Vancouver Real Estate Mania

Tyler Durden's picture

On January 29th, 2016, Vancouver went crazy.

The story of a humble 86-year-old home in Vancouver’s Point Grey neighbourhood was widely circulated by national media outlets and became a lightning rod for local frustration with skyrocketing property values.

The “knockdown”, with its rotting walls and $2.4 million asking price, perfectly underscored how crazy the region’s overheated housing market had gotten.

A month later, the house was sold for $80,000 above its asking price, rekindling public outrage.

How did Vancouver reach this point?

This excellent Visual Capitalist infographic’s purpose is to connect the dots between Vancouver’s history of speculation, demographic waves, public policy, and external pressures that have all had a hand in shaping today’s hot real estate market in the city.

 

Courtesy of: Visual Capitalist

 

 

*  *  *

Let’s start at the very beginning…

CHAPTER ONE: BIRTH OF A BOOMTOWN

In a surprise move in the late 19th century, the Canadian Pacific Railway announced that the tiny town of Granville would become the terminus of the future Trans-Canada Railway. Granville, with just 400 people, is now the nucleus of Vancouver – and the well-connected men who had conveniently purchased property in the area made a fortune as prices rocketed up.

By the close of 1888, the local newspaper was packed with property speculation ads, and Vancouver real estate companies outnumbered restaurants by a margin of over 250%.

These bets on real estate weren’t in vain. Vancouver actually outpaced all major West Coast cities in growth between 1900 and 1910. While Seattle and San Francisco grew at 194% and 22% respectively, Vancouver’s population soared by a clip of 271% over the same period.

CHAPTER TWO: EXPO 86

Hosting the 1986 World Exposition was a pivotal moment in Vancouver’s history. The legacy of Expo is far-reaching, including: rapid transit, new neighbourhoods, a connected seawall, increased investment, and a new stadium (BC Place).

The 70 hectare (173 acre) Expo site was carved out of industrial land and the former Canadian Pacific Railway yard. Once the fair ended, the provincial government looked to sell off the entire block of land for redevelopment.

In 1988, after recognizing the potential of the site, Hong Kong businessman Li Ka-Shing formed Concord Pacific and purchased the site for $320 million.

CHAPTER THREE: HONG KONG LOVES VANCOUVER REAL ESTATE

In the 1990s, there was much trepidation in Hong Kong over the looming handover of the colony to China. Many people were looking to move themselves and their money to a more stable market. Concord Pacific, and Li Ka-Shing’s name, sparked enormous interest in the Vancouver real estate market.

Other Hong Kong businessmen also got in the development game in Vancouver. Cheng Yu-tung’s company built International Village and Sun Hung Kai Properties is now well-known for being the driving force behind Coal Harbour.

Immigration from Hong Kong, coupled with an influx of Canadians from other provinces, led to drastic home price increases during the early ’90s. The fabric of the city was changing, and existing residents were vocal about it. The “Monster House” debate raged in the local media throughout the decade.

CHAPTER FOUR: THE WELCOME MAT

During the same year as Expo 86, the Canadian Federal government and the Quebec government wanted to use immigration to bolster their economies. They created programs such as the Immigrant Investor Program (IIP) and the Quebec Immigrant Investor Program (QIIP) to attract wealthy foreigners.

Between the two programs, there were over 110,000 approvals to come to Canada between 2002 and 2014. (Note: From 2007 to 2012, the United States only accepted 19,433 wealthy immigrants through its EB-5 program)

The Quebec Loophole
A recent study tracked the addresses of 5,120 Quebec immigrant investors who arrived from 2000 to 2008. 94% of the newly-arrived investors eventually had an address in British Columbia and most were living in the Vancouver area.

The Quebec government now has a quota of 1,330 applications per year from China. Assuming those applicants migrate to Vancouver at similar rates as in previous years, the flow of multi-millionaire immigrants will continue for some time.

CHAPTER FIVE: VANCOUVER’S HOUSING FEEDING FRENZY

Fast forward to 2016. Vancouver is seeing record-breaking prices, and the momentum for single-family homes is showing no signs of slowing down.

In April 2016, the average detached home price in Greater Vancouver sold for $1.82 million, which is a 30% increase year over year. That was not a typo – the price of a detached home in Vancouver is now nearly twice that of Greater Toronto ($968k), and multiples higher than Calgary ($540k) or Montreal ($343k).

