increases will sting in 12 months!” -I see you gave that one a free ride).

    I specifically stated that higher rates make even lower priced real estate less affordable, which is pretty much synonymous with “higher rates are a negative pressure on real estate prices” (if that wasn’t clear I’ll come right out and say it right now: higher interest rates are a negative pressure on RE prices).

    In terms of whether I’m putting on an act to protect my clients’ interests I think you need to evaluate both my clients’ and my interests. My clients are varied and have different, and at times mutually exclusive interests. Sellers like high prices, but buyers and portfolio growers like lower prices. I make commissions on buyers and sellers, but I make management revenue on investor buyers as well. I know it sounds defensive on my part, but I really don’t like my integrity being questioned if you haven’t at least given it some thought.

    BTW, is awum putting on an act as well? To paraphrase him “short term i% increases may bump the market, long term they may depress it, but you have to factor in employment levels, wage increases, etc.”.

    And, if the correlation is direct, why were stable interest rates accompanied by price increases?

    awum:

    Its a pre-defined search. I push a button and get the results. How can that be trustworthy or not trustworthy? The listings are either active or not. A certain percentage may get extended after they’ve become inactive, but that’s a small number. Anyway, a lot of listings become inactive, because we’ve seen new listings outstrip sales for many months in a row, but inventory has kind of plateaued. Am I wrong in remembering calls for 13,000? 15,000?

    In regard to the reason why inventory is as high as it is now, I really have no good idea. I don’t see any increase in fear of a collapse. I don’t see the proverbial rush to the exits (you’d think we’d see more price reductions with a rush). I don’t find it easy to find product for people, despite higher inventory.

    I do think that sell/lists over 60% are pretty good (we’re selling more than we don’t), and that our perspective may be skewed. It may be that the relation between current inventory levels and sales isn’t so much out of whack. Maybe last year was the crazy one.

  13. Noname

    Rob said – “I’ll come right out and say it right now: higher interest rates are a negative pressure on RE prices”

    Thank you.

    I think I am just getting the impression that quite often you avoid addressing certain topics (especially the ones with negative implications to RE) in a straight forward manner and the message (such as interest rate hikes are not good for RE prices) gets lost.

    Rob said – “And, if the correlation is direct, why were stable interest rates accompanied by price increases?”

    I think this had been extensively discussed and the answer is really simple: SPECULATION.

    There you go. Just like with technology stocks, Ponzi stamps and tulip bulbs, there was no real reason for them to increase in price yet they did, why? SPECULATION.

    John,

  14. thomas

    i just bought a house. wasn’t SPECULATION. just moving forward with my life. expect to be here hopefully 30 years. yeah, bulls, bears, whatever. my kid loves the back yard, and it’s home. expensive, but i can afford it. probably go down in price the next few years, but, who cares. my lifestyle won’t change. and no, i’m not working 3 jobs, sweating at night at how to pay my mortgage, fear striking my heart that my equity my dissolve tomorrow. and my neighbours seem to be in a similar boat.

  15. doubting_thomas

    good luck! we could afford a place now too and not sweat at night either but we’d rather see if waiting a couple of years before buying might result in the option to retire 10 years earlier!

  16. R.E. TARD ED

    “good luck! we could afford a place now too and not sweat at night either….”

    You may not sweat but you wouldn’t feel unhappy knowing your home dropped $100k and your gonna have to wait 10 years before you get your head above water again.

    It seems it’s just so much easier psycologically for people to be getting into the market with little down because it’s almost like you’ve got nothing to lose anyhow!

  17. Skeptic

    This thing works both ways, the bears are gonna be mad if it goes up $100k instead of down. How many more years of saving for deposit will that be ?

  18. Skeptic

    Domus: “a good source of reliable facts and figures is this

    http://calculatedrisk.blogspot.com/

    Its a bear blog, go there if you want to close one eye and hear half the story.

  19. News Flash

    “This thing works both ways, the bears are gonna be mad if it goes up $100k”

    More like: the bears are gonna be REALLY mad if it goes up ANOTHER $100k

  20. News Flash

    “good luck! we could afford a place now too and not sweat at night either”

    I find it strange:

    1. all the bears can easily afford a place right now
    2. all the renters are saving so much money by not have a mortgage (meaning they could afford one)
    3. we are seeing still huge sales every day in ROb’s numbers

    But somehow prices must come down because people can’t afford to buy a place. The bears can afford it, the renters can afford it, the people buying right now obviously can afford it…

    I guess the homeless guys can’t afford to buy a place and until they can prices must come down?

  21. Domus

    Frankly, I am not fear mongering. I have the impression that many people reading here want to hear their fairy tale repeated over and over again.

    It has been good for some of you guys until now. I have nothing to add, that is a fact. I am also honestly and deeply convinced that this shenanigan is going to end as it always dows. With a big, lating bust which will hurt lots of people. It’s not fear monegring: it is simple observation of a well rehearsed pattern.

    It seems to me that the world is divided between those reading the BCREA reports and those reading Calculatedrisk’s blog. I am feeling prouder by the day to be in the second group.

  22. CheapMan

    thomas; if you have already bought a place, you should move on with your life and should not waste your time in this blog.

  23. Skeptic

    Domus, the calculatedrisk blog doesn’t contain a single scrap of good news about real estate, you could not call it a balanced opinion. Certainly not when considering Vancouver where prices are still rising.

  24. R.E. TARD ED

    Skeptic, you find prices rising? Really?

    Have you at least asked around to see how many of your freinds, co-workers etc… say that prices will correct after 2010?

    Have you thought about the abundance of $10 an hour jobs not being snapped up because it doesn’t support the cost of living?

    ***Have you thought about the affordability factor that has been tampered with several times in the last few years which has been a direct cause of housing price increases, aside from already steady low interest rates?

    Have you ever thought how media may skew the publics perception. (consider the source)

    My take is that if the market heats up too quickly in a short period of time then things will have to reset or balance out (correct) before we have another rise. This may come as a slow down of may be 10-20% for about 5-10 years. Mind you we are at a such high extreme that 10% would feel like a crash!

  25. tqn

    “1. all the bears can easily afford a place right now
    2. all the renters are saving so much money by not have a mortgage (meaning they could afford one)”
    3. all the bears/renters make money for 30% returned on their saving
    4. all the bears/renters save every penny they earns, yet still can afford to take vacations, eating out…

    if I may add:
    1. all the homeowners taking out a hugh HELOC and blow it on expensive cars, vacations and plasma tv’s.
    2. the homeowners cannot afford to take vacation and eat KD every night.
    3. the homeowners have to work three or four jobs to support a mortgage.
    4. if he homeowners do not sell now, they lose money on opportunity cost.
    5. if the interest rate raised by 25 points, the homeowners have to sell and lose their equity, and have to foreclose
    6. homeprices not supported by fundamentals
    7. population growth is not enough to support current inventory
    8. the increase in labour market is created by the building boom.
    9. last fool rush in
    10. if they have to buy now, they cannot afford it
    and many more…

    It sounds desperate for be a homeowner. I am gonna try to convince all the homeowners to sell, and move their wife and kids to rent a basement suite in Hope in order to save money because the sky is falling!

  26. News Flash

    Very good points tqn. The bears pointed those out a few years ago when real estate prices were about 50% of where they are now.

  27. dyugle

    The funny thing about interest rates is that they are raised to cool an overheated economy. This is to control inflation and take some money out of the system. In an overheated economy you have inflation. This means that asset prices, including real estate, will be rising during times of rising interest rates. When the BOC actually stops raising interest rates and then starts to cut them is when assets prices usually peak. The BOC cuts interest rates because of falling inflation, falling employment, and falling GDP. If we get to some actual rate cuts then we will be in a recession and the prices of all assets will fall together. It is unlikely that stocks falling will support real estate in a recession but they may lend support when the economy is fine. Once interest rates fall for about a year we have historically been near the bottom of the real estate market.
    So the bulls do not misunderstand me, I know the BOC does NOT change rates based on what is happening to Vancouver real estate. I simply point out a historical correlation that may or may not be relevant to the future. The problem with using the past to predict the future is best summarized by the following quote “he who re-fights the last war, looses”. But ignoring the past is not smart either as “he who fails to learn from the past is destined to repeat it”. So are the bears fighting the last war or have the bulls ignored history?
    You be the judge.

  28. robchipman

    Domus:

    You usually express a thoughtful opinion, and that’s appreciated. Telling people to sell when you have no idea of their circumstances is not thoughtful. Saying that you do it so that people won’t buy into a fairytale isn’t an excuse. Ignoring the math that shows that the sting from interest rate hikes is further away than you indicate isn’t intellectually honest. You’ve said before that you like arguments supported by numbers.

    When I say you’re fear mongering its just in reference to this latest comment of yours telling Fozzie’s friend to sell before the pain comes. For Fozzie’s freind there is obviously very little fear of pain. Your highlighting of the pain that is almost non-existent is…fear mongering. I don’t think you can escape that one, my freind.

    Dyugle:

    Some good points there. Thanks!

    Newsflash:

    Very funny dot connection! You win the MOTO award for this week!

  29. Domus

    Rob:

    I think you must have misread my comment. I think your math was fine, I just added that it wouldn’t work out for a guy with only 20% equity in their property. Can you show me how it works out in that case? I will rest my case then.

    Skeptic:

    when did I say that Calculatedrisk is not a bear? I never did that.
    He (or she) is clearly a bear: based on very sound judgement.
    The guy is not writing nonsense: in fact there have been cases in which investment banks’ report have been corrected based on his analysis.
    You must recognize that he documents a vast amount of facts for the US. It is very respected, both by academics and practitioners. It is, all in all, a great source of analysis. To say that it is not worth reading because he is bearish on US housing, is like to say that a sports’ commentator he is not worth reading because he does not believe the Ottawa Senators are not winning the Stanley Cup.

