Housing Bubble II: The Quest To Build Enough Homes Where People Actually Need Them

[big T]

Originally Posted by suburbanite

Keep in mind that while the underlying demand for housing is extremely high (ie. the number of people that would ideally like to acquire ownership in a piece of residential real estate is higher than ever), there is a mismatch between the price that those people are willing to pay and the price that those who can deliver it are willing to accept. Canadian real estate does not operate under a free market model where those two curves would ultimately settle at a healthy equilibrium.

I get this, but assuming those sellers are at all motivated something will eventually have to give, no? The stalemate can't go on indefinitely.

I'm skeptical that 25k homeowners in the GMA (or even half of them, for discussion's sake) are merely "testing the waters" and totally cool if their place doesn't sell. Yes, prices are ridiculous (w.r.t. what the local market can bear), but I just don't see how this can keep going for an arbitrarily long duration.

On the flipside, if the "rich overseas buyers parking money at any price" narrative had any legs, supply would soon dwindle (making for happy sellers, at least), with doesn't seem to be happening either at any meaningful scale.

Not trying to be contrarian, but something genuinely doesn't add up for me.

[suburbanite]

Originally Posted by big T

I get this, but assuming those sellers are at all motivated something will eventually have to give, no? The stalemate can't go on indefinitely.

I'm skeptical that 25k homeowners in the GMA (or even half of them, for discussion's sake) are merely "testing the waters" and totally cool if their place doesn't sell. Yes, prices are ridiculous (w.r.t. what the local market can bear), but I just don't see how this can keep going for an arbitrarily long duration.

On the flipside, if the "rich overseas buyers parking money at any price" narrative had any legs, supply would soon dwindle (making for happy sellers, at least), with doesn't seem to be happening either at any meaningful scale.

Not trying to be contrarian, but something genuinely doesn't add up for me.

It can't go on forever, but most developers are banking on an interest rate "normalization" (I personally thinks its ridiculous for us a country to say that the housing market only works at sub 2% interest rates but I digress) sometime in late 2024 to 2025. If inflation is stickier than expected and the BoC sticks to their guns, than eventually people will have to make moves. Keep in mind that Canadian real estate development is dominated by private family-owned companies that don't answer to shareholders who demand consistent annual returns. They can afford to sit and be unproductive for a while if they think there are better times on the horizon.

This is the key difference between the big growing metros in the U.S. and Canada. A group like Toll Brothers in the States has to continually pump out homes and keep the machine churning every year because homes/lots in most metros don't appreciate by more than 1-2%/year. In addition, if you don't develop, someone else can just leapfrog you and start selling homes on a subdivision island surrounded by farmland. If you want to make money you have to do it through volume.

[Arrdeeharharharbour]

Originally Posted by big T

I get this, but assuming those sellers are at all motivated something will eventually have to give, no? The stalemate can't go on indefinitely.

I'm skeptical that 25k homeowners in the GMA (or even half of them, for discussion's sake) are merely "testing the waters" and totally cool if their place doesn't sell. Yes, prices are ridiculous (w.r.t. what the local market can bear), but I just don't see how this can keep going for an arbitrarily long duration.

On the flipside, if the "rich overseas buyers parking money at any price" narrative had any legs, supply would soon dwindle (making for happy sellers, at least), with doesn't seem to be happening either at any meaningful scale.

Not trying to be contrarian, but something genuinely doesn't add up for me.

I wonder if the piece that is missing is the trillion or so dollars within this country that is making its way down via inter-generational transfer. I can't be the only one on SSP with multiple friends who have received six figure pre-inheritance lump sums that they don't really need and have to find something to do with it. And they have more money on the way...sooner or later. As somebody selling something, anything, why would I not charge as much as I can get?

[Xelebes]

Originally Posted by Acajack

For what it's worth...

I was chatting with the guy who does my seasonal tire changes and he works residential construction as his day job.

He was saying that winter is always quiet but that this winter was even quieter than usual.

