Hacker News Reader

Even here on Vancouver Island it seems the possibility of owning our own home is becoming unattainable as prices sky rocket. Something needs to be done about foreign investment.

Not really. Something needs to be done about parochial land use laws that prevent supply from rising to meet demand: http://www.amazon.com/TheRent-Too-Damn-High-Matters-ebook/dp.... Until that happens, prices will rise. Despite many efforts to the contrary, you cannot legislate away supply, demand, and prices.

Preventing new development appears to have really taken off in the 1970s, according to Chapters 7 and 8 of William Fischel's Zoning Rules!: http://www.amazon.com/Zoning-Rules-Economics-Land-Regulation.... Until we reverse that dynamic (or make cities less attractive places to live) we're going to see rising prices.

I think increasing supply is a good idea in the short run, but in the long run, I think the answer lies more in changing the way society views real estate.

As the article makes clear, real estate is increasingly viewed as an asset that can simply be purchased and held on to diversify a risky portfolio. Foreign property owners add little to no value (in a true, human, social sense) to the greater society. They do contribute tax revenue, but at the expense of making real estate unattainable for others by driving up prices.

Real estate used to be the center of a business owner's livelihood or a family's multi-decade investment in an area with family, good schools, a good community, etc.

While increasing supply would reduce price, foreign investors would simply purchase more. Demand for (perceived) stable assets to offset market volatility is at an all time high, especially in China where many are trying to export wealth.

When the market crashes, you'll have an oversupply of property that was built for people who did not actually inhabit the area.

See http://www.economist.com/blogs/freeexchange/2015/04/land-val...

LVT is thrown around a lot, but rarely understood by its proponents. Can you explain who would value the land and by what method it would be valued in order to guarantee fair payments from all parties? Would it completely replace the current property tax?

http://kaalvtn.blogspot.com.au/ has worked out some good answers for the UK.

> Would it completely replace the current property tax?

Of which country?

There are lots of ways to implement LVT in different countries and different states (and it could even be implemented at even more local levels).

I have a softspot for methods that ask the owner themselves to value the land, but apply mechanism to keep them honest. (Like, `you have to sell at the declared value to any comer.') But honestly, those are probably not even the most practical ones.

Given the current supply constraints in that market, it will take a very long time to build up a level of inventory that will cause a crash. The solution to the problem you're describing is more units, not less.

Also, this transition in real estate's role is a result of globalization. Without some kind of capital controls it's very hard to undo it's effects. Your best bet is a supply-demand oriented solution.

When I talk about a crash, I mean a global correction in property and equity market values akin to the correction post-financial crisis. This would probably be triggered by a withdrawal of liquidity from public markets due to non-performing debt, or simply a prevailing market sentiment that investments have been channeled into the wrong assets following the great recession - not enough gov investment into TFP-raising infrastructure and decreasing lack of aggregate demand is a recipe for stagnation.

I don't see a mechanism whereby an increasing level of inventory causes a crash. I'm saying that when a crash happens, we'll be left with wasted excess capacity as investors rush to sell off ill-thought out high rise complexes, micro apartment buildings, second and third homes they can no longer afford to pay taxes on, etc.

The North American correction in property values post the 2008 financial crisis was due to two factors: 1) Increase in inventory levels as subprime borrowers tried to exit their mortgage via a fire sale 2) Total shut down of the mortgage markets, meaning only cash buyers could get deals done.

Given the profile of the typical buyer at the high end of the market in Vancouver, an outsized effect like the one described above is unlikely. These homes are not mortgaged and their owners have savings they draw upon instead of income from employment. Job losses a la 2008 do not affect them as much. For these reasons I doubt we will ever see the kind of corrections in Vancouver like we saw in places like Phoenix and Las Vegas in 2008.

Finally, a somewhat normative question, what's wrong with cheap housing? I agree with you that ill-thought out planning is detrimental to the city's quality of life. But to me at least it seems that the planning and permitting process is overly restrictive.

The spiking real estate in Vancouver is detached single family houses, which you cannot increase the supply of in Vancouver.

There is some component of demand that is buying these single family houses just for the extra space for their family. Rezoning detached houses to slightly more dense row houses will help increase supply for this group. The city is already doing this, but should certainly do more. The city can't do anything about people buying detached houses for investment and prestige reasons.

Vancouver is not SF. It has been building condo towers non stop since the 90s. Rent is not extremely unaffordable and condo valuations have been largely flat in comparison to single family houses.

The issue isn't detached houses so much as the lack of homes in general designed for families (both house and condo). There are very few.

Absolutely. Condo developers have been satisfied to build what makes them the most amount of money, which has resulted in heaps of bachelor pads.

More three bedroom apartments need to be built. This is a regulatory issue that shows how important the role of government and urban planning is. The city has already indicated that they're going to require developers to include a greater percentage of multi bedroom residences.

There is no shortage in supply that's an utter myth most countries and cities have tons of abandoned houses Europe has over 11M confirmed and that's just the tip of the iceberg http://www.theguardian.com/society/2014/feb/23/europe-11m-em...