    Sorry mate, the US RE market has already gone down and Calculatedrisk cannot tell you differently.

  30. robchipman

    Domus, that math came after your comment. Whether you think its fine or not isn’t the point.

    You told someone they should sell because mortgage rates are supposed to go up and he’ll hurt in 12 months. The math shows that you didn’t think that through. The math works if the guy bought 4 years ago with 20% down and the property cash flowing neutral. It works if he bought with 20% down and factored in the tax break based on his high and stable income.

    The problem is the advice, not my math or whetehr I think you understand my math. Real estate is not as simple as you imply when you say “your investor friend…better start thinking about selling them and cash in. Within 12 months mortgages are going to sting”. You’re saying a bad thing will happen when you know (or should know) that the statement is not very accurate. That’s fear mongering.

    (some might say “If the guy misses that kind of obvious point, how can he be trusted to say “Calculated Risk is a bear blog based on sound reasoning”? I’m just saying….:-)

  31. fish

    From the ‘unstopable’ Florida market. Note this was on Vancouver’s Craigslist.

  32. Domus

    Rob,

    I am very disappointed in you. You are twisting facts: my comment about the 20% down came well after your math. My advice was intended for leveraged people.
    I have to say this: shame on you. I have to repeat, I am very disappointed in how you are twisting facts.
    I really thought you might be different and am quite saddened from your attitude.

    Having said that: I repeat that if you are 80% leveraged on housing, a 1% interest rate hike is going to hurt badly. That is a fact. That is what has been happening in many cases of repossessions in the US. If you have a lot of cash flow, for whatever reason, you might weather the storm. If you don’t, you might be better off selling before the interest rates peak. This seems reasonable advice to me. Unfortunately your rendition of my advice is quite biased.

    Calculatedrisk is a great source of info. If you don’t agree with his take on the US RE market, then you might have some private information you may want to share with him. But his analysis is great, regardless of whether you are a bull or a bear.

    Rob: I do not feel you use the same attitude towards bears that you are using towards bull. I hope I am wrong but I would suggest you try to think twice before slamming people like this. It smells of partiality and lack of objectivity.

  33. NVNick

    Interesting historical look into craigslist:

    http://web.archive.org/web/*/http://vancouver.craigslist.org

    Basically, go into:

    http://www.archive.org/web/web.php

    Where historical web snapshots are archived and check out older versions of Vancouver Craigslist to check out what rents were in play as far back as 2001. You will not get click throughs but you will get headers with prices etc.

  34. tqn

    “Fozzie
    June 8th, 2007 at 2:07 pm
    I would think that higher mortgage rates will put downward pressure on house prices.

    However, I have a co-worker that is adamant that historically there has been no significant direct correlation between i-rates and house prices. Yes, higher rates mean bigger mortgage payments, but his position is that other factors (inflation, migration, employment, overall economy etc…) can more than off-set the effects of higher rates.

    Does anyone have any hard numbers (or a graph) that would support or dispute this?

    BTW, my co-worker owns a house and at least 3 investment properties that I know of, while I am still renting. Although his reasoning on this issue seems counter-intuitive to me, it’s hard for me to ignore his real estate advice given his success.”

    “WoW
    June 8th, 2007 at 2:07 pm
    Rob – your stats are very much appreciated – just wanted to let you know that a lot of us highly value your (mostly) daily updates – cheers.”

    “Domus
    June 8th, 2007 at 2:50 pm
    Fozzie,

    a good source of reliable facts and figures is this

    http://calculatedrisk.blogspot.com/

    You will occasionally find discussions on interest rates. This guys is often cited by Professor Roubini at NYU and Professor Hamilton at University of San Diego. I think he is a goldmine.

    RE your investor friend: if he is leveraged on those 3 properties, he better start thinking about selling them and cash in. Within 12 months mortgages are going to sting.”

    Domus
    The above repost came one right after the other. I do not see the 20% down anywhere. Probably, you assume all the posters here cannot read. Who is twisting? This is worse than usedcar sales men
    on kingsway.

  35. awum

    Rob, I do notice you demonstrating a distinctively defensive tone in your comments lately. Some folks here may be in full-on attack mode, and I can understand you getting short with them. Many others (myself included) just aren’t that way.

  36. awum

    …and by the way, chunks of inventory has apparently disappeared one day only to reappear the next day several times in the past. That’s not a conspiracy, it’s just a reminder that a complex system like MLS may spit out strange data from time to time!

  37. Domus

    tqn:

    June 8th, 2007 at 3:38 pm

    Rob,

    your examples make sense. It might also be that he is leverage 80% on all 3 properties, and bought in the past 3 years.

    Dear tqn, when I wrote leveraged 80% I meant equity of 20% in the house. Now, you can check the dates, they are above for all to see.

    I stand by what I said before: I have no vested interest in housing, I am not waiting to buy, I am not a realtor nor a first time buyer. I am just trying to force you guys to admit that RE in Vancouver is not a goldmine or a source of unending wealth.

    Check your dates and come back to me.

  38. Domus

    I would also like to add that I am normally quite open to dialog and discussion: I’d love to see your point of view. But it seems to me that there is no single factor which is acknowledged to be detrimental to housing.

    If I point out low population growth, someone will say I am wrong. When I show the Sauder link, someone will say it does not mean much.

    When I document interest rate changes, someone will say that the world is complicated and that interest rate increases might even be good for housing……short of reversing the argument in a different post, if needed.

    And the latest discussion on my postings has been quite absurd: try to argue that I am not reliable and, by assumption, discredit a great source like Calculatedrisk.

    I hate to be this polemic and I do apologise to those people who read this carefully every day. But I really thing that it is difficult to have a fully developed conversation when people have regular personal attacks and try to diminish any arguments which can be detrimental to house prices. It just seems this is happening more often than before: I am worried this is taking a wrong turn.

  39. robchipman

    Domus:

    Sorry to disappoint you. The truth is that you’re not reading (as TQN points out). Take a look at the comments on this post. The third comment is yours. It comes before mine. Its the one I took issue with.

    You say:

    “RE your investor friend: if he is leveraged on those 3 properties, he better start thinking about selling them and cash in. Within 12 months mortgages are going to sting”.

    That’s the direct quote. You’re giving advice without thinking the thing through or doing the numbers. I call that fear mongering, because you’re describing a situation that probably won’t occur.

    You didn’t say “leveraged 80%” until after I took issue with you. You modified the position at that time. I’ll go along with the 80% leveraged scenario. There is no confusion between 80% leveraged and 20% down. Let’s see where it takes us. Hopefully the numbers won’t make you more disappointed in me 🙂 Hopefully you’ll be able to admit that I’m not twisting any facts.

    Here’s the 80% leveraged numbers. They make things a little tougher, I agree, but I think you also have to recognize that not everyone buys investment property with 80% leverage.

    He buys 3 years ago in Maple Ridge for $250,000 (MLS V400082) at 20% down. His net rent is $1000. He’s 80% mortgaged, so he has borrowed $200,000. His mortgage payment is $1163 per month. He’s losing $163 per month (which is a tax deduction, as is the depreciation on the property).

    He raises rent in June ’05, June ’06, and June ’07 at 3.5% per year, plus again next June (we need to get to the 12 months in the future where the sting is going to kick in). Net rent next year will $1147 per month. The balance owed next year, when increased rates really start to sting this guy, will be $182,076.

    Let’s say he renews that at a 5 year term. With rent of $1147 he’s now only $16 neg cash flow. If he bumps it back to his original amount and takes the tax deduction (which he was able to afford in the past) his payment could be $1,310 per month, and he’d be in the same place he was in 2004.

    That would equate to just 5.3% rate, which is about what he’d get today.

    Let’s say you need him to really sting. He was feeding it $163 per month and that didn’t hurt. Its a tax deduction and it allowed him to make a substantial tax deferred capital gain. ($163 X 12 is under $2,000. From June ’04 to June ’05 MR median detached price rose about $15,000). If $163 doesn’t hurt, let’s just double it. Say he’s cash flow neg by $326 after applying his net rent of $1147. In other words, his new mortgage payment for the $182,076 that he owes is $1473. Rates have to go to 8% for a 5 year to get that payment.

    Could that happen? Sure. And if it does the guy who bought 3 houses with $150,000 down and 80% leverage now has 3 houses worth $360,000 each (if prices stablize right now and don’t continue up). He’s made $125,000 on each house. Will he be unhappy about feeding the stuff? Unlikely. But if he is, and if prices go down, by say, 20% in the next 12 months, he’s still at $288,000 per house. He’ll owe $182,076 on each. that leaves him equity of 106,000 in each house. He started with $50,000 in each house. He’s more than doubled his money, even after a 20% correction.

    80% leveraged, 2.75 point increase from today’s rates, 20% negative correction, and he’s still doubled his money. That’s some sting. Sort of puts the concpet of prices being sticky on the way down into perspective.

    Let’s say Fozzie’s co-worker didn’t own 3 rental properties. Let’s say he owned only 1 place, and it was his personal residence. He bought it with 20% down and an 80% mortage, and could afford the payment.

    A 1% increase from today’s rates would get our guy to 6.25%. The payment on the balance left (amortized over 21 years, as we’re 4 years in now), would be $1291. He was originally paying $1163. That’s a $128 increase after 4 years. If he hasn’t had any increase in wages then he’s in trouble. Mind you, if his income is that stretched he wouldn’t be able to rent this house either.

