Why Toronto and Vancouver have expensive housing

[someone123]

Originally Posted by Crawford

That's absolutely untrue. I mean, the assertion is absurd. Vancouver is essentially built on Chinese money.

There is a problem with definitions in this debate which I think is sometimes exploited to deliberately obscure what is going on.

Metro Vancouver is about 50% foreign born, but most of this group does not qualify as a foreign buyer. Foreign buyers are those without permanent resident or citizen status. I think it has been scaled back now but for years there were major investment-class immigration programs in Canada that allowed people to pay some cash in exchange for PR/citizenship. It was possible immigrate then buy a house with cash for each child; none of those would count as "foreign buyer" transactions and you'd be exempt on capital gains. There were complaints that the permanent residents were not necessarily here that much.

When Meng Wanzhou, CFO of Huawei, was arrested it came out that she and her husband were permanent residents for a while and had a portfolio of Vancouver real estate in the $20M range.

All this being said, I think Canada should have immigration, the vast majority of immigrants don't buy mansions, and I don't blame people who follow the rules we have. But I think the discussion around real estate is pretty confused in a lot of ways. And we should be able to have debates about tweaking the immigration numbers or closing tax loopholes without people being called racist. At one point the 2 major parties here both proposed slightly different immigration levels (like 300,000 vs. 250,000 per year) much higher than most countries and the slightly-lower-level party was often accused of being against immigration. From an outsider's perspective some of it must look really out there.

Other aspects of the real estate market, like zoning and low interest rates (which will be hard to change now since there is so much debt), deserve attention too. There are many different major factors that have all come together to raise real estate prices.

[Nite]

Nevermind

[Manitopiaaa]

Originally Posted by DCReid

I don't agree with the analysis about real estate and stocks. Most Americans view both as wealth building, and probably more so their house. Most do not think their house is just shelter, and I hear it all the time down here in S Florida as owners talk about the house next door going for XXXX and selling in a few days. As for stocks, I think that the mentality is bordering on speculation now, especially in the US market, which has been in a bull market for nearly 12 years due to the euphoria over new tech while most others markets have lagged. Canada's stock market is preforming mostly similar to other non-US markets, but its US tech listed companies like Shopify have performed like US new tech. The cryto craze and electric car stock craze is just more evidence of US tech euphoric mania. Who knows when it will end, but it eventually does. Afterall, there was a Japanese euphoric mania in the 70s and 80s....remember Panasonic, JVC, Akia, Sony....for US remember IBM, Digital Equipment, Iomega (famous Zip Drives - that stock was always going up on Nightly Business News broadcast in the 80s/90s) and Kodak....

But this is not about stocks, it's about Toronto and Vancouver prices...Vancouver seems to have benefited from its west coast location - all large West coast cities in the US are expensive. And maybe Toronto is so expensive because it is the economic and cultural center of Canada, like NYC in US and other European cities.

No, housing has historically been a very poor investment in the U.S. relative to stocks, going back since, well, ever.

1970:
Median Home Price: $27,300
Current Value if invested in home: $453,300
Current Value if invested in S&P 500: $1,112,759
Current Value if invested in NASDAQ: $2,631,000

1980:
Median Home Price: $73,600
Current Value if invested in home: $453,300
Current Value if invested in S&P 500: $2,036,000
Current Value if invested in NASDAQ: $4,688,000

1990:
Median Home Price: $149,500
Current Value if invested in home: $453,300
Current Value if invested in S&P 500: $1,700,480
Current Value if invested in NASDAQ: $5,155,000

2000:
Median Home Price: $202,900
Current Value if invested in home: $453,300
Current Value if invested in S&P 500: $577,000
Current Value if invested in NASDAQ: $1,058,000

2010:
Median Home Price: $275,300
Current Value if invested in home: $453,300
Current Value if invested in S&P 500: $822,000
Current Value if invested in NASDAQ: $1,337,000

Even if you invested at the height of the Dot.com bubble in the year 2000, you would have still made $600,000 more in profit by investing in NASDAQ than through real estate.

If you've been treating housing and stocks as equally fruitful investment vehicles, then you've been making a colossal mistake.

[iheartthed]

Originally Posted by Manitopiaaa

No, housing has historically been a very poor investment in the U.S. relative to stocks, going back since, well, ever.

1970:
Median Home Price: $27,300
Current Value if invested in home: $453,300
Current Value if invested in S&P 500: $1,112,759
Current Value if invested in NASDAQ: $2,631,000

1980:
Median Home Price: $73,600
Current Value if invested in home: $453,300
Current Value if invested in S&P 500: $2,036,000
Current Value if invested in NASDAQ: $4,688,000

1990:
Median Home Price: $149,500
Current Value if invested in home: $453,300
Current Value if invested in S&P 500: $1,700,480
Current Value if invested in NASDAQ: $5,155,000

2000:
Median Home Price: $202,900
Current Value if invested in home: $453,300
Current Value if invested in S&P 500: $577,000
Current Value if invested in NASDAQ: $1,058,000

2010:
Median Home Price: $275,300
Current Value if invested in home: $453,300
Current Value if invested in S&P 500: $822,000
Current Value if invested in NASDAQ: $1,337,000

Even if you invested at the height of the Dot.com bubble in the year 2000, you would have still made $600,000 more in profit by investing in NASDAQ than through real estate.