Record high prices aren’t dampening sales though. In 2016, sales have been brisk with nearly 17,000 houses sold in the first four months of the year. Many of these have sold for significant sums above their asking prices.

CHAPTER SIX: BUSINESS IS BOOMING

In response to skyrocketing detached home prices, Vancouverites are increasingly living in condos. Residential development construction is practically propping up British Columbia’s economy.

BC had the highest GDP growth in the country in 2015, and it’s expected to put up strong numbers in 2016 as well. Between April 2015 and April 2016, BC accounted for 110,000 of Canada’s 144,000 net new jobs with construction leading the way.

Business is so good that the value of building permits broke a new city record in 2015 with over $3 billion. There were at least 10 major construction projects – each valued at more than $50 million – approved over the course of the year.

And Vancouver realtors? They’re doing well.

With so much money to be made selling property and condos, the Vancouver real estate industry is thriving. The Real Estate Board of Greater Vancouver says licensed membership is at an all-time high.

CHAPTER SEVEN: LOCALS ARE GETTING FED UP

The dream of owning a home is getting further out of reach even for well-off Vancouverites. Surging home prices and stricter down-payment rules mean that it can take over two decades to save up a down payment for a home.

Vancouverites seeking relief from the super-heated single family home prices won’t find it elsewhere in the market. The median condo price in Vancouver is up over 40% since 2014.

Renters are not immune to price increases either, as price-to-rent ratios are way out of whack in Metro Vancouver. According to real estate website Trulia, in nearby Seattle it takes 14.5 years of rent to equal the price of a house. In Vancouver, it takes 36.9 years.

Lastly, many residents worry that this red-hot demand is obliterating Vancouver’s character. Land values are so high that viable housing is often demolished to make way for new buildings. As a result, thousands of homes are torn down each year.

CHAPTER EIGHT: IS THIS GROWTH SUSTAINABLE?

The experts are far from reaching a consensus on whether Vancouver’s market can continue on as it is now.

On one hand, experts such as Stéfane Marion (Chief Economist, National Bank) say that growth in the working age population is 70% higher than the national average, and it can help sustain home price inflation. Meanwhile, Thomas Davidoff, an Associate Professor of Economics at UBC, points out that if Vancouver is a magnet for China, this housing run could continue for quite a while.

Davidoff may be onto something – there were 9,000 Chinese millionaires that emigrated from Mainland China in 2015, and there are 654,000 millionaires still in China today. The latter number is expected to double by 2025. It’s also noteworthy that in a recent poll by Barclays that 47% of Chinese millionaire sexpressed a desire to move abroad in the “next five years”.

The contrasting view, of course, is that Vancouver is in a bubble that is overdue for popping.

Marc Cohodes, a famous Wall Street short-seller we recently profiled in another recent chart we did onCanadian housing, argues that Vancouver is a casino in which residents feel pressured to play, otherwise they miss out. Meanwhile, David Madani, the Senior Canadian Economist at Capital Economics, says that severe overvaluation, high household debt, and overbuilding is going to make the housing correction end in a way that is deeper and more prolonged than initially feared.

The Bank of Canada has sounded alarms on household debt recently, and “unsustainable debt” per household has soared in Canada. In 2008, 28% of households had unsustainable debt above a debt-to-income ratio of 250%. Today a whopping 40% of Canadian households hit that mark.

Which province is home to the highest rate of households with “unsustainable debt”? BC, of course.

Vancouver’s parabolic prices may eventually cool down, but in the near-term, Vancouver real estate mania is here to stay.

Read more here at VisualCapitalist.com

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BorisTheBlade's picture

Pussification of real estate must stop. Now!!!

HopefulCynical's picture

 

Nothing. It means nothing.