    My point about Calculated Risk wasn’t that it is a bad source of info. Rather it was that if you tell people that a guy like Fozzie’s co-worker will be hurt by a 1% rise in rates you’re hurting your credibility when you recommend anything as a source of good info. You need to think it through before you say “Sell! Pain is coming!”

    Anyway, take a look at the sequence of comments. I’m not twisting any words. I’m disagreeing with your first comment.

    Awum:

    You’re probably right. I could be getting a little defensive. I do take a lot of crap, though. Domus is actually saying I’m non-objective and twisting facts when I say that his first comment in this thread doesn’t stand the test of math. He actually says that I should feel shame and that he’s saddened by my attitude, even though he agrees that my math is right. How do you win? 🙂

    I say that interest rates and real estaet values don’t always have a direct correlation (which you also say), and noname says he thinks I’m putting on an act to protect my client’s interests (as if my opinion controls the market! 🙂 )

    Everyone is entitled to an opinion. Being entitled to the opinion doesn’t make it valid. Disagreeing with someone’s opinion doesn’t make anyone a bad person, and personal attacks aren’t justified because someone disagrees with you.

    Saying you like fact based arguments and then giving number advice based on opinion that flies in the face of mathematics opens you up to the charge of not being thoughtful, or being intellectually dishonest. Domus appears guilty of that as far as I can see. Seems pretty straightforward.

  40. Skeptic

    MLS# V649761 $235k over list, 11 DOM, amazing stuff. Still looks like a hot market to me….

  41. Realist

    Hot, eh?
    Every day it reminds me more of the characteristics of a Pyramid scheme…
    The underlying product just aint worth that much..

  42. Priced Out

    Yeah, pretty amazing. I wonder why someone would volunteer to pay over asking by that much. Any guesses?

  43. Domus

    Rob,

    I have to say I do not agree with your math this time.

    Suppose first of all the guy buys something worth 200k in Maple Ridge. I am not sure what your comps are, but there is hardly anyone I know who would pay 1150 a month for that property. It just does not fly. You get that type of rent starting at properties in the 350k in Maple Ridge.

    In any case, let’s follow your logic: I thing there is still something missing, namely taxes and maintenance. Shall we add at least a $100 a month in taxes for residence that is not the first home?
    On top of that shall we add another $200 a month on condo maintenance? Let’s also suppose for the time being that there are no adjustments or Strata costs of any type (e.g. repairs,balconies,leaks). That puts another monthly wedge of around $300. (last time I checked you still had to pay your taxes and strata).

    Now let’s talk about rates:
    I am assuming you use a 25 years mortgage at 5% as your initial debt. That works out at your number of $1163 per month.
    Given that the rent you fantasize about is $1000 (3 years ago in Maple Ridge!! Quite a stretch to me….). If I add taxes and strata, this guy was losing at a tune of $463 (minimum) per month, over a 3 years period. That works out at a cost of $16668 over the 3 years without including interest losses. If I include lost interest payments on the monthly “cost” of $463, this works out as a loss of $17418 to our hypothetical investor (I am applying a conservative 2.9% annual interest over 3 years).

    Let’s move on.
    On year 4 of his mortgage he still owes $182,000, and now he has to remortgage: suppose as you do that he decides to remortgage at 200k and his mortgage payment goes up to $1310 per month (your number!). Let’s say that he can charge $1147 per month in Maple Ridge and also let’s assume that the only monthly costs after 4 years are only $300 per month (no tax hikes, no maintenance hikes, no bills for any adjustments).
    Where does this leave him? Still losing at the tune of 463 per month after remortgaging.

    Let’s see: 1310 + 300 – 1147 =

    Now for the big deal: yes there was appreciation in Maple Ridge. Are we really talking about a jump from 250k to 360k. I am not sure, you are the realtor. Something puzzles me, though:

    you first said “From June ‘04 to June ‘05 MR median detached price rose about $15,000”. You probably have in mind Maple Ridge?
    A little later you write: “And if it does the guy who bought 3 houses with $150,000 down and 80% leverage now has 3 houses worth $360,000 each”.

    360k – 250k= 110k. That does not sound like a 15k appreciation per year. Rather it sounds like a 30k appreciation per year.

    I am forgetting the last part (most fun, I think): if this guys had bought Canadian indexes on the stock market and invested $463 over the past 4 years with an average return of 17% per year (composed) he would have made $21,500.

    In you scenario of 15k appreciation over 4 years, the guys would have therefore made 60k and lost the opportunity cost of his monthly “loss” which is between 17k on bonds and $21,500 on stocks. That leaves him better off by roughly 40k (before capital taxes).

    My simple point is: well done mate, you should sell now! Cash in! Why do I say that? Well you said even if there was a 20% downwards correction in prices this guy would be better off: no!

    If he cashes in and puts his money in bonds, he is already better off. If he puts it in stocks and stay the course, say for 3 years, most economists believe stock markets will outperform RE over that period. Why then stick to RE?

    Past appreciation is no indication of future gains. Financing leverage is going up (interest rate hikes). Appreciation is slowing down. Possibly there is a substantial drop coming: why not cash your chips and wait it out?

    This is what I suggested from the very beginning. It seems to me the math is not controversial.

  44. Chocolate

    “Skeptic, you find prices rising? Really?”

    In my area (Kits) they certainly seem to be..

  45. robchipman

    Domus:

    The MLS number is there. It sold for $250,000 three years a ago. Its a 2,550 sq. ft. three bedroom house on a 65′ x 148′ lot. It sold for $100 over list after 39 days.

    The rent I quote is net rent. Its after taxes (more like $200/month) and maintenance are factored in. I have managed several houses like the subject property in Maple Ridge for over 10 years. When I began I was getting $900 for a three bedroom mainfloor and $600 for the two bedroom suite.
    This is a full, two level house with ensuite plumbing. Its not a fantasy rent. Its about 50 cents per foot.

    There is no strata fee to add. Again, “net” rent means that taxes and maintenance have been factored in. You’re adding costs that either don’t exist or have been counted once already. You’re also pretending that the house increased in value only $15,000 per year when stats indicate a much higher increase. Your subsequent calculations may be correct, but the underlying assumptions are wrong, so its a moot point.

    Maple Ridge appreciation from June ’04 to June ’05 was not spectacular. From June ’04 to May ’07 it was about 45%. I’m pretty sure you can find those figures on the net. If you want I’ll give you the benchmark, median and average for each case.

    My numbers are solid. You can certainly say “I think you should sell now and move to bonds because I think the real estate sector is going to tumble”. There’s nothing wrong with expressing that opinion.

    That’s not what you said in the beginning. You said “if he is leveraged on those 3 properties, he better start thinking about selling them and cash in. Within 12 months mortgages are going to sting”.

    Those are two completely different things.

    I did not say that the investor would be better off in real estate after a 20% haircut than he would be in bonds or stocks. I made no comparison to the stock market or to bonds. I made no prediction about the future.

    I said that if we assume there is a 20% drop in value in the next 12 months he has still doubled his money in 5 years. I didn’t comment on whether he should or would sell all or some of his properties. I pointed out that the gains experienced by this hypothetical investor indicate why many real estate investors stick with the market long term (which may not make sense to you, but is a recognized fact).

    Domus, I understand that you feel real estate is going to expereince a substantial drop. Fozzie’s co-worker, who is the basis for this scenario, probably doesn’t share your views (I’m making that assumption based on Fozzie’s description of their debate). There’s nothing wrong with you thinking RE is going to drop. There’s nothing wrong with you pointing to facts and figures and websites to bolster your argument. I like that you say you want facts and figures in arguments.

    Saying that a 1% increase in rates will sting so the property investor should sell simply isn’t credible. It doesn’t include facts or figures. The rate change you propose won’t sting.

    $200,000 @ 5% 3 years ago requires a payment of $1,163. A 4 year term taken out 3 years ago will result in $182,076 owed next year. A 1% increase over current 5 year rates will take the rate to 6.25%. The payment for $182,076 amortized over 21 years is $1,290. The difference is $127. That’s a latte per day, or a tank of gas in my truck. That’s not enough of a sting to make people dump properties that have doubled their investment even after a 20% haircut.

    You aren’t even trying to defend what you actually said in the first place.

    Your last question is “Why not cash in your chips and wait it out?” There is a simple answer. A lot of real estate investors invest for the long term, and invest for both growth and cash flow. First they pursue growth, and they change that to cash flow over time. They avoid capital gains by re-mortgaging. They take advantage of tax deductions like interest expense and repairs in order to build value in their real estate and reduce their personal income tax. They take depreciation, which turns into a recapture problem if they sell rather than re-mortgage. They buy real estate and then go back to their income producing pursuits (which is why they can make use of the tax deductions).

    If they have purchased in the past few years they’ve made outstanding gains on their initial investments. If they purchased 10 or 20 years ago they’ve made the same gains, and if they re-mortgaged they’ve made the same sort of leveraged gains. If they bought with me they planned on 5% per year. They’re doing much better than that now. They understand that we may see reversals, but they tend to believe that the market will come back. The ones that are leveraged so much that they have negative cash flow want to maintain the neg cash flow. The ones who have positive cash flow have even less reason to sell now.

    This may not make sense to you. I can accept that. However, most of the sales I handle for my investor clients are motivated by stage of life issues, not market issues. If they think they’re young enough to see another upswing, they tend hold on. If they want to tidy up the estate (or if they’re young and they need to dispose of the rental so that they can move from a townhouse to a house), they sell. Those motivations aren’t divorced from the market, but they move independently.

