Monsters in the Real Estate Closet
VANCOUVER, August 13, 2019/Kevin Skipworth, Chief Economist at Dexter Realty, publishes his latest fact-based real estate report as featured in the Province on August 12 2019.
Think back when we were young and it was convenient to hide under the covers because there was a monster in the closet… reality wasn’t convenient nor logical. Much could be said of the real estate market in Greater Vancouver in recent years. Almost every conceivable reason for rising prices has been examined but it’s the so called “monsters,” foreign buyers/capital or money laundering, that is the focus of attention. The reality is government policy is not dealing with the real issues of actual supply and demand while our housing affordability problems are getting worse and people keep moving here.
What exactly is the government doing?
So far, we have seen policy attacking the upper end of the market as a measure to attain affordability in the overall real estate market, but to what end? To stop “foreign investment” in homes that often add to rental supply? Surely, they are not all empty but it’s easier to assume they are. And they are all foreign owned. Any argument to the contrary is met with disdain and a bias towards the real estate industry. And it made it a sin for anyone to have a recreational or second property. Did the Speculation and Vacancy Tax provide locals with rentals or supply more homes for sale? Not to any great degree. The positive, it opened up Shaughnessy and West Vancouver homes for rentals to a few students. Unfortunately, the downside, it brought their values down by 30 to 45%. That’s hardly of benefit to the average, middle-income Vancouver earner.
Competition for the lower end of the market has never been as strong.
The Stress Test, Foreign Buyer Tax, Speculation and Vacancy Tax, increased transfer tax and School Tax on values above $3M have pushed buyers to lower priced properties. In Greater Vancouver according to MLS®sales, 68 per cent of homes for sale are priced over $1M while 66 per cent of sales so far in 2019, 9,018, were below $1M. In fact, only three per cent of sales have occurred above $3M
Monsters and the need for a reality-check.
With the mortgage stress test affecting the lower end of the market the most, first time buyers aren’t moving out of rentals, further exacerbating this shortage. And many homeowners wanting to make a move to their next home are stuck as a result of a government intentionally freezing the market with the above noted policies.
Is the reason for all these policies on demand really monsters in the closet? Is it more likely the market of the last few years been a steady stream of buyers moving to Vancouver from within and outside Canada together with local buyers benefitting from economics of the day? Now those from the outside that want to purchase a home and contribute to our economy will seek lower priced homes to minimize their tax burden. Get the picture? Policies to earn votes without sound economic modeling hasn’t helped affordability. In fact, it is has just put real estate on sale for those that can afford. The downside, these owners have less equity to retire on or share with their children to place them in the housing market – to me that’s “generational theft.”
The current supply of homes for sale is the lowest we’ve seen in a down real estate market, and once the cranes come down on new condos, there will be much fewer going up. What will house the increasing supply of buyers coming to the market, who in turn are desperately required to sustain our economy. As we’ve seen from recent municipal rejection of rental projects, supplying rentals has been repeatedly left to the private sector – you know those nasty, greedy developers. And their projects get turned down, face delays or experience costs that make it impossible to keep up with today’s prices of new homes. It seems all levels of government are swinging bats at the demand side, without a coherent plan that addresses the supply side or how these policies impact the economy.
Ask yourself, how has the government at all levels made homes more affordable? Or are we just hiding under the covers.
For more information or to receive Kevin’s Market Report contact him at firstname.lastname@example.org
Kevin Skipworth, B.A. Economics
Partner/Managing Broker & Chief Economist