 

Vancouver is going to absolutely implode when the Central Bank plates stop spinning. And I agree with the conclusion that it isn't right around the corner. But it is coming, and a staggering amount of "wealth" is going to be vaporized when it finaly arrives.

pitz's picture

But Vancouver is the administrative "home" of much of the world's precious metals mining industry.  Won't those people have lots of money to spend on things like RE?  Yes, current over-leveraged speculators are likely dead men walking (and there's a ton of them in Vancouver), but I wouldn't look for a large price crash to occur in Vancouver as others take their places as owners.  Rising risk premium on mortgages (and most Vancouver houses are mortgaged considerably -- a dead giveaway that "Chinese" with laundered money isn't involved) will be the demise of the leveraged speculative landlords.

catalysis's picture
catalysis (not verified) pitz Jun 4, 2016 9:43 AM

In a real estate crash, nobody wants to catch the falling knife.  In 2007 prices declined 20% and people were still buying.  Then the real crash happened and they turned into bagholders.  Also, if credit locks up, the RE market is done.  There are lots of people with cash out there but not nearly enough to sustain anything close to these price levels.  It's totally fueled by credit.

pitz's picture

People smart enough to acquire large amounts of cash generally are also smart enough not to pay top dollar.  That's why the whole meme of claiming that China's financial elite are buying in Vancouver is rather insulting -- these people got rich by being frugal and smart.  Not wasteful, throwing their money away on things overpriced like Vancouver RE. 

Albertarocks's picture

The most infurating aspect is that Vancouver is one of the most beautiful cities in the world and Canadians who have always dreamed of retiring there can no longer afford to do so.  These are hard working folks who have salted away a couple $million.  They have $2million and they can't afford to live in a Canadian city.  WTF is wrong with this picture?

 

You can't blame Chinese for falling in love with the place.  And I dare say that as long as a certain wealthier percentage of the 1.2 billion people in that country want to get their money out of China, Vancouver house prices are very unlikely to stall out for years to come.  It's nuts, just nuts.  And Zero Hedge will still be making a mockery of it 5 years from now.

pitz's picture

They most certainly can afford to live in Vancouver.  They just have to rent.  Renting is cheap in Vancouver compared to the implied return on almost any other asset class except for, perhaps, cash.   And by renting, they aren't exposed to the loss of value being experienced in Vancouver RE either. 

beemasters's picture

There are two ways of taking over lands: the Hong Kong way (buying them up) or the Israel way (bulldozing the homes and eviction of the present occupants).

pitz's picture

The "Hong Kong" way involved the use of massive amounts of credit.  Only problem with Vancouver is that Chinese are only, at best, minor actors.  Its the "family landlords" that are the big players.  Typically south Asians who came here about 20-30 years ago, and have pyramided themselves to portfolios of 10-20 properties on debt.  They have basically everything to lose with the falling RE prices experienced in Vancouver over the past few years, and thus, have huge incentive to try and prop them up. 

 

Then there's Realtors and other specu-vestors who are holding large inventories.  But Chinese, only minimally involved. 

HopefulCynical's picture

...the falling RE prices experienced in Vancouver over the past few years...

 

WTF?

pitz's picture

Yes, on average identical properties, prices haven't moved much at all.  The transactional averages are up, but that's only because what's actually transacting is increasingly narrow and significantly more up-market than a typical distribution of transactions seen in the past. 

 

Of course with the cashflow metrics being so poor on Vancouver rental RE, the investors/speculators who own basically have to have price appreciation at all costs.  Otherwise, their loans look increasingly poorly collateralized and ripe for banker predation.  So basically they flip houses amongst themselves, and try desperately to generalize such fake, barely arms-length transactions to the overall market.  Only problem is, when "Joe Sixpack" tries to sell his Vancouver house, Realtors have to politely explain to him that its an insiders' game not available to outsiders.  At some level, this is why some complain of a lack of listings. 

 

The brainwashed media, of course, has bought into this RE-vendor, ethnic landlord-fomented crap, and tries to convince people of broad housing price gains which simply aren't rooted in reality. 

Laowei Gweilo's picture

rent or buy condos...

both of which are still high compared to most of Canada but not as ridiculously high as detached housing

Pareto's picture

Totally true.  This is not ending and won't end unless or until Poloz (Yellen) kills the interest rate suppresison regime, and we know that aint ever happening.

Prophet of Rage's picture

Vancouver house prices are very unlikely to stall out for years to come. 

Its my opinion that, once the charade in China gets fully exposed, so goes the housing market in Vancouver.. Maybe a year. Maybe two. These "rich" chinese will have lost most of what they have in a market tank, and all those little ones and zeros will disappear as will the prices of these houses.

People have lost all sense of the difference between price and value.