  46. Domus

    Chocolate:
    give some examples in Kits. I am curious to know.

    Rob:
    my criticism of you is due simply to the fact that, whatever happens, you will find a way to see the positive for RE, even in the face of evident troubles.

    Probably you would argue that buying Vancouver RE in 1981 was an excellent move……

  47. robchipman

    Skeptic/Price Out:

    Simple explanation (its my doctor’s house, btw!).

    North Van has a high number of properties that sell over list. At first blush this suggests a hot market. If that’s the case we should see higher price appreciation in NV than in other areas at month end. We don’t see that.

    The reason is that many NV Realtors underlist properties in order to generate multiple offers over list. Some Realtors try it in other areas, but NV Realtors are quite good at it. As soon as the listing hits the market its identified as an undervalue listing that will sell over-list. Anyone paying attention knows that this will happen. I had a buyer interested in the house at $999,000 because he could see the value (o.k, I’ll admit it, I play hockey with an appraiser!). The day it hit the computer (Monday or something, last week) he called a sale price of $1.2. Agents open was Wednesday, public open on the weekend, close to 10 offers Monday night. Sold for 1,234,568 (probably reported that way after rounding up from $1,234,567.89) Dynamite area, dynamite house, and as I say, my appraiser friend called the price a week before it sold.

    Interestingly, its nowhere near a Skytrain station 🙂

  48. robchipman

    Domus:

    You’re getting really funny now. You gave advice that doesn’t stand up to the math and I called you on it. Now you’re trying to change the subject.

    Just admit you didn’t think it through when you said “…if he is leveraged on those 3 properties, he better start thinking about selling them and cash in. Within 12 months mortgages are going to sting”.

    I don’t have Kits numbers, but VanWest median selling prices for May were $1,374,000 for houses, $639,000 for attached and $415,000 for apartments. In April the numbers were $1,270,000, $653,000, and $410,900, respectively. If you go back to January they were $1,228,000, $730,000 and $365,000.

    BTW, those price retreats for attached, from $730,00 in January to $639,000 in May, represent a drop of 12.8%, which I think is very positive… 🙂

  49. Domus

    Rob:

    I am more and more puzzled by your later remarks. I must be speaking a different dialect of the English language.

    Can you explain to me (plainly) what is the difference between:

    June 8th, 2007 at 5:03 pm
    “…if he is leveraged on those 3 properties, he better start thinking about selling them and cash in. Within 12 months mortgages are going to sting.”

    and

    June 9th, 2007 at 9:29 pm
    “Financing leverage is going up (interest rate hikes). Appreciation is slowing down. Possibly there is a substantial drop coming: why not cash your chips and wait it out?”

    I am pointing out, time after time, that it might be convenient for many people to liquidate their investment. In fact, I believe that many people are already doing it although it will become apparent only in due time.

    My point is thought through and the more I consider it the more I see it as quite compelling.

    If I can choose between two assets and one is likely to do better than the other in the future, while would I choose the worst performing?
    Housing has given fat rewards to many. The party is coming to a close, as most parties do. Interest rates will start to sting soon. It is time to leave the room before someone turns off the music.

  50. Skeptic

    Wow, that’s pretty risky to price $250k under the market, does that kind of thing ever backfire on the agent/vendor ?

    Looked like a great house from the pics, sounds like it may have been hard to find a park when they were taking offers 😉

  51. News Flash

    Domus I am sure you are a nice honest guy (or girl?). I will answer a few of the questions you ask in “”:

    “I would also like to add that I am normally quite open to dialog and discussion: I’d love to see your point of view.”

    Rob and many others have given their point of view. By no means does that mean they are correct now or in the future, but it is their point of view. Accept it.

    “But it seems to me that there is no single factor which is acknowledged to be detrimental to housing.”

    You are confusing detrimental to housing and causing a housing crash. You want everything to cause a crash and unfortunately for those hoping for a crash it doesn’t always work that way. There are so many factors that go into housing prices. Many negative are more than off set by positives. Over the past few years we have seen huge amounts of new housing supply with still huge increases. The supply (negative) was more than offset by the positives.

    “If I point out low population growth, someone will say I am wrong.”

    Well you are wrong. BC and the lower mainland have had and continue to have huge population growth. You can point out there was a higher percentage of population growth in the 90’s, but that does not make today’s numbers low. Bill Gates made more money per year in the 90’s than he does today, does that make his earnings low? He is still the richest guy in the world with huge earnings as Vancouver still has significant population growth.

    “When I show the Sauder link, someone will say it does not mean much.”

    What they are saying is you are interpreting the data wrong (in their opinion). VHB interpreted the data he presented wrong over the past few years. When people agued against him they were attached like you are attacking Rob and others.

    “When I document interest rate changes, someone will say that the world is complicated and that interest rate increases might even be good for housing……short of reversing the argument in a different post, if needed.”

    Interest rates (or actually mortgage rates mainly the 5 year rate) have an impact on housing. Normally when mortgage rate rises it creates a scramble for those sitting on the side lines to jump into the housing market. This happens for two reasons. First, if the trend for interest rates is up people think it is better to jump in now before they go up more. Second, many people are pre approved with today’s rates which typically are locked for 3 months. This puts pressure to buy before the 3 month rate expires. This creates upward pressure on housing. Wait and see. Longer term if rates rise significantly it will likely be negative. Although as pointed out by others rising rates mean an expanding economy so except in extreme circumstances like in the early 80’s rising rates are not correlated with declining housing prices.

    “And the latest discussion on my postings has been quite absurd: try to argue that I am not reliable and, by assumption, discredit a great source like Calculatedrisk.”

    Rob has easily shown you obviously have no experience with real estate. As much as you might think you know it is clear you have gained all of your knowledge from a few blogs. Calculatedrisk cherry picks negative commentary about the US housing market and posts them for discussion. He sucks in people like yourself by telling them what they want to hear all the while collecting advertising money based on hits from Google. The more to one side he leans the more traffic (and money) he gets. He is no different than a left wing or right wing columnist in a news paper. Hardly objective analysis.

    “I hate to be this polemic and I do apologise to those people who read this carefully every day. But I really thing that it is difficult to have a fully developed conversation when people have regular personal attacks and try to diminish any arguments which can be detrimental to house prices. It just seems this is happening more often than before: I am worried this is taking a wrong turn.”

    What is said on this blog on any others will not have ANY effect on housing prices. You can call it diminish or disagree, but if you want to post on a blog where everyone will agree with your point of view you may be on the wrong one. Any other way would be boring and uninformative wouldn’t it?

  52. robchipman

    Domus:
    ““Financing leverage is going up (interest rate hikes). Appreciation is slowing down. Possibly there is a substantial drop coming: why not cash your chips and wait it out?”” is a question based on some (basically) acceptable assumptions. (Leverage doesn’t change just because rates go up. He could be locked in long term already). Anyway, its a question.
    ““…if he is leveraged on those 3 properties, he better start thinking about selling them and cash in. Within 12 months mortgages are going to sting.”” is a statement of fact, and its not supportable. Its given in the form of advice and it doesn’t betray a lot of thought.
    When you point out that “that it might be convenient for many people to liquidate their investment”…and that…”[i]n fact, I believe that many people are already doing it although it will become apparent only in due time” I can’t disagree with you. You’re expressing an opinion on investment and relating what you think you observe. That’s fair game.
    You may think that your point is thought through and you may see it as quite compelling. I’m not clear what precise point you’re talking about in this case. If you’re referring to “he better sell because the mortage will sting”, clearly you didn’t think it through. If you did you could use the numbers to show that I’m wrong.
    You may think that other asset classes will preform better than real estate in the near future. You could well be right. But when you say that if mortgage rates increase by 1% there will be a big pinch for Fozzie’s co-worker, the numbers don’t support you.
    Skeptic:
    Its risky if you don’t know what you’re doing and if the pther players don’t recognize it. I think its important that both sides recognize the game.
    It can backfire. There was once a case (here in the Lower Mainland) where an out of area Realtor listed at a price that he thought was way under value. Two Realtors quite in tune with the area wrote offers right at list price (which wasn’t under value, but rather spot on, purely by accident). The seller withdrew his property. The two buying agents were quite pi**ed off. They didn’t try to make the seller pay a commission, but they did complain about the listing Realtor, who was disciplined.

  53. Domus

    New Flash:

    (1)
    “You are confusing detrimental to housing and causing a housing crash. You want everything to cause a crash and unfortunately for those hoping for a crash it doesn’t always work that way.”

    I don’t hope for anything. I simply expect a substantial prices correction over the next few years. The sooner it starts, the less painful for the people involved.

    (2)
    “BC and the lower mainland have had and continue to have huge population growth. ”

    I don’t know about BC, but for Vancouver please refer to the following chart provided by Sauder Business School:

    http://tinyurl.com/2zmf2n

    The chart covers 1988-2007. We have lowest population growth in 20 years.

    (3) “Although as pointed out by others rising rates mean an expanding economy so except in extreme circumstances like in the early 80’s rising rates are not correlated with declining housing prices.”

    Interest rates are held up by Central banks because of inflation issues lately, not just economic growth. The US Fed would love to be able to lower rates, but cannot do it because energy prices are up there and deficit is what it is.
    Interest rates determine the cost of servicing debt. Houses are bought through debt. Interest rates determine the real cost of servicing house purchases.

    (4) “Calculatedrisk cherry picks negative commentary about the US housing market and posts them for discussion. He sucks in people like yourself by telling them what they want to hear all the while collecting advertising money based on hits from Google.”