If you've been treating housing and stocks as equally fruitful investment vehicles, then you've been making a colossal mistake.

Wow, the 2010 - 2021 jump in median was pretty massive. It looks like we haven't seen that type of jump since the 1970s, when the country also went through a period of high inflation.

Also, 27k invested in the NASDAQ in 1970 is only worth $2.6M today? That seems off?

[Nouvellecosse]

Originally Posted by SFBruin

That's too bad. People realize that not having kids is kind of problematic, right?

Not really? I mean, I personally feel there are enough people on the planet, and while Canada itself isn't densely populated, it's important to have a few places on the planet where natural landscapes and habitats can be preserved. Back 100 years ago, the global population was roughly 1/4 what it is today which was still the highest it had ever been. So even if the population were to declined a billion or two over the coming centuries due to reduced birth rates, it would still remain higher than at nearly any point in human existence. While it would be a challenge in terms of caring for a greying population, a high population has problems of its own. But in the case of an individual country, it's kind of moot if you can import population from elsewhere if desired.

[lio45]

Originally Posted by Crawford

That's absolutely untrue. I mean, the assertion is absurd. Vancouver is essentially built on Chinese money.

True, and as someone123 correctly points out, Canada's money-launderers-friendly investor immigrant rules mean that most of that dark Chinese money doesn't count as foreign in the stats.

At the extreme end of the spectrum, if you have loose investor immigrant programs that give anyone who invests foreign money into your real estate markets instant permanent resident status to thank them for their investment, then the idea of "foreign buyers" just ceases to exist.

If the US gave me citizenship the second I bought my first Florida property, then my current FL portfolio would be "locally owned" in the statistics. The reality on the ground would be the exact same as now, though. (i.e. I always spend most of the year away in Canada.)

[Manitopiaaa]

Originally Posted by iheartthed

Wow, the 2010 - 2021 jump in median was pretty massive. It looks like we haven't seen that type of jump since the 1970s, when the country also went through a period of high inflation.

Also, 27k invested in the NASDAQ in 1970 is only worth $2.6M today? That seems off?

1970s was a lost decade for stocks due to stagflation, oil crisis, crime wave, economic malaise, political instability.

$27,300 invested in 1970 would have been worth $40,220 in 1980. Which sounds good (47% return!) except inflation was 112.4% during the same time period. So you actually lost a lot of money in real terms.

In fact, it would have taken you 20 years to double money invested in 1970, when the historical average is the 7/7 rule (you double your money every 7 years at 7% year-over-year returns).

[Nite]

Originally Posted by lio45

True, and as someone123 correctly points out, Canada's money-launderers-friendly investor immigrant rules mean that most of that dark Chinese money doesn't count as foreign in the stats.

At the extreme end of the spectrum, if you have loose investor immigrant programs that give anyone who invests foreign money into your real estate markets instant permanent resident status to thank them for their investment, then the idea of "foreign buyers" just ceases to exist.

If the US gave me citizenship the second I bought my first Florida property, then my current FL portfolio would be "locally owned" in the statistics. The reality on the ground would be the exact same as now, though. (i.e. I always spend most of the year away in Canada.)

Canada hasn't had a investor immigrant program almost a decade now and when it existed the money went to the Canadian government directly not into housing.
The equivalent would be you giving the US government 750,000 to become a citizen.

[ocman]

Originally Posted by mhays

Spoiler alert....the core reason is they're not building enough. (The video's opinion and mine)

plus Nimbys

[someone123]

Originally Posted by Nite

Canada hasn't had a investor immigrant program almost a decade now and when it existed the money went to the Canadian government directly not into housing.
The equivalent would be you giving the US government 750,000 to become a citizen.

I don't think any part of this paints an accurate picture of these programs.

https://www.cicnews.com/2020/05/queb...n-0514419.html (from 2020)

Quebec is extending the temporary suspension of the immigrant investor program ... Though the program requires candidates to have an intention to reside in Quebec, most take up residence in B.C. or Ontario. Another common criticism is that the program allows people to “buy permanent residence.” ... The government of Quebec profits from the investor program by taking a $1.2 million interest-free loan from immigrant investors.

The dollar value required by these programs has gone up over time. They were $500,000 not too long ago. They are interest-free government-backed loans so the actual cost is small; inconsequential to people who have tens of millions in cash to invest in Canadian real estate. We also have unusually open student visas and immigration.

Like I said we can debate if it's good or bad to have these types of immigration (for example maybe one would argue they're an overall win to the economy) but it's a real stretch to say they have little impact on the housing market in Vancouver or Toronto.

[someone123]

One "under discussed" factor in Vancouver is that there are a small number of developers who control a lot of the land that is zoned for highrise condos. A large share of construction is in a few specific areas (e.g. Metrotown, Brentwood, Lougheed, Olympic Village) and they are controlled by a handful of builders. It's not hard to see why there might not be that much competition to drive down prices.

