Vancouver Real Estate 'Bubble' at 30-year Peak

[scryer]

Originally Posted by whatnext

Don’t those silly developers know that if they just keep churning out supply the market will become affordable and buyers will magically flock back and all will be well?

Mmmmhmmm….

You won't see me opposing any residential proposals anytime soon for that reason. Unless of course it is another SFH...

[Hmoob]

Originally Posted by whatnext

Don’t those silly developers know that if they just keep churning out supply the market will become affordable and buyers will magically flock back and all will be well?

That seems to be happening in part. Home prices are falling, i.e. becoming more affordable. Time will tell how low home prices fall and if they ultimately meet any accepted definitions of "affordable".

Who said anything about buyers magically flocking to the market? The current tone is that prices are continuing to fall. To buy now would be an act of desperation, or signalling a belief that the market is near to bottoming. When people start to believe that the market has bottomed sales will pick up again. The amount of latent inventory at that time will determine how quickly prices will rise.

The problem in attaining and maintaining affordability is that developers aren't incentivized to "keep churning out supply" into a falling market. They may view it as more profitable to sit and wait for better times, as evidenced by reports of postponed projects.

[whatnext]

Originally Posted by Hmoob

That seems to be happening in part. Home prices are falling, i.e. becoming more affordable. Time will tell how low home prices fall and if they ultimately meet any accepted definitions of "affordable".

Who said anything about buyers magically flocking to the market? The current tone is that prices are continuing to fall. To buy now would be an act of desperation, or signalling a belief that the market is near to bottoming. When people start to believe that the market has bottomed sales will pick up again. The amount of latent inventory at that time will determine how quickly prices will rise.

The problem in attaining and maintaining affordability is that developers aren't incentivized to "keep churning out supply" into a falling market. They may view it as more profitable to sit and wait for better times, as evidenced by reports of postponed projects.

In other words they’re not interested in selling at today’s lower prices and are waiting for the return of bubble pricing. Thanks for clarifying.

[Hmoob]

Originally Posted by whatnext

In other words they’re not interested in selling at today’s lower prices and are waiting for the return of bubble pricing. Thanks for clarifying.

That's rather blank and white, but sure. Lower sale prices lead to reduced supply.

Beyond the immediate supply curve explanation, developers and land owners acting in concert can intentionally restrict supply to manipulate the market in their favour. This tactic is reasonably accessible with metro policies strictly controlling what sites are available for redevelopment.

If market conditions do encourage a slow down in development, a smart developer lobby could even use the situation to encourage more permissive city bureaucracy and to negotiate lower labour contracts going forward.

There are plenty of reasons developers may want to wait this one out.

[Alex Mackinnon]

Originally Posted by whatnext

Don’t those silly developers know that if they just keep churning out supply the market will become affordable and buyers will magically flock back and all will be well?

Hah.

I don't think that many of them can hit the brakes though. If they've financed the land assembly purchase, they probably need the profit to cover off the financing costs.

[Changing City]

Steve Saretsky reporting June sales numbers on twitter.

"June saw the fewest single family house transactions on record dating back to 1991. Condo sales were a little better with transactions slipping to an eighteen year low."

[logan5]

Maybe part of the problem is that too few developers own too much land in Vancouver. This would help them keep prices high as they compete with smaller developers who are limited to building a paltry amount of townhouses in Norquay. Townhouse which, by the way, are a far better deal for consumers. Townhouse projects also cycle much faster, so they are good when things slow down in the long and arduous tower market.

[whatnext]

Originally Posted by logan5

Maybe part of the problem is that too few developers own too much land in Vancouver. This would help them keep prices high as they compete with smaller developers who are limited to building a paltry amount of townhouses in Norquay. Townhouse which, by the way, are a far better deal for consumers. Townhouse projects also cycle much faster, so they are good when things slow down in the long and arduous tower market.

Hmm, could be but I'd argue there are more developers active now than before. In addiition to the big names like Wall, Bosa, Polygon and ONNI you now have developers with ties to China (Landa, Coromandel, Aoyuan etc). Part of the problem is the new developers vastly overpaid for their lots, and that set the expectation for sellers. Not sure how long it will take for the reality to set in for some that their little lot off Cambie isn't worth $8 million.

[s211]

Originally Posted by Alex Mackinnon

Hah.

I don't think that many of them can hit the brakes though. If they've financed the land assembly purchase, they probably need the profit to cover off the financing costs.

Financing land has got to be the riskiest aspect of development. A lot of banks used to avoid it altogether. Have things changed?

[jlousa]

Most developer leverage their existing holdings to finance land assemblies for their future projects. It is not unusual for developers to have 2nd and 3rd mortgages on their holdings to get the next project of the ground. One bad project and it could wipe them due to the cascading effects.

[Hmoob]

Originally Posted by whatnext

Hmm, could be but I'd argue there are more developers active now than before. In addiition to the big names like Wall, Bosa, Polygon and ONNI you now have developers with ties to China (Landa, Coromandel, Aoyuan etc). Part of the problem is the new developers vastly overpaid for their lots, and that set the expectation for sellers. Not sure how long it will take for the reality to set in for some that their little lot off Cambie isn't worth $8 million.