    CalculatedRisk has been around for years and only lately it has been taking a few ads. This followed the fact that many banks and media would use his/her material with no copyright.
    Facts are facts: he does not cherry pick anything. If you think his coverage is biased, have a look at Bloomberg’s these days and see if the tone is different.

    (5) “Rob has easily shown you obviously have no experience with real estate. As much as you might think you know it is clear you have gained all of your knowledge from a few blogs.”

    I am sure that even a child, in the RE market of last, would look like an expert. There have been times you could make money by simply signing a few deeds. I may be no expert, but I am quite confident the game is approaching its end. It boils down to what you believe will happen in the future. I am starting to (reluctantly) believe that some experts might let their vested interests interfere with their calls.

    (6) “You can call it diminish or disagree, but if you want to post on a blog where everyone will agree with your point of view you may be on the wrong one. Any other way would be boring and uninformative wouldn’t it?”

    I agree with you when opinions are discussed. When facts are passed as if they were opinions, I have to disagree.
    I hate to repeat it again, but there is absolutely no way to get some of the contributors to agree on simple facts. You, for once, claim that population growth is fast, even though Cansim data indicate growth below 1% in Vancouver at the start of 2007.

  54. mike

    Hey Rob, don’t you think prices should have been slowing down about now?

    I think we’re starting to enter bubble territory.

  55. tqn

    “Dear tqn, when I wrote leveraged 80% I meant equity of 20% in the house. Now, you can check the dates, they are above for all to see.”

    Good Morning Domus,
    I kept checking your original first message that you advised the investor with three houses, didnt see any 80% or 20% anywhere (unless Rob made it disappeared). Anyhow, If you want to be right, then so be it; but other lurkers/readers/posters are intelligent people, not ignorance like me!

    “I stand by what I said before: I have no vested interest in housing, I am not waiting to buy, I am not a realtor nor a first time buyer. I am just trying to force you guys to admit that RE in Vancouver is not a goldmine or a source of unending wealth.”

    Nothing is a goldmine to me except: watching my own kids playing in my own backyard or growing my own vegetables on my own garden. You dont have to force me guy to admit anything. You are not Santa, are you?

    Do you think, if, a big if, I know for sure, there is a crash coming in June 24, at 3 pm, in 2008, I would sell my properties, and send my parents, wife, kids, tenants, to live under the Burrard bridge?

  56. Jaymo

    Enough with the Bear/Bull sh*te. Friday numbers please….

  57. Domus

    Mike:

    there is no bubble. It is all an invention of the scheming bears, who want to ruin the happiness of RE investors and spoil the party.

    Have you read animal farm? The attitude of people with interests in RE is more and more like that of the ruling pig class in the book: the world has changed and any cracks in the new world are an invention of the evil people outside our little perfect world who want us to fail. Push on, comrades…….

  58. Domus

    Yes, numbers sounds like a good idea!

  59. Jaymo

    Domus,

    If you keep making sense you’re going to get banished just like freako, rentah, VHB and the rest of the uber bears…..

  60. Domus

    Banished meaning that I cannot write what I think?

  61. Jaymo

    Take note of how few bears actually comment here. It’s not as if they’ve changed their viewpoint, they just grew tired of having the same debate with Rob. Also, they grew tired of the ‘market’s change, they always do’ or ‘the cure for high prices is high prices’ realtor schtick.

    He’ll wear you out, too. You’re just a little more dogged than the others….

    I am a RE bear, and I come here for the numbers not the commentary.

  62. first_time_buyer

    Bingo Jaymo.

  63. first_time_buyer

    Jaymo, you forgot “you can always find a good deal in a bad market and vice-versa”.

  64. Domus

    I am respectful to all people. My comments are never abusive. I am a bit worn out of people continuing their old mantra but the thing that most gets to me is the twisting of facts: there is still not a single bull admitting, for example, that population growth in the Vancouver area is the lowest in the past 20 years. And when they do, they try to murky the waters by saying that population growth is irrelevant or some other non-reasonable thing. This is what keeps me going, I cannot let that pass.

    I fully understand that some of the bulls are just normal guys with families who decided to jump on the band-waggon because they could not wait any longer. They wanted a house/apartment of their own. ASnd now they are scared they might be hard done by. I am not happy about people being scared or worried. But the RE market in Vancouver is cyclical and cycles take years to complete. If we enter a down cycle, it will last a few years and these guys will be not happy they did not wait.

    It is not the end of the world, it is just RE.

  65. tqn

    “I am not happy about people being scared or worried.”

    When I have this feeling, I donated my time to the elementary shool near my house; I gather canned foods in my house and donated to the foodbank box at Safeway; I visited, had lunch, and gave a big hug to my senior friend, who is over 80 and lives by herself.

  66. aetakeo

    Agree with you, Jaymo.

    It was the ‘let them eat ramen noodles’ argument that made me realize there were different interpretations of the universe going on, here. Nobody’s going to win anybody over: and even when the market corrects, no matter how huge it is, the bulls will still see it as a combination of misfortunes and cyclic pullback, and the bears will see it as the inevitable retreat to fundamentals. If the coming recession materializes, bulls will say it caused the housing pullback and bears will say the housing bubble helped create it. This has to be an agree to disagree situation.

  67. Skeptic

    Domus: “I stand by what I said before: I have no vested interest in housing, I am not waiting to buy, I am not a realtor nor a first time buyer.”

    Why do you care what happens then ? Why bother taking an interest or contributing to a blog ? Have you got too much time on your hands ?

    You also never talk about any of the downsides of your proposed course of action (renting).

    Its nice to have your own place that a landlord isn’t going to kick you out of. You can do what you want in the garden or paint if you want to change the colours.

    As for putting all your money into the stock market, its at an all time high as well, what about that correction, are you saying it’s going to keep going up at 17% ? Do you understand volatility and risk ?

  68. Domus

    aetakeo:

    I would like to say yes to your post. Before I do that, I would like to ask you a simple question: based on numbers from Cansim and Sauder on population growth in Vancouver in the past 20 years (see link above) do you think that:

    a) population is booming and growth is the highest in the past 20 years;
    b) population growth is at its average level for the past 20 years;
    c) population growth is at the lowest recorded level of the past 20 years.

    Pick a letter. (hint: the right answer is (c)).

    This is not my opinion, there are data which can be easily consulted. And yet, if you ask a few of the regular posters on this blog, they will find a way to argue that this is not the case.

    Now, I can agree to disagree on interpretations. But let’s get the facts right. I cannot concede that.

    the question is open to everyone: pick your answer from the list above and we can start from there.

    tqn:

    I will keep you in mind for the Nobel prize for peace……

  69. Priced Out

    All things being equal, I’d rather own. But they are not equal so I’ll pay half the costs in rent, thank you very much. I’m also convinced that I’m not missing on any appreciation in the housing I’d buy. The condo buildings I’ve watched haven’t increased in price in the last year or so (I’ve seen the sell prices). At best, I’ve seen units increase with inflation.

    My landlord is happy if I make small, reasonable changes and outright encourages me to improve the yard if I wish. I recently asked him if he’s buying more properties (he owns a few bought years ago), and he told me he’s waiting for prices to drop at least 20% (and I hadn’t told him my opinion).

  70. Skeptic

    Domus, you seem really stuck on this population thing, so why don’t we discuss it a little more in detail ? The link to the data that Sauder is using in their chart is here: http://cuer.sauder.ubc.ca/cma/data/Population/population-pctgrowth.xls

    I’m only guessing, however if I was going to work out changes in population, I’d look at the following factors:

    1. Births
    2. Deaths
    3. Interprovincial Migration (people coming from and going to other provinces)
    4. Immigration (people coming from and going to other countries)

    If you have a look at this graph, also from Sauder: http://cuer.sauder.ubc.ca/cma/data/Migration-Immigration/MigrationBC.pdf

    You will see that both interprovincial migration and immigration look quite robust. Immigration has been steady around 10,000 per year for the last 10 years or so. On the interprovincial migration, you will note that it has been improving since 1999.

    So going back to our original list of sources of population change, all I can think is that births and deaths (points 1 & 2) are responsible for the change in population growth. Immigration/Migration figures still look good, no reason for concern there. Perhaps I’m missing something here, I’d like to hear how you are interpreting the figures Domus.

    To take this a step further, we know for sure that people in categories 3 and 4 when they come here are in the market for RE, either purchasing or renting. Lets assume that people in category 1 don’t purchase or rent.

    Maybe I’m missing something here, please enlighten me.

  71. vanreal

    http://www12.statcan.ca/english/census06/analysis/popdwell/Subprov4.cfm

    this statscan site says our population has grown by roughly 6.5%over the last 5 years. This is roughly 100,000 new people to the area. A lot of housing demand I would say.

  72. Domus

    Vanreal:

    this is from the link you sent “Though the province experienced net losses in its migration exchanges with the rest of the country, especially other parts of British Columbia, Vancouver is the destination of many international immigrants. Between 2001 and 2006, an average of 25,000 immigrants a year settled in the Vancouver area. Because of international immigration, Vancouver continued to experience a higher population growth rate than the provincial average in the 2001 to 2006 period (6.5% versus 5.3%).”

    6.5% over 5 years works out to about 1.3% growth per year.

    Now do your homework: go back to the Sauder link and check the average growth rates in major metropolitan areas (including Vancouver) since 1988. You will easily see that growth has slowed down substantially. 25000 people per year may seem a lot of people until you go and check what was immigration in the past. When you do that, you will notice that immigration is really low in the 2001-2006 period, compared to the previous 15 years.

