Chinese Buy One-Third of Vancouver Homes: National Bank Estimate
bloomberg.com
bloomberg.com
This was a study based on "a Financial Times multiple choice survey of 77 high net worth and affluent mainland Chinese individuals, 'admittedly not a statistically significant sample size,'” According to this survey, 9 individuals out of these 77 Chinese bought property in Vancouver. After some more mathematical shenanigans, this is extrapolated to imply that Chinese mainlanders buy 33% of the Vancouver real estate market. Really?!? And this statistically baseless extrapolation becomes newsworthy?
http://www.vancouversun.com/business/chinese+investors+third...
Seeing this touted feel like reading: Breaking news, a city with 100% Caucasian population does not see a single Chinese buyer!
Ladies and gentlemen, just remember that economic bubbles aren't only bubbles in assets, finance, and the structure of the economy, but also the psychology of the people.
The number is actually closer to 1-2%.
Btw ... I am the child of immigrants so have no problems if these homes are being bought up by Chinese Canadians. I do have a very big problem if these homes are being bought by illicit funds or funds that have not been taxed correctly. I pay my share (and it is a big share .. every professional couple in Canada is essentially in the 1% and paying for it despite all the student loans we incurred). We have all these financial controls that apply to us about reporting foreign income and paying taxes, etc. This needs to be applied fairly and across the board.
One other datapoint: the listing agents in the area have websites in Chinese and with prices in Yuan. Any delusion I had that the money is coming from incomes earned in Canada is firmly gone.
People have talked about ideas such as taxing second homes and requiring residency or citizenship to buy a home. Both seem good ideas that will never be implemented. How about mortgage income tax relief for Canadians (like the US or even more aggressive than that)? Allow full borrowing against RRSPs and prevent buyers from discriminating against offers based on financing conditions. The freaking MLS data is regulated anyways so might as well.
As for people selling and moving into a new house? Again, they're accepting the risk that they will be able to get bridge financing and sell their existing house.
Conditions have monetary value to both the purchaser and the seller. If you are losing out to people with clean offers, bump your offer by 5% and you'll find that sellers will wait another 2-4 weeks for their money. That's what I had to do to get a house in San Jose (just moved in!).
It's the same as the "discount for debit cards and cash" you can get in electronics stores.
Get a good real-estate agent that _knows_ the area, and listen to what they say the house will sell for. Ours was spot-on 100% of the time.
Next, you need to realize at what points in the sale the power in the relationship changes. Up to offer acceptance? The seller has the power, so offer more money to keep contingencies on the sale. After acceptance power starts to shift to the buyer. Here in California building reports are attached to the house, so a bad foundation is information everyone gets. This means the seller is likely to negotiate the price down or fix things if a bad report comes in. Of course, you have to spend $$ to find that out, and your mortgage application fees are then throw-away, so...
Finally, be honest about what you can afford. If you're not at the tippy-top of your price range, you will be able to stretch just a little bit to get that really sweet house you want.
For example, New Zealand (another market I'm familiar with) is currently running at 4%/yr for a 2yr mortgage and 5.5% for a 5yr. However, for budgeting purposes, most people will budget at 8%/yr, since that's the long-term average.
Just to completely freak you out, during the GFC, I hit 12% annual interest. My parents hit 20% during the Canadian inflation crisis of '81. :)
Go for the high end, don't be afraid of a smaller house, build up the equity and then move. However, be aware that closing costs are significant, so it's best to amortize them over several years - that's why housing calculators ask how long you will live in a house.
Frankly? If you're afraid of 5%, you probably don't want to own a house, or at least, you don't want to own _that_ house.
are there any meta-journalism news site offering analysis like yours?
..but I'm not sure who checks the fact check site!
EDIT: I should have been clearer that I never doubted that Chinese money was coming in, but I've previously seen nothing to convince me that it was significant or indicate how significant it was. Even if this estimate is of by a factor of two, it is still fairly significant.
First of all, the main point of the study is not to obtain am accurate point estimate of Chinese buyers in Vancouver. The main point is to underline the importance of more studies.
In other words your criticism kind of makes the analyst's point for him.
Second, you would be surprised at the amount of information even small sample sizes can provide when there is great uncertainty about the true data distribution.
Third, this analysis is in agreement with two other
In other words, don't get hung up on the exact %. Nobody really cares about the difference between 33% and 35%. What decision makers need to know is whether it's a lot or a little. This "quick and dirty" analysis supports the contention that it's a "lot", not a "little".
Furthermore, this study was not done in isolation. The NAR study and the urban planner's study both point in the same direction.
Taking all this evidence under consideration suggests that overseas buyers are likely a driving force in the run up in house prices in Vancouver. And that's newsworthy.
This isn't about sampling error, this is about inverting conditionals while ignoring base rates. This is like saying 'one third of surveyed Somalis in America report living in Minnesota, therefore, one-third of Minnesota is Somalian'. That conclusion doesn't follow, whether you surveyed 10 Somalis or 1000.
That is, there is no reason to expect P(Vancouver purchase|Chinese) = P(Chinese|Vancouver purchase) = 0.33.
If that number happens to be right, it is by coincidence; it only works if you are lucky enough that the relative sizes of Chinese buyers and Vancouver sales are just right. (Specifically, that the size of the Chinese buyer population is identical to the size of Vancouver sales; if there are a million Chinese buyers worldwide and a million Vancouver sales over that same period, and a third of Chinese buyers say they bought in Vancouver, then yes, a third of Vancouver sales will be to Chinese.)