HopefulCynical's picture

It will last until the CBs lose final global control. Then it will be one of the more epic instances of "wealth" destruction.

eltxamo's picture

in Spain you can get the nationality if you purchase a 500k+ house. I think the chinese should look into this. I just bought a attached 100year old house for 20k in the spanish countryside. So, yes, prices reached rock bottom here. I am seeing the last under 100k flats being sold on small and mediaum size citys.

Laowei Gweilo's picture

at this point, I can't imagine Vancouver ever crashing.... it could easily correct but in the same sense that London or New York corrects.

it's never going to be affordable again because quite frankly, it would need to crash over 60% to be "affordable" and that is never going to happen.

probably at this point, what needs to be done is heavier investment taxation to subsidize more low-income housing (which has already began around the Seawall with that new development adjacent Sciend World -- all low-income affordable apartments/condos for people who have had a Vancouver address at least 5 years) and also to subsidize more tax credits to business (the bigger problem is not Vancouver housing prices but the prices relative to median salary; Vancouver is still cheaper than Beijing, London, New York, San Fransisco -- the problem is local wages).

If higher tax rates on investment properties or prerties above... say, 1.5m, could subsdizie tax credits to attract tech/film/finance firms AND also subsidize more low income housing, it would help 'raise up Millenials' instead of trying to crash housing and hurt overleveraged debted Gen Xs.

 

crashing housing would basically be sacrificing 30-45 year olds (and taking away the huge retirement boon for seniors) just for 25-35 years old =p

jcaz's picture

LOL- you yungun's say the darndest things......  Yep, it's all rainbow wishes and candy cane dreams, real estate will never go down, they don't make anymore land, sure thing, it's a lock....

Wait until you meet Mr Market- he's gonna love you.....

Laowei Gweilo's picture

nothing of what you said is even accurate of what I said...

it's like you prematurely ejaculated pessimism over anything that doesn't fit the zero hedge storyline lol

 

Albertarocks's picture

I agree Laowei. jcaz didn't even pay any attention to what you said.  And you are right.  And so was I with my comment.  We get downvotes simply because some of the American readers here just want to see Vancouver crash and burn for no other reason than that they can't stand to see anybody survive if they themselves aren't going to survive.  They simply are not paying attention to "why" the Vancouver market is the way it is.  That is not going to change any time soon.  Americans just don't seem capable of understanding things like that.  I'm always stunned by that to be quite honest.

 

Canadians always get slammed on any American site just out of habit anyway.  Generally speaking Americans are haters of everything and anything that is not American.  And the rest of the world is fully aware of that.  And Americans wonder why they are hated throughout the entire solar system.  Fuck 'em.

 

pitz's picture

A few locals (who tend to be mostly southern Asian in ethnicity) flipping amongst themselves to maintain the allusion of rising value does not make for a RE mania.  And that's what we see.  Because there is no "Chinese" money.  The young sure as heck aren't buying.  Its all based on credit, a dramatically shifted sales mix, and a relatively small group of RE insiders who definitely would not pay top dollar for outsiders' property.  "Joe Sixpack" Vancouver homeowner has almost no chance of selling into the inflated "valuations" because its an insiders game.  Its rather insulting to "Chinese" to suggest that they, as a nationality, an ethnicity, or even a cultural meme, have anything to do with the crazy quoted valuations.

Bay of Pigs's picture

Do you ever deal in any of the facts presented in the ZH articles on this issue or just skip down here to spew your own narrative supported by ZERO facts?

I_rikey_lice's picture

It's his job! Why else would he be posting in every Vancouver Real estate article?

pitz's picture

Isn't ZH a place to look beyond media spoon-fed bullshit?  Because that's what we see a lot of these days. 

jcaz's picture

So how long you been over from Hong Kong,  Pitz?  Every hear of "money laundering"?  Better yet-  "Chinese money laundering"?  It's awesome.....

pitz's picture

If money is being laundered, how come there isn't much of it to actually be found in Vancouver?  Why is the RE market in that locale utterely and completely dependant on large amount of bank credit?   If money were being laundered, there'd actually have to be money, right? 

jcaz's picture

Your response makes no sense.  You buy a house with money- that's where the money is.  When you sell the house,  you receive the money back-  no questions asked,  no nasty inquiries from regulatory concerns.  What credit?  They're CASH BUYERS.