    For international migration, please refer to the following Sauder spreadsheet which gives you raw quarterly numbers:

    http://tinyurl.com/2lyor7

    Notice that:
    – interprovincial migration is often negative for BC;
    – I am not even including the first quarter of 2007, which, according to Sauder’s numbers, saw a large and sudden drop in population growth even with respect to the very slow 2001-2006 period.

    Now, if you really want to be sure, go and check how many housing units are being completed every year.

    In any case, thanks for the link! It confirms very clearly the fact that immigration is slowing big time!

    Oh, you forgot to pick your answer to my multiple choice question…….

  73. Domus

    Forgot mto mention……check how Vancouver’s 1.3% annual growth rate compares to other cities’ growth (easy to do, use my links)…..I think only Winnipeg is growing slower in the past couple of years…..

  74. awum

    Domus, I’m with you on the population growth. I can’t believe that folks like vanreal still wanna argue the point. 100,000 new folks (= what, maybe 30,000 new households?) is bugger all compared to the ability of developers to add new housing stock. Growth was much higher at times when RE prices were flat or falling. Population growth is not fueling the current boom. Makes zero sense. Get over it!

    But think, why do we care about population growth? Because more folks means more homebuyers, of course. But one does not automatically lead to the other. A local decrease in average household size and historically high employment rates have added way more potential homebuyers to GVRD than the effects of our somewhat sluggish population growth. Heck, the census showed some Van West neighborhoods shrinking in population.

  75. Domus

    awum:

    that is true. Changes in family structure may account for a lot of the increased pressure. However I believe that the big wave of immigration after the HK handover did play a role in soaking up existing excess inventory.

    By reading new RE supply data for the past 10 years (see past posts on http://langley-financial-planning.blogspot.com/ for an interesting and data-rich discussion) it appears to me that the stock of housing in Vancouver is more than sufficient to cover the heads of all households. I agree with you that something else has been going on. My best guess is a trend towards speculation and investment in RE.

    Many people have grown disillusioned with company-provided pension plans. Many of them are reluctant to put money on paper investments like stocks. That makes RE an excellent way to build assets and insure a future stream of income. Of course, if many people decide to do that, there ends up being oversupply on the rental market (lagging rents – see Sauder data) and undersupply in the purchase market (RE prices out of whack with rents).

    If you consider that the generation that has decided to use RE as a retirement devise is the BabyBoom generation, that might in fact explain much of the past 5 years – not only in Vancouver, but also in the US and UK.

    What happens when these guys realize that they cannot make a lot of money out of rent alone? They will have to sell if they are not happy with rents. That will be fun to see.

  76. vanreal

    The other part of the link I posted looks at how the city is adding the population. In Toronto and Montreal it is causing urban spread while in Vancouver it is causing increased density. Increased density equals higher land costs. This could definitely being adding to price appreciation especially when you add in increased building costs

  77. Domus

    Vanreal:

    if you actually read your posr carefully, you will see that it says:

    “Between 2001 and 2006, growth was particularly rapid in municipalities in the eastern and southern parts of the Vancouver CMA, especially Maple Ridge (+9.2%), Langley (+6.1%), New Westminster (+7.1%), Port Moody (+15.5%) and Surrey (+13.6%). Their growth rates were all above the Vancouver CMA’s average for the 2001 to 2006 period.”

    It seems to me that, although density is increasing, there is a fair amount of spreading going on as well.

    This is confirmed by the flash animation in Vanreal’s link: http://tinyurl.com/2kcgez

    You can clearly see the spreading.

    In any case, the numbers to grant increasing long-term demand are not there. The kind of annual international migration, even before accounting for emigration to other provinces, are among the lowest ever recorded in the lower mainland.

    Accept it, mate.

  78. Jaymo

    One has to seriously wonder why anybody would argue that property value appreciation in Vancouver is linked to population growth, even in the face of such clear evidence to the contrary. Asset appreciation worldwide in very nearly EVERY class (including friggin’ stamps and art) is unprecedented in the last 4-5 years. We are riding that wave and when it stops, it’s a gonna hurt real bad…..

  79. Domus

    Jaymo:

    I could not have put it better. Kudos!

  80. Domus

    Jaymo:

    this article from tomorrow’s Times of London substantiates your point from the previous post, with wealth of detail (title:World markets are at crunch point):

    http://tinyurl.com/2tfnzr

    One excerpt I found very interesting: “The past global glut of cheap capital created by low official interest rates flooded into every corner of financial markets. As prices rose, and returns were depressed, the much-vaunted “search for yield” encouraged moves into ever riskier assets and strategies in a hunt for enhanced performance.

    Much of this is, if not quite over, now coming to an end. And the adjustment to a new era will bring casualties as speculators are wrong-footed and miscalculations are unmasked.
    ………
    If you thought you heard a crunch just then, you probably weren’t mistaken.”

  81. Skeptic

    Rob, can you please moderate my comment on immigration from this afternoon ?

  82. robchipman

    Skeptic – Done.

    Someone else posted a Craigslist link re: historic rents. I approved it and -poof- it seems to be gone. Care to re-post? Thanks!

  83. Skeptic

    Domus, can you take a look at my 12:30 post and let me know what you think ?

    Rob, thanks !

  84. Domus

    Skeptic:

    net immigration to British Columbia, according to Sauder, is hovering around 10k between 1990 and 2006. It is a low volatility series.

    Population of B.C. according to Wikipedia was 3.3 millions in 1991 and 4.1 million in 2006.

    Now, take a calculator and compute the share of immigration into this pretty province. You are in for a not-so-surprising result: the rate of growth has slowed significantly over the past 15 years.

    You did not need to retrieve all these data. Sauder packages everything for you: there is a nice graph on population growth in the Vancouver area between 1988 and 2007, which I posted above. It reaches the same conclusion: if you want to explain increasing prices, look elsewhere.

    It’s not immigration. If anything, that would be consistent with a slowdown of growth rates.

  85. aetakeo

    Domus: Oh, I pick c). I’m a bear; I also believe that we’re building enough to accomodate and that densification is taking care of the “running out of land” problem. If Yaletown condos were cheaper by the square foot than they are and SFH were the only insanely appreciating class, then I might feel different. However, I used to go to raves in Yaletown. It’s holding a lot more (tiny) homes than it did, and there are a lot of basement suites and other multi-family approaches in Kits.

    All that said, and I can construct bull arguments which would discredit my (anecdotal) observations that building has kept up with immigration.

    There shure ’nuff is a lot of building going on NOW, though.

    Jaymo, regarding stamps appreciating, think of it this way: you’re not throwing your money away buying new stamps every month and then sending them off to someone else to have. You can keep your stamps and grow your stamp ownership. That $10,000 for a limited double strike is an investment for the future – even after you factor in insurance and upkeep.
    What’s that you say? Buying stamps for mailing purposes isn’t the SAME as buying stamps for investment purposes? And stamp collectors are dependent on having a mail system? And regular mail would cease to exist if stamps all became too expensive (when emailing and UPS are alternatives?)
    Well, you’re just missing the boat, Jaymo – you bitter mailer, you.

  86. Skeptic

    Domus, hooray, I think you have actually got it now.

  87. robchipman

    aetakeo:

    In regard to running out of land, don’t you think that the very fact that Yaletown is now so dense, that basement suites have changed from being a problem to being a solution, and that converting garages is now referred to as a “green” solution, indicates that land supply is restricted?

    (Even if you write off increased land costs as a sign of scarcity, densification was well underway long before the current run up in prices. If it wasn’t due to lack of supply, what caused it? Why do we need to do more with less if we’ve got pleanty?)

  88. Jaymo

    If the ‘Running out of Land’ argument was used to justify a run up in prices back in ’81, and was clearly not enough to keep things going into ’82, what makes it any more valid now?

    RE Shill: “Back in ’81, well , we got it wrong, but now, WE REALLY ARE RUNNING OUT OF LAND.”

    Glad we cleared that one up.

  89. Domus

    So, have a look at Kits for an illustrations of the running out of land.

    Empty lots of land. Many lots wasted for bungalows or small SFH. There is plenty of land to be devoped for housing even in that most desirable location. It is just that, like in Toronto or Montreal, people will have to accept that multiple stories buildings are necessary.

    The land is not the issue, but the fact that many want to have a large plot in a location like Kits and live there with their husband or wife alone. That cannot happen in a large city. If you want a big SFH you might have to think of suburbs. Central locations like Kits will in the next decades become like the West End.

    If you look at Vanreal link above, there is a flash animation describing density: you will see that large swathes of central Vancouver are still very low density compared to other major cities.
    That does not support the “running-out-of-land” argument.

  90. Jaymo

    Every city has had to do more with less, land-wise. This is not a real shocker, and we have not reached some critical land shortage that requires the recent exponential run-up in prices. What we have here is a bubble. Period. If you don’t agree, than you are not paying attention to what is going on globally. It’s called willful ignorance, and it is going to kick your a$$ something fierce…..

  91. robchipman

    Domus:

    You seem to be saying that we aren’t running out of land, but we are not using it efficiently. Fair enough.

    I’m saying that there appears to be lots of land around, but that’s deceptive. The cost of land has made us move toward higher densification. That’s a long term trend and its likely to continue.

    I think both statements indicate that demand for land is greater than supply.

    You actually say that some people in Kits want large lots for few people, and you say that can’t happen. The fact that people want what you say they can’t have indicates to me that we have a shortage of what people want, and that you’re admitting that.

    Jaymo:

    In your eagerness to prove the bubble and fight the Man I think you’re ignoring that I divorced the current run up from being purely a supply issue (“…was well underway long before the current run up in prices”).

    I have never said that lack of land will cause this market to avoid correction. The lack of land will survive the correction (whatever magnitude it may assume), and densification will continue as a result.

