7 ms·

I live in Vancouver - which has become one of the most unaffordable cities in the world[1] and am from Toronto. Watching Toronto's market explode is like watch

by kareemm 10y ago

I live in Vancouver - which has become one of the most unaffordable cities in the world[1] and am from Toronto. Watching Toronto's market explode is like watching a horror movie that I saw take place in Vancouver over the last two years. The politicians, press, and real estate industry are spinning the same stories their counterparts in Vancouver did without providing an even plausible explanation for the rocket ship growth. The key issue with Vancouver's market is that prices have become decoupled from local incomes. The same thing is happening in Toronto. In Vancouver, the main driver of decoupled home prices is foreign investment dollars, mainly from China. I suspect the same is true in Toronto because prices there started exploding after Vancouver instituted a 15% tax on foreign buyers in August 2016. If you're interested in understanding the key drivers of the Vancouver real estate market, this paper by a SFU professor summarizes the data, provides a sensible solution, and convincingly refutes the tropes that are often provided as reasoning for the market's explosion: http://www.sfu.ca/content/dam/sfu/mpp/pdfs/Vancouver's%20Housing%20Affordability%20Crisis%20Report%202016%20Final%20Version.pdf http://www.sfu.ca/content/dam/sfu/mpp/pdfs/Vancouver's%20Hou... 1 - where unaffordable is defined as the ratio of median home price to median income.