I was surprised because I said there was an insane amount of demand for new housing.

His explanation was that developers were deliberately sitting on a lot of pent-up demand right now due to materials prices being so high.

They're hedging their bets that materials costs will go down eventually and only then will they start up the machine at full speed again.

I work in industrial construction and the biggest material we use is steel. There are lots of products that we install that are experiencing substantial delays (like more than four months for meshpanels for warehouse racking) because steel can't be procured in a consistent manner. Wood has stabilized and what we require of concretes and cements is minimal so we can't obtain a bead on that.

Interest rates have remained high, so financing of new construction is still a problem so it depresses the willingness to bite the bullet and see if you can beat the cycle on material procurement.

[lio45]

Originally Posted by Acajack

For what it's worth...

I was chatting with the guy who does my seasonal tire changes and he works residential construction as his day job.

He was saying that winter is always quiet but that this winter was even quieter than usual.

I was surprised because I said there was an insane amount of demand for new housing.

His explanation was that developers were deliberately sitting on a lot of pent-up demand right now due to materials prices being so high.

They're hedging their bets that materials costs will go down eventually and only then will they start up the machine at full speed again.

Same view here. For the last few years, I've been sitting on empty lots and empty buildings (for my Canadian portfolio), and working right now to reduce my number of tenants even further. That's actually the best way to create longer term value. So far the value of the properties has gone up in an inversely proportional fashion to number of housing units I have in operation. Ideally I'd have only parking lots and vacant developable land (if they'll let me demolish everything). None of the downsides of operating a real estate portfolio, yet pretty much all of the positives

[big T]

Originally Posted by Arrdeeharharharbour

As somebody selling something, anything, why would I not charge as much as I can get?

My point was that it doesn't look like sellers are very successful, at these prices. Tons of inventory sitting around -- I see it anecdotally in my neighbourhood, units are sitting on the market for months. The overall picture looks consistent with 24k homes for sale just in the GMA.

No wonder builders are not chomping at the bit to start new projects in these conditions.

It's not a housing shortage, it's a weird stalemate where sellers won't budge and buyers turn up their noses, or straight up cannot afford the asking prices. Am I misreading things that badly?

[Nashe]

Originally Posted by big T

It's not a housing shortage, it's a weird stalemate where sellers won't budge and buyers turn up their noses, or straight up cannot afford the asking prices. Am I misreading things that badly?

If that IS the case, it should auto-correct, in time, assuming these are houses that the seller DIDN'T plan to carry for any length of time (flip). If these are boomers who are considering cashing out, then they can hold out until they die.

[giallo]

Originally Posted by big T

My point was that it doesn't look like sellers are very successful, at these prices. Tons of inventory sitting around -- I see it anecdotally in my neighbourhood, units are sitting on the market for months. The overall picture looks consistent with 24k homes for sale just in the GMA.

No wonder builders are not chomping at the bit to start new projects in these conditions.

It's not a housing shortage, it's a weird stalemate where sellers won't budge and buyers turn up their noses, or straight up cannot afford the asking prices. Am I misreading things that badly?

There's definitely a reluctance for sellers to lower their asking price. There are a couple of houses in the neighbourhood I grew up in that have been on the market for over a year, and the prices are the same. It's a real estate stalemate. Buyers and sellers are all waiting to see who jumps first.

[Nashe]

Originally Posted by giallo

There's definitely a reluctance for sellers to lower their asking price. There are a couple of houses in the neighbourhood I grew up in that have been on the market for over a year, and the prices are the same. It's a real estate stalemate. Buyers and sellers are all waiting to see who jumps first.

[big T]

Originally Posted by giallo

There's definitely a reluctance for sellers to lower their asking price. There are a couple of houses in the neighbourhood I grew up in that have been on the market for over a year, and the prices are the same. It's a real estate stalemate. Buyers and sellers are all waiting to see who jumps first.

Yeah, especially in your neck of the woods, the long standing narrative of foreign money sucking up RE seems vastly overplayed. Is that still a thing (sure was back when I lived in Van), or have people come to accept that maybe we're the baddies?