    In terms of whether I agree that the local RE market is a smaller part of a global bubble, I can only say that I’m very interested in what central bankers all around the world do to handle the challenges that we see. They effect much more than our local market. Bursting the bubble doesn’t seem like the kind of preferred solution central bankers would choose to deal with hyper-liquidity. We’ll see. Maybe you’re right.

    Now, if I say that in light of global asset appreciation I don’t know exactly what will hapen, but we will see a market change, and there will be a correction of some sort at some time, or if I say that global hyper-liquidity contains the seeds of its own destruction (the cure for high prices is high prices) does that qualify as more Realtor schtick?

  92. Domus

    Rob:

    by your same argument, lots of people (I am sure) would like a SFH in the New York’s village. The fact there are not many of those simply means that land is used more efficiently otherwise. There is enough land to house thousands more even in NY or London. Planning permissions need to be granted.

  93. robchipman

    Domus, you’re not seeing the forest for the trees. If there is no shortage then nobody has to use anything efficiently.
    I don’t argue that people in Kits want large lots with SFHs housing only 2 people, or they want lots that they can keep vacant. That’s your argument. I just accepted it.
    You said that can’t happen and that land has to be used more efficiently. You said it “cannot happen” in a large city, and that people will have to accept higher densities.
    If there isn’t a shortage of land, why do we need higher densities? If there isn’t a shortage of land why do we have to use it more efficiently? If there isn’t a shortage of land why is it so expensive? I used to sell East Van building lots for $80,000. They’re more than 5 times that now. If land isn’t scarce, why do we need to change planning permissions? Is it all a result of speculation? Because the trend has been going on a long time now.

  94. Jaymo

    Central Bankers don’t care about the pain of a short term correction so much as ensuring that the system stays intact long term, and that it is long-run efficient. At least that’s how I see it. They have to cut the normative part out of the equation, if they are doing their jobs as economists. While excess liquidity might make one feel warm and cozy as we spend ourselves into stupidity, this is a bad thing and deepens the inevitable cooling cycle once the money supply tightens up.

    The US central bank will probably raise rates in the near future to stem inflation, despite the growing problems with the housing market.

  95. awum

    What keeps SFHs in Kits, Dunbar and Point Grey? Restrictive zoning.

    What would be the rational response to 5 years of massive increases in real estate prices (implying, therefore, huge demand)? Increased densificationand less restrictive zoning.

    What stops politicians from doing the right thing and lifting restrictive zoning in these neighborhoods? I’m torn — is it (a) conflict of interest, (b) lack of intelligence and foresight, (c) simple negligence, (d) lack of spine, or (e) all of the above?

  96. Domus

    “If there isn’t a shortage of land, why do we need higher densities? If there isn’t a shortage of land why do we have to use it more efficiently?”

    Rob:

    for a Realtor you have an apparently limited knowledge of urban development. Have you ever read Jane Jacobs ? Life and death of great cities?

    So, by your argument, it would be OK to build over the countryside with SFHs in Calgary? And ask evryone to commute one hour and a half each way like in many US cities? Land is not scarce in the prairies…..

    That’s not the point at all: if you want a balanced urban development which is consistent with costs and environmental regulation, you need to densify. Vancouver is doing it a certain extent (certainly a lot for a Western north american city) but there is still plenty of room to do it. The lower mainland could easily accommodate 2 times as many people as now, comfortably. You need good building standards (cement, rather than wood), buildings which are taller than 3 stories, green areas which are kept away from developers.

    Otherwise, buy a car and spend 2 hours a day driving in and out. Vancouver is a medium size city, it’s not like Kingston……..yet, house prices are much higher than most mid-size cities. And it is not land shortage.

  97. Domus

    “I used to sell East Van building lots for $80,000. They’re more than 5 times that now. ”

    Rob,

    how about an enormous, close to exploding, housing bubble to explain your conundrum….?

  98. Domus

    “What stops politicians from doing the right thing and lifting restrictive zoning in these neighborhoods? ”

    It is a combination of two things:

    1) pressure from incumbent residents: they will give you hell because they know that values in the area will drop if more units become available. However, it is only a matter of time before they give in to some big cheque from developers.

    2) I genuinely think that politicians in Vancouver are quite happy to keep house prices artificially high, especially in some areas. I believe some of them might be connivent with big developers (not realtors, I am talking about the big shots). Vancouver is an economic backwater and these developers exercise a huge influence locally. By restricting supply they make sure to pocket large profits. Solution: take away from politicians the power to decide arbitrarily where and where not to build.

  99. robchipman

    Yeah, I have a very poor understanding of urban development, Domus. Thanks for pointing out that we need to densify to be green. And we have to build with concrete to be like Europeans. And we have to stop “asking” people to commute an hour and a half. Because “we” want balanced urban development that is consistent with costs and environmental regulations.
    Who is this “we”? Of course, it doesn’t include the incumbent residents sitting on the SFHs, because they know that their land value will drop if you allow them to build condos there, until someone pays them a huge amount because their property values didn’t drop, after all (I’m not making this up! You actually wrote it!)
    And the “we” doesn’t include the people who want a big yard to chuck a ball around in, either, and who don’t want to live in dense accomodations.
    People who buy houses in the suburbs could buy apartments in the city. They don’t want to. Nobody forces people to move to Coquitlam or Maple Ridge. They choose to do it. Yes, many would prefer to have the SFH suburban house in Kits or North Van, but they want the SFH.
    People don’t oppose upzoning becasue it hurts their property values. They oppose it becasue someone from outside their area wants to make them change their lifestyle. (You know, the kind of guy who comes to your house and says “We’ve taken the power away from the politicians so that we can accomplish what we want in a way that is consistent with costs and environmental regulation. We’re starting with you. Welcome to the new world order!”)
    Btw, are you under the impression that politicians arbitrarily decide on zoning? Have you ever heard of an OCP?

  100. awum

    Rob, I generally respect your arguments, but you are truly arguing out your ass for this one.

    Now you’re against a free market? Nobody forces anyone to change their lifestyle when “upzoning” occurs. Domus got it wrong — property values do not go down (locally anyway) with upzoning. If it did, new projects would not be possible, because no one would sell their land. Don’t want to change your lifestyle, don’t accept the big check if you don’t want it!

    I can’t believe folks who call the lifting of government-imposed restrictions an “imposition.” It’s pretty much the definition of hypocrisy. You want democracy — put it to a vote, then, and let all of us have a say. Forgive me for having little sympathy for shrinking neighborhoods filled with aging property millionaires while the whole Lower Mainland is facing an RE shortage… it is a short supply, isn’t it? Or have I misunderstood?

    Really Rob, free-market capitalism is all well and good for you until it means condos down the end of your street?

  101. Anonymous

    What Domus is suggesting is more akin to communism. The market mechanism deals with all the quirks of the system, zoning, density, etc, they all play out in pricing.

  102. Domus

    Rob,

    my argument is simple. Land values are large in areas of Kits and, in a free market (which by the way I quite support), you would observe densification in those areas.

    Current residents, as it is, are opposing densification on the basis that it will spoil their lifestyle. They believe further construction as a threat to the value of their RE as well.

    Of course, they would reconsider if the market was allowed to work smoothly and zoning regulation allowed better development of the area.

    I think this is a very simple argument.

    Regarding your initial comment: “Thanks for pointing out that we need to densify to be green. And we have to build with concrete to be like Europeans. And we have to stop “asking” people to commute an hour and a half. Because “we” want balanced urban development that is consistent with costs and environmental regulations.”

    Yes, denisfication is the only way to preserve green belts when population rises. You may not like concrete, but that’s the best way to achieve good quality densification.

    The alternative is to concrete over what is today’s farmland. Very green, isn’t it Rob? And maybe throw in a couple og large highways to connect downtown to the far away suburbs. Brilliant, you should run for the Green party.

  103. robchipman

    awum:

    I’m probably writing it poorly. I was being sarcastic. I agree with what you’re saying – upzoning does increase value, and people oppose it not because it depresses property values, but because it requires them to change their lifestyle. The guy who wants to retire to Kelowna has no issue with the upzoming. His neighbour who wants to die in his house does. Who are we to pick which desire trumps which?

    You have to reconcile democracy, capitalism and property rights. We do that through local government and OCPs. OCPs set out conditions for upzoning. Local government decides what goes into the OCP and how it changes. This contributes to stable change. Its democratic, and it respects property rights. (Remember, one man’s property millionaire is another man’s widowed granny on a fixed income facing rising taxes and being forced out of her matrimonial home).

    So, free market capitalism is good for me until it brings something I don’t like. That’s not controversial – we can say the same for you. Competing interests is a characteristic of capitalism. Laws, in this case zoning laws, reconcile the competing interests and allow a maximum of choice.

    I guess I can mark you down as someone who believes land in the Lower Mainland is in short supply, though, right? 🙂

    Domus:

    One of your arguments (no matter how often you try to modify it) is that there isn’t a shortgage of land in the Lower Mainland, and that the shortage isn’t a long term characteristic of this market.

    In a free and democratic market (two concepts that are at times mutually exclusive), people have rule of law and property rights. Your rights aren’t subject to the whim of the day. This makes sense because property ownership can last a long, long time, is hard won, and is near and dear to people’s hearts. Zoning is a response to this and exists because people want it. Its not the problem. Competing interests are the problem.

    One of the good things about our system is that we revere individual choice. People can’t always get 100% of what they want, but they can choose the ingredients of their happiness. If they want a big yard they can move to the suburbs. If they want to walk to work they can buy close to their job. If they want a hip pad in Yaletown, they can have one.