Some developers may have overpaid for their land. With the current direction of the market it appears some did, and would have fared better had they waited. The thing is, eventually the little lot off Cambie will be worth $8 million. The question is how far into the future that is, and what other investment opportunities are missed by funds tied up in that long-term holding. I'm stereotyping a bit, but Chinese culture tends to value playing the long game. Some of these properties could sit dormant for a while, continuing to limit housing options in the city.

To really drive down land costs (one of the major contributors to housing costs) we need to diminish the scarcity of developable land.

When policy limits major increases in density to a small number of sites in the region, it's relatively easy for the owners of those sites to further effect scarcity on the market. If enough of them agree, even silently through their actions, to withhold from sale or development, they increase the market price of any similar properties that do sell. This creates a feedback loop that boosts the value of each of the unsold properties at such a time that it goes to market. Why sell today when I can make lots more by waiting until next year? It's an easy game to play successfully when there are a small number of players.

Let's say all the cities in metro Vancouver simultaneously upzoned their single family home districts to allow higher density developments. Now you have hundreds of thousands of properties all eligible for meaningful development. Even if most of these owners try to hold their properties to drive scarcity, the few who do sell would be enough to saturate the demand for developable land. The contrived scarcity would be broken. Land prices, in aggregate, would fall. And one of the major drivers of unaffordability in our region would be removed from the picture.

[whatnext]

Originally Posted by Hmoob

Some developers may have overpaid for their land. With the current direction of the market it appears some did, and would have fared better had they waited. The thing is, eventually the little lot off Cambie will be worth $8 million. The question is how far into the future that is, and what other investment opportunities are missed by funds tied up in that long-term holding. I'm stereotyping a bit, but Chinese culture tends to value playing the long game. Some of these properties could sit dormant for a while, continuing to limit housing options in the city.

To really drive down land costs (one of the major contributors to housing costs) we need to diminish the scarcity of developable land.

When policy limits major increases in density to a small number of sites in the region, it's relatively easy for the owners of those sites to further effect scarcity on the market. If enough of them agree, even silently through their actions, to withhold from sale or development, they increase the market price of any similar properties that do sell. This creates a feedback loop that boosts the value of each of the unsold properties at such a time that it goes to market. Why sell today when I can make lots more by waiting until next year? It's an easy game to play successfully when there are a small number of players.

Let's say all the cities in metro Vancouver simultaneously upzoned their single family home districts to allow higher density developments. Now you have hundreds of thousands of properties all eligible for meaningful development. Even if most of these owners try to hold their properties to drive scarcity, the few who do sell would be enough to saturate the demand for developable land. The contrived scarcity would be broken. Land prices, in aggregate, would fall. And one of the major drivers of unaffordability in our region would be removed from the picture.

Perhaps, though the Myth that if only SFHs would go away everything would be affordable is overblown. It also calls into question what kind of city people want. Do people in Vancouver (old and new arrivals) want a Sao Paolo or Tokyo style city with a forest of midrises?

Certainly city policies like allowing developers to put up bogus community gardens in order to bank land needs to go.

[logan5]

Originally Posted by Hmoob

Some developers may have overpaid for their land. With the current direction of the market it appears some did, and would have fared better had they waited. The thing is, eventually the little lot off Cambie will be worth $8 million. The question is how far into the future that is, and what other investment opportunities are missed by funds tied up in that long-term holding. I'm stereotyping a bit, but Chinese culture tends to value playing the long game. Some of these properties could sit dormant for a while, continuing to limit housing options in the city.

Depending on when property was purchased, there should still be a pretty good margin between the original purchase price of the property and selling price today or even next year, given how fast prices have risen. Those margins should be able to absorb a price drop and still give the developer a good return.

Originally Posted by Hmoob

To really drive down land costs (one of the major contributors to housing costs) we need to diminish the scarcity of developable land.

When policy limits major increases in density to a small number of sites in the region, it's relatively easy for the owners of those sites to further effect scarcity on the market. If enough of them agree, even silently through their actions, to withhold from sale or development, they increase the market price of any similar properties that do sell. This creates a feedback loop that boosts the value of each of the unsold properties at such a time that it goes to market. Why sell today when I can make lots more by waiting until next year? It's an easy game to play successfully when there are a small number of players.

Let's say all the cities in metro Vancouver simultaneously upzoned their single family home districts to allow higher density developments. Now you have hundreds of thousands of properties all eligible for meaningful development. Even if most of these owners try to hold their properties to drive scarcity, the few who do sell would be enough to saturate the demand for developable land. The contrived scarcity would be broken. Land prices, in aggregate, would fall. And one of the major drivers of unaffordability in our region would be removed from the picture.

This is a strategy I believe would work. The City is working on a city wide plan that would (I presume) redefine RS zoning. Doubling the the allowable density in RS zones would create a lot of new land. You could also maintain the same scale that we have now, which is important to some people.