Another basic reality is that land prices here are so high that even medium density construction is not very affordable. If you start with a $2M house on a small lot and put in 8 units you have $250,000 in property acquisition costs before you've even demolished the old building, let alone built the new one, paid fees (a major cost), developer profits, etc. Lots of people promote "missing middle" construction without addressing this issue. Right now we can have missing middle $1.2M townhouses and $800,000 condos.

[mhays]

Originally Posted by Manitopiaaa

No, housing has historically been a very poor investment in the U.S. relative to stocks, going back since, well, ever.

...

2010:
Median Home Price: $275,300
Current Value if invested in home: $453,300
Current Value if invested in S&P 500: $822,000
Current Value if invested in NASDAQ: $1,337,000

Even if you invested at the height of the Dot.com bubble in the year 2000, you would have still made $600,000 more in profit by investing in NASDAQ than through real estate.

If you've been treating housing and stocks as equally fruitful investment vehicles, then you've been making a colossal mistake.

You're forgetting the leveraging concept!

Home buyers typically borrow most of the cost and gain all of the appreciation on property they only own fractions of. Someone smarter than me could calculate the benefit based on net present value or whatever metric. It would look at lot better than this for housing.

[lio45]

Originally Posted by someone123

There is a problem with definitions in this debate which I think is sometimes exploited to deliberately obscure what is going on.

Better definitions would fix this problem, such as “The Meng Wanzhou category of real estate investor”.

(Which is the category of property buyer many people have in mind when they, erroneously, talk of “foreign buyers”.)

“Buyers whose lives are mostly anchored in Canada and who earn their money locally”
vs
“The Meng Wanzhou class of buyers”

at least has the merit of not obfuscating anything, and we can drop the “foreign buyer” diversion.

(For example, in Florida, I’d qualify as a Meng Wanzhou whether or not Uncle Sam gives me a freebie Green Card to thank me for bringing new money into the country.)

[lio45]

Originally Posted by mhays

You're forgetting the leveraging concept!

Home buyers typically borrow most of the cost and gain all of the appreciation on property they only own fractions of. Someone smarter than me could calculate the benefit based on net present value or whatever metric. It would look at lot better than this for housing.

Correct. You can buy many properties instead of only one with cash, and fully reap appreciation on all of them. That’s the scenario comparable to stocks, and I’m sure real estate looks as good and even much better (depending on the markets).

[someone123]

Originally Posted by lio45

“Buyers whose lives are mostly anchored in Canada and who earn their money locally”
vs
“The Meng Wanzhou class of buyers”

at least has the merit of not obfuscating anything, and we can drop the “foreign buyer” diversion.

I agree. It is not really about immigration per se. Most immigrants are not multimillionaires and don't have assets here to begin with so they are not benefiting from Meng Wanzhou style buying. The issue is that foreign capital is interacting badly with our aged regulatory system of taxes, zoning, and so on. Some people want to keep the music going because they make a lot of money from this, but average people around here are not helped by it.

Another subtle point is I think if loopholes and unfair possible scenarios are identified in the tax system then the burden should be on those in charge of the rules to change them or demonstrate why they're not a problem. It should not be the other way around with loopholes you can drive a truck through, poor transparency, and denial that there could be any problem (or insinuation that you're being mean somehow if you say somebody might use the loophole). The reality of globalization is people will be looking at any loopholes anywhere to leverage.

[lio45]

An even easier fix: “buyers using foreign capital”.

(Then we can ban the words “foreign buyers” from the discussion, since those don’t exist. And we’ll all be on the same page at least.)

[Nite]

Originally Posted by someone123

One "under discussed" factor in Vancouver is that there are a small number of developers who control a lot of the land that is zoned for highrise condos. A large share of construction is in a few specific areas (e.g. Metrotown, Brentwood, Lougheed, Olympic Village) and they are controlled by a handful of builders. It's not hard to see why there might not be that much competition to drive down prices.

Another basic reality is that land prices here are so high that even medium density construction is not very affordable. If you start with a $2M house on a small lot and put in 8 units you have $250,000 in property acquisition costs before you've even demolished the old building, let alone built the new one, paid fees (a major cost), developer profits, etc. Lots of people promote "missing middle" construction without addressing this issue. Right now we can have missing middle $1.2M townhouses and $800,000 condos.

Removing exclusively single family zoning would both bring down the average price on land that can be used for multi-family housing and allow more competition from smaller developers.

[iheartthed]

Originally Posted by Manitopiaaa

1970s was a lost decade for stocks due to stagflation, oil crisis, crime wave, economic malaise, political instability.

$27,300 invested in 1970 would have been worth $40,220 in 1980. Which sounds good (47% return!) except inflation was 112.4% during the same time period. So you actually lost a lot of money in real terms.

In fact, it would have taken you 20 years to double money invested in 1970, when the historical average is the 7/7 rule (you double your money every 7 years at 7% year-over-year returns).

So the NASDAQ didn't start trading until 1971, but I calculated that 27k invested on its first day of trading would be worth $4.2m today.