We're in a crisis of our own doing, fuelled by a toxic mix of greed and low ambition / risk appetite. We've successfully bred and rewarded the average Canadian's worst instincts.

[niwell]

Indeed. Anecdotally I've seen a LOT more houses sit on the market for prolonged periods of time, which upon checking the listing price isn't too surprising. Seems like a lot of people are waiting around for investors (of any stripe) to pick up properties at inflated prices. This goes for places near me in Toronto such as a mediocre detached with a single basement apartment located *on* Parkside Drive (a loud, major thoroughfare) asking $2.6M and places near our Napanee house that have cheap superficial renos asking $600k+ (work $500k max). The Parkside example finally sold for $2.4M which is still grossly inflated IMO - only solace I have is the previous owner lost money on it!

On the flipside the people I know who have been in the market recently have still had a lot of difficulty. Maybe not the craziness of a few years ago but anything "reasonably" priced still sees bidding wars and you have to snap it up as quickly as possible.

[suburbanite]

The resale market is a different beast, because typically each seller is also simultaneously a buyer. Anyone who isn't an investor selling their home is doing the calculation on what they need to get to make their next move up the housing ladder. The cost of making that move has increased significantly since interest rates went up, and so the only feasible way to achieve that goal is to get an inflated price for your current asset, which someone else has to buy at current rates, and so you can see how the circularity leads to a deadlock.

Ultimately new home sales have to be the driving factor behind breaking the inertia in the market. Even if rates go down and resale transaction volumes explode, the underlying affordability is never going to change as people stretch to the limits of their monthly cash flow to acquire their piece of the Canadian Dream.

[whatnext]

Originally Posted by big T

Yeah, especially in your neck of the woods, the long standing narrative of foreign money sucking up RE seems vastly overplayed. Is that still a thing (sure was back when I lived in Van), or have people come to accept that maybe we're the baddies?

We're in a crisis of our own doing, fuelled by a toxic mix of greed and low ambition / risk appetite. We've successfully bred and rewarded the average Canadian's worst instincts.

That's a bad take. One only needs to look at the way prices of SFH took off in Vancouver 2006-2016 to see it was due to a lot of buyers not dependent on local income. Sure, very low interest rates may have stimulated the condo buyer or suburban house buyer but that still wouldn't have qualified them for a $4 million house in Vancouver.

The problem s those $4 million dollar houses were recently less than 1/4 of the price. Case in point 3369 W 22nd. What had been a solid older home rapidly escalates in price torn down and a newbuild for the offshore market:

$3,888,999
Sold 2021-10-26

$2,738,000
Sold 2016-07-18

$990,000
Sold 2008-07-29

$746,000
Sold 2005-12-08

[P'tit Renard]

Even business leaders agree that the RE super bubble is the biggest factor that could trigger a wage spiral and prolonged inflation in Canada:

Business leaders say housing biggest risk to economy: KPMG survey
https://www.bnnbloomberg.ca/business...rvey-1.2052182

“Housing issues are forcing businesses to boost pay to better attract talent and budget for higher labour costs, agreed 87 per cent of respondents.

What we're seeing in the survey is that the businesses are needing to pay more to enable their workers to absorb these higher costs of living,” said Caroline Charest, an economist and Montreal-based partner at KPMG.

The need to pay more not only directly affects business finances, but is also making it harder to tamp down the inflation that is keeping interest rates high, said Charest.

A report out last year from the Ontario Chamber of Commerce also emphasized how much the housing crisis is affecting how well businesses can attract talent.

[P'tit Renard]

Originally Posted by big T

We're in a crisis of our own doing, fuelled by a toxic mix of greed and low ambition / risk appetite. We've successfully bred and rewarded the average Canadian's worst instincts.

Quebec's in a relatively good place with the their low mortgage value share, but Ontario and BC is fully exposed, and it's going to hit Toronto and Vancouver disproportionately hard when this super RE bubble does pop.