The biggest problem with housing is that it's just too easy to influence people to create an artificial scarcity when there is now, and in the few places there is no land laws will help as developers like to keep the supply short in order to increase it's value.

Even a small shortage (fake or real) can increase the value of properties by 100's of percent this means that building more isn't lucrative to neither developers nor investors, if you just bought a property as an investment you sure as hell do not want the developer going on and building 10 new ones as it will tank the price of your property. This means that even on the off chance that a developer might find formula that will allow them to build more the investors wont buy in and without that they can't build as no sane developer builds even a parking lot out of pocket these days.

On the other hand government housing isn't good either in most places government housing turns into ghettos faster than you can open a 7/11 and in the few countries it didn't like say Sweden it created the worse housing shortage anyone can imagine while creating a black market which corrupted the entire system.

If anything oddly enough China is taking the best approach just build entire cities, sure some of them rest as ghost cities for some years but unlike what the media reports in the west they tend to be filled almost instantly once the planets align.

At least on Vancouver Island, it's not the foreigner's pushing up home prices, it's the locals.

Victoria is one of the few cities that actually tracks the citizenship of the buyer. In 2015, 97.8% of buyers of homes in Victoria were Canadian citizens. 0.68% were from Asia.[1]

[1]http://www.greaterfool.ca/2016/01/31/of-debt-data/

Victoria is where the people who used to live in Vancouver come to retire. Sell your house in Vancouver for $2MM, buy a smaller one in Vic for $700k, and live off the difference.

Just to take nationalism out of it; would you feel just as screwed if they were rich banker? You don't own that land and you can't use it unless it's literally a friend of yours. So what is the actual impact? Just the language on the signs?

Interestingly this is a bit of an exceptional case; it being a bubble and all you actually have leverage. The interesting thing about real-estate is that it's not like factories; the land doesn't itself produce value. If the people of Vancouver leave and it's nothing but investment property those prices will go down. Once they begin going down, it'll be a bad investment and they'll come down a lot (pretty common bubble situation). So if you think the market put the wrong price on those houses, just don't pay it and leave. Plenty of other good cities out there.

Even rich bankers are probably priced out of the market when "the average price of a single-family detached home in Vancouver at $2.5-million"

http://www.theglobeandmail.com/news/investigations/questiona...

I can get the sentimental value of not wanting to leave your home, but why should anyone else care? There are plenty of other places out there to live that are far cheaper.

Full disclosure: I grew up on a farm in the middle of nowhere and have never lived in a large city.

Yeah, but is it easy to find jobs in those places? Most economic activity happens in the big cities, so most people will want to live close to those cities in order to be in a reasonable commuting distance from work.

Of course, you could do remote work. But those kinds of jobs are not yet the norm. Plus, a lot of jobs require daily face-to-face interaction with clients, coworkers, or higher-ups.

If you are decent at IT you can find jobs. I know I've never had issues. They don't pay as much, but when you adjust for the price of living you can often end up with a better life style.

You have things backwards. To "be in a reasonable commuting distance from work" you must stay far from those cities. Well, assuming you want a family. Commuting into SF from some place in the central valley is not reasonable.

Pick the middle of Florida's east coast though, and you could afford a big house (perhaps half acre, 4 bedroom) within a mile of work. Yes, there are jobs.

Is there a reason why people downvoted this? It'd be nice to get feedback on why people thought it was not helpful or constructive.

The rich get to live in the nicest cities and everyone else gets pushed out

As a non-rich, this seems natural & unavoidable given the fundamental principals of economics & the free market. I'm not sure anything can be done about it, and I don't believe the people who say that if only we did X, everyone & anyone who wanted to live in Vancouver/Manhattan/Pacific Heights could.

Man, if I could live in X I would!

You're saying that one ideological change won't enable that for me (and every one of the other 100 million like me)?

The traditional way to handle too many rich people moving into town is to suck up to them as you charge extortionate prices on ordinary stuff that you can pretend is rare and exclusive.

One of the great things about rich kids is that they never really learned how much anything is really worth. So you can hand them pretty cocktails made from rail booze and gold leaf, and they gleefully hand you your next 20 car payments.

So you're looking at it the wrong way. It is an opportunity, not a curse. Turn that foreign investment into foreign spending. And try to make sure that a good portion is spent on you.

Meanwhile they buy a house and charge you the next 700 car payments in rent every month.

Well part of the trick is knowing when to sell your shovel company and move on.

The problem is is that "normal" people can't afford those prices and when every shop becomes some "artisan" crap the only people who can afford to buy there are the rich and the hipsters that mooch of their parents / mount credit card debt while complaining about the student loans they had to take to get their medieval feminist arts degree and how the baby boomers that cover their bills ruined their future.

I think your problem is your worry about offending people. When you are losing your home then offending anyone is the least of your worries.

Thanks for being honest, though. It's interesting to read your perspective.