verelo 10y ago
I don't know how to write this without sounding entitled, so here it goes anyway: I own a house in Toronto (purchased May 2016), I do not believe it's affordable for your average Canadian, but I do think it's still within reach for skilled people who are willing to make sacrifices to make it possible. Single data point as an example: Last month a friend, who between he and his partner make approx. $200k (before tax) combined household income, bought a semi-detached property on the east end (west of the DVP, south of Dundas). "$200k you say, that is a lot!", right, it isn't insignificant, but it's also just two skilled people who make $100k in a major city. There are a significant volume of $100k jobs out there (so if they lose them, I suspect they will find another fairly soon). It's just not as impossible to do as people say, but most of us are not willing to pack a lunch every day, stop drinking lattes make it possible. When hunting for a house in Toronto there were 3 things that really bugged me that would be great to have addressed before we freak out over the possibility of foreign money: 1) "Second round of offers". It's a trick relators play. Basically they get all the offers together and then come back and say "uh, they're all super close, we're looking to get an outlier". Of course some people come back with bigger offers...and the highest is accepted, or the highest offer from the previous round is accepted. 2) Poorly done home-owner renovations. People doing shitty renovations and then later selling the place (often these are flips). Uneducated buyers see these 'improvements' as positive things when most of the work will be to be re-done due to the job not being done properly. It just keeps Home Depot humming and inflates the cost of the house by the cost of materials + repairs down the road. It's compounded by the fact all offers [in practice] need to be unconditional or they won't get considered. So no inspection, the buyer doesn't get the chance to really find out until later. Sellers often include inspections, but these are always terrible sources of info. 3) Illegal housing; So many listings say "Potential basement suite", and people do the math expecting to get $800-1500 / month extra income from it. They say "potential" in the listing because it's nearly impossible to create an actual legal basement apartment in your house in Toronto [and they know it], but people are willing to risk it or simply unaware of the exposure this places on them. Legal basement apartments need fire rated rooms, to include a parking spot (which is super hard to do in Toronto!), have a separate HVAC system and much much more. 99% of basement apartments do not comply, but due to either people not knowing, or not caring, they rent them out to increase their housing budget. Banks are partly to blame here, they enable this by increasing the lending amount accordingly based on an assumption that the second unit will be rented 10/12 months per year. I think the thing we're truly seeing here is what access to cheap capital produces in established major (aka historically low risk) cities. Interest rates are sub 3% with no signs of increasing, people make decent money and are willing to sign up for 30 year commitments. There is risk, but when you look at the key factors, it's pretty low give the likely outcome over that time horizon. This isn't a small suburb hours away from a major city [i.e. Hamilton Ontario - where prices are going up despite the fact lots of the residents commute hours to Toronto every day] where one company going broke will send everyone into the poor house, it's a major city with a very good history of having available skilled work. I'm personally more worried about robots taking skilled jobs than I am the possible housing market crashing. Those things will probably be related events, and housing will be one of the many industries not ready for that shift. Finally, having said all this, a well timed quote from a conversation i had on Friday "If i lose half the value in my house, i won't be upset or surprised...I went into it assuming things might not go my way". Not everyone has that luxury or time horizon to not mind waiting around like I do, but I'd encourage more people to not see a house as an investment but more as a cost (as you would rent) and use that emotional response you get to help you justify your next decision in the house buying process.
- edblarney 10y ago
  The average income in Canada is about $40K 1 $100K earner is in the top 20%. Having both is quite rare. You've made the opposite argument: those people should easily be able to afford a relatively nice home. Homes are completely out of range for normal Torontonians, and it's a problem.
  - verelo 10y ago
    Sure, so there is more demand than supply is my point. If we want to address that we need to diversify where we invest [not just toronto] so we can make alternatives available and not concentrate everyone's desire to live in a 50km radius. Remember that next time you vote. And that isn't a jab at the current government, it's more a statement to remind people that tax cuts and other incentives we can expect to come up on offer come election time are not what we are complaining about here.
    - edblarney 10y ago
      I don't quite agree that there's more demand than supply. That does not have to happen for a speculative bubble.
- JabavuAdams 10y ago
  That's nice and all, but the median household income in Toronto is $76k.
  - verelo 10y ago
    Right, and I don't want to defend that, but here is what comes to mind: What percentage of houses do you think detached/semi-detached dwellings in toronto represent in terms of total available dwellings in Canada? Probably a pretty small number.
- pessimizer 10y ago