    You seem to want to take choice away fromthe individual based on your simple argument that densification is the only solution.

    Everyone wants a green planet. They just don’t want to pay for it. Some would conclude that in reality, not everyone wants a green planet if it means they do without other things. I don’t think you see it that way. I think you’ve bought into the “we all agree” school of argument justification.

    Bottom line: people have desires and try to attain them. Its called “demand”. When people demand more of the same thing than can be supplied, more has to be done with less, or more has to be added.

    In the Lower Mainland our land supply is fixed (it has actual physical boundaries). We can use it more efficiently (densify) or we can bring more latent supply online (sprawl). Which choices we make depend on who’s making the choices. Either way, the choices are necessary because of the shortage of land. You can’t get around that.

  104. Domus

    Rob,

    I like your reasoning. But the question remains: if demand is for sprawl, people have to realize that the price on the environment is higher. If there is an externality (market failure0 due to the fact that people do not fully pay the price for the environmental damage, then you have scope for public interventions to rezone areas like Kits and Point Grey. It might be simply a way to allow market forces to capture the costs which are being eluded by restrictive zoning which makes sprawling more competitive.

    Jane Jacobs argument was pretty clear: great cities are those which allow densification. Vancouver has huge room for that, the land is more than enough to accommodate twice as many people (if they will ever come here). It is very much a problem of releasing constraints and making choices.

    Good analysis, though, i enjoyed your post.

  105. robchipman

    Domus:

    Jane Jacobs has an opinion. Its an informed one. But its not the definitive one. What if you’re not interested in a “great” city? What if your definition of a great city is different from Jane’s, or mine?

    Some people like densification. Some people like opera. Some people like Robson Street.

    Others like rodeo and big trucks.

    The later group often choose to live outside the city regardless of price. They can buy a house in Cloverdale or a condo in downtown Vancouver, and choose the house. Others can afford a house in Vancouver or an estate in Langley. They choose the estate. Up the prices of the house or the estate and they’ll still choose the estate.

    When you say that if people choose sprawl they have to realize that demands on the environment are greater, I’m not sure you can make the case. I don’t want to get into the nuts and bolts of it, but I’d like to point out the possibility that the nice, eco-friendly titatnium bike isn’t quite as friendly as it appears. Someone had to mine the titanium, right? Its not my particular hobby horse, but there isn’t a shortage of people who can argue it.

    Restrictive zoning is what people want. If they didn’t want it it would change. The parts they don’t want do change. I don’t know how long you’ve lived here, but the history of basement suites in Vancouver illustrates how zoming changes. Realtors still call them “unauthorized accomodation”, but in fact, in Vancouver, they are all essentially legal, even the ones without permits. 15 years ago it was not thus. Zoming has changed.

    When you say “allow market forces to capture the costs which are being eluded to make sprawl more affordable”, what are you actually saying? Charge the guy in North Van a tax so that someone in Vancouver gets something cheaper? Look at your property tax bill (it came last week, right?). We do some of that now.

    In terms of environmental damage as an externality stopping densification in Kits and Point Grey, are you saying that the sprawl buyers in Langley should pay a surcharge to destroy the old houses in Kits, throw them in the landfill and then build highrises so that other people can live in Kits while the sprawlers commute?

    Or is the idea to make sprawl costs so punitive that people won’t move to Langley because there are no houses being built there?

    I guess what I’m saying is that whenever someone tries to capture externalities you can generally describe it as a way for Peter to make Paul pay for Peter’s meal. Whatever else may come out of the argument, you can be sure that Peter and Paul will disagree with each other.

    That said, I am interested in a few things: do we or do we not have a shortage of land in the Lower Mainland? Is densification not a response to that shortage?

    Second, (and I’m serious) what would you do to capture the externalities, given that not everyone wants to see, or pay for, more densification in Kits?

  106. Domus

    Rob,

    the argument is simple.

    restrictive zoning is restrictive supply. remove zoning restrictions in Kits. That would allow developers to make offers for land plots to build multiple units. If current owners are against it, they can say no and live in their bungalows. However I have a feeling that many would accept the money from the developers, if it’s good enough.

    All I am asking for is removing restrictions to supply. I am not suggesting we should force people to seel. If they are willing to live there no matter what, they will be happy to say no to a few fat checques. Does that sound like crazy talk to you?

  107. robchipman

    Yeah, I think it pretty much is crazy talk. (Kidding! 🙂 )
    What you’re suggesting is that its good to relax zoning so that people who currently don’t own can buy/live in smaller places in an area that they want to be in, regardless of the fact that the area is already owned by prior arrivals who may not want change. You’re advocating giving one part of the population more power than the other, despite the fact that the people you’re disempowering have made substantial investments. Some would say “Build your tower somewhere else”.
    Zoning reflects the choices made by the community. It restricts use of supply, clearly. Changing zoning from SFH to multi-family doesn’t increase supply. It just allows you to do more with the same supply.
    Another function of zoning is to allow people to exert a reasonable amount of control over their neighbour. Market forces would allow people free rein to use their property as they see fit. I could put a bodyshop next to your house.
    The point is that we’ve come up with a workable system that reconciles property rights with the free market. Zoning changes when people want it changed. It just doesn’t change overnight and it doesn’t change to satisfy the few.
    I can hear you say “Great cities densify”. Fine. Why not densify the Downtown Eastside? Why not densify a big chunk of the Endowment Lands? Who decides that Kits is the place that gets tagged for progress, if not the people who live there?
    (You don’t need to force people to sell. Build something next to them that impairs their enjoyment and you’ll motivate them to sell. They won’t get a fat cheque. The developer who built the tower next door won’t be stupid).

  108. Domus

    Now Rob, you are truly puzzling me.

    Why densifying the downtown eastside is better than densifyong Kits? Are there any specific reasons, apart from average income?

    And the Endowment lands? That’s a stroke of genius: we might even make some money selling the thousand of trees we can cut!

    Rezoning Kits make sense just as much as rezoning the downtown Eastside. Restricting residential zoning (I am not talking about body shops or commercial premises) is tantamount to forbidding people to make whatever choices they want. If you don’t like a building next to you, you can move away. You don’t have a god-given right to small-built neighbours and plots of green lands around you. You can keep your own, but can’t force the others.

    I have got to say this: every time I start thinking you are making some sense, you have a habit of coming up with something like the previous post. You say:
    “What you’re suggesting is that its good to relax zoning so that people who currently don’t own can buy/live in smaller places in an area that they want to be in, regardless of the fact that the area is already owned by prior arrivals who may not want change. ”

    Prior arrivals do not have to change! They can stay in, they are the masters of their own plot. However, the use of residential (repeat: residential, not commercial) land around them is not their prerogative: under the constraint that it is used for residential purposes and good development guidelines, I think your argument has absolutely no meaning.

    Even better (and here I laughed, I must say, when I read it) you say: “You’re advocating giving one part of the population more power than the other, despite the fact that the people you’re disempowering have made substantial investments.”

    In fact, that’s exactly what current zoning regulation is doing, that is giving one part of the population more power than the other. A subgroup, not all, of current owners have a power of veto on what other people can or cannot do. In fact, they can veto the decision of other owners around them to sell their land for a multi-unit (not necessarily a tower) building.
    They also implicitly have more power than the rest of the Vancouver citizens, as they can veto the direction of future developments and oppose building in their backyard, while allowing it in the Eastside. It is rather peculiar that you make that point……I bet many politicians do live in Kits.

    In any case, funny post above, I had a good time reading it. Apart from some crazy regulation, i don’t really think there is much land shortage in Vancouver.

  109. robchipman

    Domus:

    You’re confusing what you think the state of things is for what the state of things actually is.

    You say “However, the use of residential (repeat: residential, not commercial) land around them is not their prerogative: under the constraint that it is used for residential purposes and good development guidelines, I think your argument has absolutely no meaning”.

    That statement is a nice opinion, but in terms of being a fact it’s incorrect. I’m not making a philosphical argument. I’m just commenting on what is.

    People do have rights over lands that are around them. The rights come from zoning laws. This isn’t a case of me saying they should have those rights. I’m just recognizing that they do. The fact that you identify the laws as a problem requires taht you recognize the rights they confer (which are also a problem for you).

    (Btw, who decides that densification is ok, because that’s residential, by commercial upzoning is no good? )

    You’re incorrect that one sub-group can veto the wishes of another. Zoning, from the OCPs that designate what zoning will be, to zoning itself, to re-zoning and boards of variance, are all subject to public input. Your neighbours don’t “veto” your right to sell your property in any event. You can sell to whoever you like. Still, your neighbours don’t even veto your right to develop the land however you like. What stops you from doing that is the law. The law is made by the local government. There is a method for changing it, and in fact it does change over time.

    Densifying the DTES or the Endowment lands isn’t “better” or “worse” than densifying Kits. The point is that you think densifying Kits is a great idea. Others think its bad. Picking locations for densification that are likely to raise objections is an attempt to make you recognize that. (You know that while “gentrification” is acceptable in Kits, its fight’n words in the DTES, right?)

    Rights are a trade-off. Most people recognize that. Your right to live in my neighbourhood stops where my reasonable enjoyment is infringed on. (Yes, its tough to define “reasonable”, I know).

    What you call “crazy” regulation is regulation that you don’t agree with. It exists to handle precisely that kind of disagreement. Check out a third world country to see what lack of zoning results in: bodyshop next to your house. I understand: you wouldn’t allow that. You’d allow something else. The problem, of course, is that your authority on the subject isn’t definitive. Government (and that’s all zoning is) exists so that I don’t take up arms against you for putting a condo next to my dream house.

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