[Hmoob]

Originally Posted by whatnext

Perhaps, though the Myth that if only SFHs would go away everything would be affordable is overblown. It also calls into question what kind of city people want. Do people in Vancouver (old and new arrivals) want a Sao Paolo or Tokyo style city with a forest of midrises?

Certainly city policies like allowing developers to put up bogus community gardens in order to bank land needs to go.

Sorry to use single family homes as the example. There may be other untapped land for development. Would you rather we build into the agricultural reserve?

Price is where the supply and demand curve meet. Vancouver metro is highly geographically constrained and has a rapidly increasing population. If we don't want to end up looking like Sao Paulo or Tokyo, or even Paris or Rome, we either need to find lots more land to sprawl into; or deny immigration to the region (perhaps by making housing unaffordable?).

[GenWhy?]

Originally Posted by whatnext

Perhaps, though the Myth that if only SFHs would go away everything would be affordable is overblown. It also calls into question what kind of city people want. Do people in Vancouver (old and new arrivals) want a Sao Paolo or Tokyo style city with a forest of midrises?

Certainly city policies like allowing developers to put up bogus community gardens in order to bank land needs to go.

Literally the minimum we're asking for:

https://www.google.ca/maps/@49.26193...7i16384!8i8192

[cairnstone]

Mr. Yans article is correct. Coming from the view of the Developer. He has a 5 year return on a multifamily strata unit. If developer X buys land and that is in the pre con stage he will see the return on his principle and profit in about 5 years. He does not care who buys the units. If developer Y did the same thing and kept the building as rental that he would have manged his return would be approximately 15 years.

What many smaller developers are doing is Financing for a rental building as some cities have streamlined them to get more rentals on the market. But they turn around and sell the property in the build stage to a investment company.

[rofina]

Originally Posted by GenWhy?

Literally the minimum we're asking for:

https://www.google.ca/maps/@49.26193...7i16384!8i8192

This is such a nice scale, and makes for many pleasing, different styles of buildings.

Most area should be built out like this. It just makes sense.

Plus, realistically, that building has a negligibly bigger street front impact than a 8 bed 12 bath McMansion. The scale fits existing neighbourhoods.

[rofina]

Originally Posted by Hmoob

Some developers may have overpaid for their land. With the current direction of the market it appears some did, and would have fared better had they waited. The thing is, eventually the little lot off Cambie will be worth $8 million. The question is how far into the future that is, and what other investment opportunities are missed by funds tied up in that long-term holding. I'm stereotyping a bit, but Chinese culture tends to value playing the long game. Some of these properties could sit dormant for a while, continuing to limit housing options in the city.

To really drive down land costs (one of the major contributors to housing costs) we need to diminish the scarcity of developable land.

When policy limits major increases in density to a small number of sites in the region, it's relatively easy for the owners of those sites to further effect scarcity on the market. If enough of them agree, even silently through their actions, to withhold from sale or development, they increase the market price of any similar properties that do sell. This creates a feedback loop that boosts the value of each of the unsold properties at such a time that it goes to market. Why sell today when I can make lots more by waiting until next year? It's an easy game to play successfully when there are a small number of players.

Let's say all the cities in metro Vancouver simultaneously upzoned their single family home districts to allow higher density developments. Now you have hundreds of thousands of properties all eligible for meaningful development. Even if most of these owners try to hold their properties to drive scarcity, the few who do sell would be enough to saturate the demand for developable land. The contrived scarcity would be broken. Land prices, in aggregate, would fall. And one of the major drivers of unaffordability in our region would be removed from the picture.

There is still examples of vacant lots sitting around town from the HK land rush in the 90's.

Some of the offshore developers have infinitely deeper pockets, and operations world wide that are able to subsidise land holdings for long periods of time.

If you can hold the land for 5,10,15 years without financial strain, its the closest thing to a guaranteed win.

Decade on, couple points of inflation a year will make the land holding more palatable even if overpaid at the time.

I do suspect this is what will happen with some of peak pricing parcels purchased around Metro Van in the last 18 months.

[whatnext]

Originally Posted by rofina

There is still examples of vacant lots sitting around town from the HK land rush in the 90's.

Some of the offshore developers have infinitely deeper pockets, and operations world wide that are able to subsidise land holdings for long periods of time.

If you can hold the land for 5,10,15 years without financial strain, its the closest thing to a guaranteed win.

Decade on, couple points of inflation a year will make the land holding more palatable even if overpaid at the time.

I do suspect this is what will happen with some of peak pricing parcels purchased around Metro Van in the last 18 months.

All the more reason for the city/province to bring in legislation making derelict lots illegal. Use it or lose it.

[cairnstone]

Originally Posted by whatnext

All the more reason for the city/province to bring in legislation making derelict lots illegal. Use it or lose it.

Shall we put limits on how many pets a person owns and how many kids they have and what jobs they do. Parking money in a few properties is not what the issue is. We invited the world to move here and they did. Same reason transit is over crowded and can't build enough schools. If money laundering was as prevevlent as everyone says and everything is empty. Why is everything else conjested.