  > Single data point as an example: Last month a friend, who between he and his partner make approx. $200k (before tax) combined household income, bought a semi-detached property on the east end (west of the DVP, south of Dundas). "$200k you say, that is a lot!", right, it isn't insignificant, but it's also just two skilled people who make $100k in a major city. There are a significant volume of $100k jobs out there (so if they lose them, I suspect they will find another fairly soon). It's just not as impossible to do as people say, but most of us are not willing to pack a lunch every day, stop drinking lattes make it possible. That single data point is in the top 3% of Canadian incomes.
9q 10y ago
I'm from New Zealand and we are having the exact same problem in our largest city, Auckland. It's now at about 20% Chinese population as well. I have no problem with immigration and foreigners buying houses, but they are making it basically impossible for the average Kiwi to consider purchasing in Auckland, and it is somewhat of a problem when a single group has been allowed to purchase in such intensity in a single area. The wider New Zealand population is quite angry about it, but the government seems to be denying a problem. The problem was they were happy taking in foreign money, with complete disregard for the inevitable consequences. They are now going to be implementing much increased tax on foreign buyers to try and stop the problem.
- hobolord 10y ago
  I've just moved to Auckland from Vancouver, and yeah it's pretty much the exact same thing happening in both cities. It's a bit bizarre to see and live here
- lacampbell 10y ago
  I'm from New Zealand and we are having the exact same problem in our largest city, Auckland. The thing is it's happening everywhere in NZ. The provinces are getting worse as well. For reference, a median multiple of 3 is considered affordable. http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10881119 http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&o... Not a single region in NZ is affordable - and this is from 2012. It's only gotten worse.
  - scorpioxy 10y ago
    Melbourne resident here. Same problem and real estate agents are playing along because they make more money that way. Politicians will say and do what has become the norm, "we strongly believe that the average Australian needs to be able to afford their own homes" but that's about it. I realize its not an easy problem to solve but it is also one that will not go away if you ignore it.
    - legostormtroopr 10y ago
yingbo 10y ago
It is too easy to blame certain people from certain countries. That's how Trump got his new job.
skosch 10y ago
Thank you for the link to that paper. I've been looking for a casual but comprehensive analysis of the situation for a while. Thank you!
- kareemm 10y ago
  You bet. It's gold.
jfolkins 10y ago
"So just rent, says the curmudgeon. Well that isn’t cheap either. The average rent price in Vancouver proper in late 2015 was $1,079 for a one bedroom and $1,368 for a two bedroom.30 The latter is the highest in the country, while the former is not far behind top spot. And there is anecdotal evidence that rental rates on new units have surged. Suck it up, says the curmudgeon." As someone who wrote code to forecast the demise of the housing bubble back in 2008, RENT vs BUY is still the strongest argument in my mind. In 2005 I could choose to rent a 3bdr/2bth for $800 per month or I could buy it for $1200 per month. Today, I feel like things are frothy but rent is actually more per month than "buying." I'd be curious to see when rental vacancies go up. That to me is a strong signal that a correction may take place in that local market.
- eyko 10y ago
  The rise of buy-to-let schemes have only made matters worse. Investors are buying real estate to rent at a high profit whilst a couple of decades ago individuals would buy a second and third home as a future investment for their children (or whatever other reason) and would put it in the rental market, which was competitive, in order to help pay the mortgage. Low interest rates meant by the time their kids were of age the house could have almost paid itself. Many of us chose to rent because rent was cheap, we were young, not wealthy, and most importantly didn't know if we would love in this or that city for much longer (perhaps we came to study and moved on to look for our first jobs). By the time rent became unaffordable, or at least much more expensive than a (lengthy) mortgage, we had also been prices out of home ownership because we don't make enough even with our partner's wages combined. We just couldn't get a mortgage at the prices houses are going. It feels like been between a rock and a hard place.
  - jfolkins 10y ago
    In my opinion what people are feeling now is a shadow tax in the form of increased cost because the US FED flooded the global markets with cheap USD and shored up the banks. The psychology of pain applies to both the individual, the city, and all the way to the state and federal government. Which is that in comfort, no one changes. The only one motivated to change in this scenario currently is the individual (household). In planning, I generally try and first determine if a market is frothy and then predict where the pain could/should/will come from. If I can't determine a pain point, I assume that either a) I missed something or b) there is yet to be a point of inflection. My plan for housing ended up by waiting 7 years (2005-2012) to purchase my home as a foreclosure. So it certainly took some patience and planning. With that said, if I hadn't seen some pain in the local RE market by around 2009, I would have moved to some place that afforded me a similar lifestyle but one that I could purchase a home, given my priorities.
Bombthecat 10y ago
Just a question. In Germany, a city earns also income from renter's. So, something like that happened in Frankfurt in some areas. Rent skyrocketed. Only offices. Later in self interest the city changed some areas to living areas. With affordable living and rent. Is this the same in Canada? On other side note. I think why no city stops it. They are hoping to be the next new York. High rent, high income renter's. High income for the city. Usually reality proves them wrong.