The Chinese are using properties as quasi-banks-  it's cheaper for them to stick cash into property and even lose 10% when they sell it than it is to launder via traditional means; 

The fact that prices are going up is pure supply/demand-  too much cash is going into too few properties.

You really don't want to start using Vancouver as a beacon of finance.  The Vancouver Stock Market has long been the penny-stock haven of the world,  it's no surprise that the fraud has moved into real estate.

pitz's picture

No, there's very few, if any 'cash buyers' in Vancouver.   Its mostly being done on credit.  If there were cash buyers, well, there'd be sellers with cash.  There'd be a net uplift of the entire region economically, which would show up in salaries.  Its not happening.  But what we do see is a massive bubble in credit. 

ThrownOffZHTwice's picture
ThrownOffZHTwice (not verified) Jun 3, 2016 6:32 PM

You have to get the chinks out of the real estate market.  Same in Seattle, Portland, and Bay Area.  Make buying a home illegal for non-citizens.  Run FBI checks on all purchasers.  Report suspicious chinks to Canadian, US, and Chinese authorities.

pitz's picture

The Chinese (no need to be racist) are only minimal participants in the RE marketplace in Vancouver.  Far more prominent are South-Asian ethnicity "landlord families" who buy 10-20 units, on credit, to create "jobs" for themselves.  If prices go up, they re-mortgage and buy more RE or send money "back home".  If prices crash, well, they walk away from the whole mess, and come back a few years later to start their 'business' again. 

Scapegoating "Chinese" because they don't culturally integrate as well as some other ethnic groups is terribly unfortunate and is not supported with evidence, especially in Vancouver.

 

Bay of Pigs's picture

My good friend sells RE in Seattle and I can yell you that you are full of shit. It is also well known in the Bay Area and Silicon Valley that Chinese hot money has POURED into that market. Who do you think you are kidding with this crap?

pitz's picture

Well known by whom?   San Jose is, lock stock and barrel, controlled by Indians these days.  Chinese, give me a break.  You know not of what you speak.

williambanzai7's picture

Where do you get your information, Numbnuts Newsletter?

Almost Solvent's picture

The who what where when why really doesn't matter because until there is a correction (worldwide) the average price of a detached house could reach 50 million without breaking a sweat - if there is someone to pay asking price, the music plays on.

 

The music is playing right now and for the foreseeable future, regardless of how detached from wages or history.

Philthy_Stacker's picture

I'm afraid there may not be a correction. Much like the written accounts of capital flight to assets like fine art, farmland, PMs of course and other tangibles, there is a mass migration underway, of people, property and power. Those with the ability to move their wealth to a 'safe haven' locale, have the best chance of survival. Canada has been 'foe free' since the war of 1812 (sorry US), with the exception of some radical separatists in the 60s. So, from here you can extrapolate a list of destinations that fit your particular needs. I would have to pick Canada somewhere high on that list. Firstly, it's kind of 'America Light' but with less calories! Same great tastelessness ...
Others to consider: New Zealand, Australia, some SA destinations. Of any possible choice, Canada ranks highest in Sq. miles, as it's the second largest country on Earth. It also has the most fresh water, trees & mountains. As for population, Canadians would barely notice a tripling of people, other than the massive growth. The ruling government hasn't screwed up too bad, other than selling all their gold holdings. If and when the shit does hit the fan, these 'early' investors may be getting off cheap. NB: US dollar sucks and will continue to suck until every movable asset has "left the building".

Crisismode's picture

 

 

You are a flaming fucking complete asshole.

 

 

HopefulCynical's picture

And you win the award for most useless comment of the month. Maybe of the year.

 

I'm not saying I agree or disagree with PS. Just that you're tits on a boar.

Philthy_Stacker's picture

@pitz

I own a small main street building in my town. I can tell you that I know for sure that South Asian investors are swooping in and buying up all the tax sale properties. I see one guys' signs on a new building every month. Before him half our town was bought up circa 2008 by an Israeli Investment group called Farhi. The 300,000 plus city right next to me has all but been monopolized by them. I don't know how many towns they own. A LOT! I think they are currently buying up chunks of the Metropolitan Toronto area as well. Every time a local council decides to sell a courthouse or a post office, there they are and they never lose a bid.