[MonkeyRonin]

Originally Posted by big T

It's not a housing shortage, it's a weird stalemate where sellers won't budge and buyers turn up their noses, or straight up cannot afford the asking prices. Am I misreading things that badly?

It can be both true that there are a lot of properties listed for sale (that aren't selling), while at the same time demand for housing exceeds supply and vacancy rates remain low.

After all, all of those homes for sale likely still have someone living in them - they're just stuck there until they can sell the property. The houses just aren't moving on the market because there aren't enough prospective buyers who can afford them at those prices (hence why prices are slowly coming down, even while overall affordability continues to deteriorate). This is also why the rental market in particular is experiencing so much stress right now - there are a whole lot of prospective buyers sitting on the sidelines.

Either way, there's definitely enough evidence of a housing shortage also being true. Eg:

-Canada has by far the lowest number of housing units per capita in the G7.
-1.5% national rental vacancy rate.
-The population grew by nearly 1.3 million in 2023 (or conservatively, meaning at least 550,000 new households), while there were only 223,000 housing unit starts (and a similar number of completions).

Etc.

[GenWhy?]

Originally Posted by whatnext

$3,888,999
Sold 2021-10-26

$2,738,000
Sold 2016-07-18

$990,000
Sold 2008-07-29

$746,000
Sold 2005-12-08

To keep this apples-to-apples, a 2005 sale price of $746,000 is $980,315 in 2021 dollars.

From 2009-2013 the laneway and secondary suite program is rolled out, which increased the number of units allowed to be built on one lot. In most cases, a primary dwelling and two secondary dwellings.

In 2018 the duplex program was launched, which would typically allow on a single lot two primary dwellings and a secondary dwelling for each primary dwelling. That's now 4 units on this lot.

For your posted 2021 sale price listing, that would, roughly speaking, peg each duplex with a secondary suite to be valued to sell at $1,944,499 in 2021. The single family home is not "for sale". The development potential is for sale. So we've increased by $1 million from 2005-2021, but the total number of units per lot and the number of primary dwellings have also increased.

[Acajack]

Originally Posted by P'tit Renard

Quebec's in a relatively good place with the their low mortgage value share, but Ontario and BC is fully exposed, and it's going to hit Toronto and Vancouver disproportionately hard when this super RE bubble does pop.

I think it may indeed be true that Quebec is in "not as bad" shape, but we'd need to factor Desjardins into there in order to get a more accurate picture.

[whatnext]

Originally Posted by GenWhy?

To keep this apples-to-apples, a 2005 sale price of $746,000 is $980,315 in 2021 dollars.

From 2009-2013 the laneway and secondary suite program is rolled out, which increased the number of units allowed to be built on one lot. In most cases, a primary dwelling and two secondary dwellings.

In 2018 the duplex program was launched, which would typically allow on a single lot two primary dwellings and a secondary dwelling for each primary dwelling. That's now 4 units on this lot.

For your posted 2021 sale price listing, that would, roughly speaking, peg each duplex with a secondary suite to be valued to sell at $1,944,499 in 2021. The single family home is not "for sale". The development potential is for sale. So we've increased by $1 million from 2005-2021, but the total number of units per lot and the number of primary dwellings have also increased.

You've neatly encapsulated how programs like zoning for duplexes and fourplexes drive up the cost of housing and help ensure that regular folks will never be able to afford their own house in Vancouver. It isn't uncommon to find these new duplexes each cost more than the single family house that was purchased by a developer to build them. So I guess if ever shrinking living space for more money is a win.....

[Changing City]

Originally Posted by whatnext

You've neatly encapsulated how programs like zoning for duplexes and fourplexes drive up the cost of housing and help ensure that regular folks will never be able to afford their own house in Vancouver. It isn't uncommon to find these new duplexes each cost more than the single family house that was purchased by a developer to build them. So I guess if ever shrinking living space for more money is a win.....

So do you have some other suggestion for how to make housing more affordable in the City of Vancouver?