by kareemm 10y ago

verelo 10y ago

I don't know how to write this without sounding entitled, so here it goes anyway: I own a house in Toronto (purchased May 2016), I do not believe it's affordable for your average Canadian, but I do think it's still within reach for skilled people who are willing to make sacrifices to make it possible. Single data point as an example: Last month a friend, who between he and his partner make approx. $200k (before tax) combined household income, bought a semi-detached property on the east end (west of the DVP, south of Dundas). "$200k you say, that is a lot!", right, it isn't insignificant, but it's also just two skilled people who make $100k in a major city. There are a significant volume of $100k jobs out there (so if they lose them, I suspect they will find another fairly soon). It's just not as impossible to do as people say, but most of us are not willing to pack a lunch every day, stop drinking lattes make it possible. When hunting for a house in Toronto there were 3 things that really bugged me that would be great to have addressed before we freak out over the possibility of foreign money: 1) "Second round of offers". It's a trick relators play. Basically they get all the offers together and then come back and say "uh, they're all super close, we're looking to get an outlier". Of course some people come back with bigger offers...and the highest is accepted, or the highest offer from the previous round is accepted. 2) Poorly done home-owner renovations. People doing shitty renovations and then later selling the place (often these are flips). Uneducated buyers see these 'improvements' as positive things when most of the work will be to be re-done due to the job not being done properly. It just keeps Home Depot humming and inflates the cost of the house by the cost of materials + repairs down the road. It's compounded by the fact all offers [in practice] need to be unconditional or they won't get considered. So no inspection, the buyer doesn't get the chance to really find out until later. Sellers often include inspections, but these are always terrible sources of info. 3) Illegal housing; So many listings say "Potential basement suite", and people do the math expecting to get $800-1500 / month extra income from it. They say "potential" in the listing because it's nearly impossible to create an actual legal basement apartment in your house in Toronto [and they know it], but people are willing to risk it or simply unaware of the exposure this places on them. Legal basement apartments need fire rated rooms, to include a parking spot (which is super hard to do in Toronto!), have a separate HVAC system and much much more. 99% of basement apartments do not comply, but due to either people not knowing, or not caring, they rent them out to increase their housing budget. Banks are partly to blame here, they enable this by increasing the lending amount accordingly based on an assumption that the second unit will be rented 10/12 months per year. I think the thing we're truly seeing here is what access to cheap capital produces in established major (aka historically low risk) cities. Interest rates are sub 3% with no signs of increasing, people make decent money and are willing to sign up for 30 year commitments. There is risk, but when you look at the key factors, it's pretty low give the likely outcome over that time horizon. This isn't a small suburb hours away from a major city [i.e. Hamilton Ontario - where prices are going up despite the fact lots of the residents commute hours to Toronto every day] where one company going broke will send everyone into the poor house, it's a major city with a very good history of having available skilled work. I'm personally more worried about robots taking skilled jobs than I am the possible housing market crashing. Those things will probably be related events, and housing will be one of the many industries not ready for that shift. Finally, having said all this, a well timed quote from a conversation i had on Friday "If i lose half the value in my house, i won't be upset or surprised...I went into it assuming things might not go my way". Not everyone has that luxury or time horizon to not mind waiting around like I do, but I'd encourage more people to not see a house as an investment but more as a cost (as you would rent) and use that emotional response you get to help you justify your next decision in the house buying process.

edblarney 10y ago
The average income in Canada is about $40K 1 $100K earner is in the top 20%. Having both is quite rare. You've made the opposite argument: those people should easily be able to afford a relatively nice home. Homes are completely out of range for normal Torontonians, and it's a problem.
- verelo 10y ago
  Sure, so there is more demand than supply is my point. If we want to address that we need to diversify where we invest [not just toronto] so we can make alternatives available and not concentrate everyone's desire to live in a 50km radius. Remember that next time you vote. And that isn't a jab at the current government, it's more a statement to remind people that tax cuts and other incentives we can expect to come up on offer come election time are not what we are complaining about here.
  - edblarney 10y ago
    I don't quite agree that there's more demand than supply. That does not have to happen for a speculative bubble.
JabavuAdams 10y ago
That's nice and all, but the median household income in Toronto is $76k.
- verelo 10y ago
  Right, and I don't want to defend that, but here is what comes to mind: What percentage of houses do you think detached/semi-detached dwellings in toronto represent in terms of total available dwellings in Canada? Probably a pretty small number.
pessimizer 10y ago
> Single data point as an example: Last month a friend, who between he and his partner make approx. $200k (before tax) combined household income, bought a semi-detached property on the east end (west of the DVP, south of Dundas). "$200k you say, that is a lot!", right, it isn't insignificant, but it's also just two skilled people who make $100k in a major city. There are a significant volume of $100k jobs out there (so if they lose them, I suspect they will find another fairly soon). It's just not as impossible to do as people say, but most of us are not willing to pack a lunch every day, stop drinking lattes make it possible. That single data point is in the top 3% of Canadian incomes.