Byebyebrownie's picture

Are you kidding me? Have you ever walked through Hongcouver??. You must be a Vancouver RE agent getting rich of the chinamans stolen money to post that crap.

pitz's picture

I am in Vancouver frequently.  And most available evidence points to local hoarders (err "specuvestors") using credit to buy houses.  Not foreigners or foreign money.  Eerily similar to California circa 2007-2008, where the locals thought they were getting bargains because the prices had gone down a bit. 

jcaz's picture

Bull.  What "credit" are you talking about?  These "landlord familes" couldn't get a traditional bank loan if they were plated in gold.

You live in a very rich fantasy world-  or you have an agenda.

PS- the proper term for "South-Asian" is "Slant"-  that's not racist- is just is.......

pitz's picture

Credit, as in, mortgages.  Given to anything breathing in Canada.  Especially by certain credit unions operating in Vancouver. 

Kina's picture

I think the Chinese hot money thinks Vancouver’s Point Grey is just outside the blast zone.

 

Follow the rats dude, follow the rats.

Byebyebrownie's picture

Chinaman gameplan:

Step 1. Steal money via corruption/bribery
Step 2. Move said money as fast as humanly possible into Vancouver real estate no matter the cost.
Step 3. Move family to said house, declare no household income, family recieve free Heathcare other social benefits.
Step 4. Continue stealing as much as possible until the China ponzi fails and relocate permanently.
Step 5. Integrate as little as possible as a new "Canadian" continuing ripping off hard working taxpayers.
Step 6. Clog up local hospitals and doctors office due to chain smoking and breathing Chinese air after contributing practically zero tax revenue to canadian government.

The end

pitz's picture

Only problem with that 'theory' is that little to no money has actually showed up in Canada.  As the Vancouver RE market is almost perfectly correlated with outstanding bank credit. 

If money were showing up from external sources, leverage would be dropping.  Its not. 

 

roddy6667's picture

In California, the Chinese phenomenon is already fading, just as the Japanese wave did in the early Nineties. They are buying at the peak and will take huge hits when the housing correction comes.

pitz's picture

BTW, that 279 blocks of housing sales in that graph is actually a very low velocity.  Why?  Because the market peaked out years ago.  Typically a house is only owned for around 7-10 years before a person moves on for whatever reasons.  Only about 1/20th of the Vancouver housing stock appears to be turning over annually.  This is typical of a well-past-the-peak market. 

Radical Marijuana's picture

Let us start at the beginning.

For more than ten thousand years, there were large numbers of people living in what is now called the Vancouver, British Columbia, area. The arrival of Europeans resulted in more than 90% of them dying.

The British Empire designated British Columbia as a colony for settlement. (The British Empire simply pushed aside the very few surviving people whose ancestors have been living there for more than ten thousand years before that.) Large numbers of people from Britain moved to British Columbia during the early decades of the 20th Century.

The British Empire made it extremely expensive, and then illegal, for people from Asia generally, and especially from China, to settle with their families in British Columbia, during the first half of the 20th Century. However, during the second half, immigrants from Asia were allowed to immigrate in large numbers, particularly if they had enough money.

The Vancouver housing bubble can be perceived as being primarily driven by the disparity between Asia and North America. The longer term consequences will likely be that more and more North Americans will be dragged down to the level of Asians, rather than that Asians will be elevated to the level of North Americans.

It is mind boggling to image the degree to which Vancouver would have to deteriorate before the underlying factors driving its housing bubble could be balanced against the international pressures which are driving that to happen. British Columbia, back in the first few decades of the 20th Century, deliberately prevented itself from becoming "Chinese Columbia" or "Asian Columbia, etc. ..." However, money has paid the way for that to be radically transformed, in ways which are facilitating unprecedented political and demographic experiments, which will probably eventually have catastrophic consequences. As British Columbia was based upon the destruction of the people who had lived there for tends of thousands of years previously, it appears that British Columbia will be decimated in turn by its own greed.

Neolithic Civilization has no long term plan ... Rather it was one expediency after another, whereby each short to medium term increment drove the accumulation of worse and worse longer term consequences. The Vancouver housing bubble is another manifestation of fundamentally fraudulent financial accounting systems running amok. However, those have now become globalized insanities!