9q 10y ago

I'm from New Zealand and we are having the exact same problem in our largest city, Auckland. It's now at about 20% Chinese population as well. I have no problem with immigration and foreigners buying houses, but they are making it basically impossible for the average Kiwi to consider purchasing in Auckland, and it is somewhat of a problem when a single group has been allowed to purchase in such intensity in a single area. The wider New Zealand population is quite angry about it, but the government seems to be denying a problem. The problem was they were happy taking in foreign money, with complete disregard for the inevitable consequences. They are now going to be implementing much increased tax on foreign buyers to try and stop the problem.

hobolord 10y ago
I've just moved to Auckland from Vancouver, and yeah it's pretty much the exact same thing happening in both cities. It's a bit bizarre to see and live here
lacampbell 10y ago
I'm from New Zealand and we are having the exact same problem in our largest city, Auckland. The thing is it's happening everywhere in NZ. The provinces are getting worse as well. For reference, a median multiple of 3 is considered affordable. http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10881119 http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&o... Not a single region in NZ is affordable - and this is from 2012. It's only gotten worse.
- scorpioxy 10y ago
  Melbourne resident here. Same problem and real estate agents are playing along because they make more money that way. Politicians will say and do what has become the norm, "we strongly believe that the average Australian needs to be able to afford their own homes" but that's about it. I realize its not an easy problem to solve but it is also one that will not go away if you ignore it.
  - legostormtroopr 10y ago

yingbo 10y ago

It is too easy to blame certain people from certain countries. That's how Trump got his new job.

skosch 10y ago

Thank you for the link to that paper. I've been looking for a casual but comprehensive analysis of the situation for a while. Thank you!

kareemm 10y ago
You bet. It's gold.

jfolkins 10y ago

"So just rent, says the curmudgeon. Well that isn’t cheap either. The average rent price in Vancouver proper in late 2015 was $1,079 for a one bedroom and $1,368 for a two bedroom.30 The latter is the highest in the country, while the former is not far behind top spot. And there is anecdotal evidence that rental rates on new units have surged. Suck it up, says the curmudgeon." As someone who wrote code to forecast the demise of the housing bubble back in 2008, RENT vs BUY is still the strongest argument in my mind. In 2005 I could choose to rent a 3bdr/2bth for $800 per month or I could buy it for $1200 per month. Today, I feel like things are frothy but rent is actually more per month than "buying." I'd be curious to see when rental vacancies go up. That to me is a strong signal that a correction may take place in that local market.

eyko 10y ago
The rise of buy-to-let schemes have only made matters worse. Investors are buying real estate to rent at a high profit whilst a couple of decades ago individuals would buy a second and third home as a future investment for their children (or whatever other reason) and would put it in the rental market, which was competitive, in order to help pay the mortgage. Low interest rates meant by the time their kids were of age the house could have almost paid itself. Many of us chose to rent because rent was cheap, we were young, not wealthy, and most importantly didn't know if we would love in this or that city for much longer (perhaps we came to study and moved on to look for our first jobs). By the time rent became unaffordable, or at least much more expensive than a (lengthy) mortgage, we had also been prices out of home ownership because we don't make enough even with our partner's wages combined. We just couldn't get a mortgage at the prices houses are going. It feels like been between a rock and a hard place.
- jfolkins 10y ago
  In my opinion what people are feeling now is a shadow tax in the form of increased cost because the US FED flooded the global markets with cheap USD and shored up the banks. The psychology of pain applies to both the individual, the city, and all the way to the state and federal government. Which is that in comfort, no one changes. The only one motivated to change in this scenario currently is the individual (household). In planning, I generally try and first determine if a market is frothy and then predict where the pain could/should/will come from. If I can't determine a pain point, I assume that either a) I missed something or b) there is yet to be a point of inflection. My plan for housing ended up by waiting 7 years (2005-2012) to purchase my home as a foreclosure. So it certainly took some patience and planning. With that said, if I hadn't seen some pain in the local RE market by around 2009, I would have moved to some place that afforded me a similar lifestyle but one that I could purchase a home, given my priorities.

Bombthecat 10y ago

Just a question. In Germany, a city earns also income from renter's. So, something like that happened in Frankfurt in some areas. Rent skyrocketed. Only offices. Later in self interest the city changed some areas to living areas. With affordable living and rent. Is this the same in Canada? On other side note. I think why no city stops it. They are hoping to be the next new York. High rent, high income renter's. High income for the city. Usually reality proves them wrong.