If you knew two of the three variables of global Chinese size/Vancouver sales size/P(Vancouver purchase|Chinese), even if you just had a vague but defensible prior, you could (weakly) estimate the third. But in isolation, each variable means nothing.
That's not even remotely what was done in the article by my reading. More like: 33% of Somalis * total number of Somalis / total people in Minnesota.
That's what it was described as in the grandparent:
"This was a study based on "a Financial Times multiple choice survey of 77 high net worth and affluent mainland Chinese individuals, 'admittedly not a statistically significant sample size,'” According to this survey, 9 individuals out of these 77 Chinese bought property in Vancouver."
'mainland Chinese' are a reference class much larger than 'Chinese buyers of Vancouver properties', as they are buying globally. If this description is wrong, then one should correct it - not introduce irrelevancies like how 'well with Bayesian reasoning this sorta small sample is OK!'
"More like: 33% of Somalis * total number of Somalis / total people in Minnesota."
Which is still wrong, since there are lots of Somalis not in Minnesota.
And 9/77 of mainland Chinese are buying properties in Vancouver, so you multiply that by total number of people in mainland China (that are high net worth and affluent) and then multiply that by the average property value bought by them. That gets (a rough approximation of) the property value bought by Chinese mainlanders in Vancouver, now divide that by the total property market in Vancouver to get the percent of Vancouver being bought by Chinese mainlanders.
I don't know where you're getting anything else than this. The top level parent only described this as "some more mathematical shenanigans" yet you assume that therefore it has to be this nonesense of swapping P(A|B) with P(B|A). The article makes it clear that that's not the case, so I don't know who you're arguing with.
> Which is still wrong, since there are lots of Somalis not in Minnesota.
Yes, 67% of them in this hypothetical, as accounted for in the first factor. This process isn't inherently wrong, the debate is whether the small sample size makes the uncertainty too large to be useful.
And now you've done the correction for the base rates which I discussed in my original: once you know the relevant populations and fractions, then yes, you can get out the right fraction. But it's highly unlikely the correct version will just happen to equal the original fraction in the survey, and no correction was included in the summary. Let me quote again what I am criticizing:
"This was a study based on "a Financial Times multiple choice survey of 77 high net worth and affluent mainland Chinese individuals, 'admittedly not a statistically significant sample size,'” According to this survey, 9 individuals out of these 77 Chinese bought property in Vancouver."
Note there is nothing about 'total number of people in mainland China'. Nothing about 'average property value'. Nothing about 'total property market in Vancouver'. I don't know where you're getting all this. The procedure as described is just plain wrong, nothing to do with sample sizes or Bayesian methods.
> This process isn't inherently wrong, the debate is whether the small sample size makes the uncertainty too large to be useful.
That's what the comment thought they were defending, but they were wrong. They misunderstood the problem entirely. It was interpreting the survey meaning totally incorrectly by inverting the conditional, the problem was not precision/sampling error.
The very next line from the source you're quoting:
> After some more mathematical shenanigans, this is extrapolated to imply that Chinese mainlanders buy 33% of the Vancouver real estate market.
I.e. "there's more that I'm not talking about because I already think the first step is so inaccurate that it doesn't matter what's next".
Which seems more likely? (A) that the above snarkily referred to what was done in the article, or (B) that the above referred to a mathematical fallacy that is otherwise entirely absent from anything anyone here is talking about until you showed up.
Even if the top poster were saying what you suggest, how were they supposed to get 33% out of 9/77 = 11%? Your suggested error would give 11% instead.
Who gives a toss for community or society or cohesion. Sell everything.
As long as property sellers can take all that lovely cash and buy more and bigger homes then what else matters?
Ordinary middle class people and the young - make em rent! Why the sense of entitlement that people should be able to afford to buy a home, what are you a communist? Whose country do you think this is?
In fact put one giant price on the whole of Vancouver and sell it ALL in one big job lot.
This ain't going to end well.
The last time a property bubble in a developed economy fueled by Chinese speculators crashed, it crashed by 70%. [1]
People never see a property price crash coming.
Credit Suisse First Boston – 15 July 1997: [2]
We believe the supply demand imbalance will continue to drive residential prices during 4Q 1997 and into 1Q 1998. The two extremes will perform best; luxury residential prices should fare particularly well as we see flows of capital into the top end of this sector. Luxury property is also much less sensitive to affordability levels and much more geared to supply and price expectations. The smallest units (below 40 square metres) will also fare well as there is very limited supply at this level, yet they are the most affordable private sector flats.
[1] http://www.macrobusiness.com.au/wp-content/uploads/2013/04/H...
[2] http://www.businessinsider.com/hong-kong-property-did-you-se...
The overheated property markets Vancouver & Sydney are fuelled by Chinese speculators. Why are they buying overseas when there's a perfectly sound economy right on their border, Hong Kong?
There's a property bubble in Hong Kong too, and it was getting expensive there, the Chinese went overseas to other well-off cities that are full of Chinese, Vancouver and Sydney. If Hong Kong was leading the price rise amongst the three cities, it might lead the price fall too.
At this very moment, Hong Kong's property prices are slumping:
http://www.bloomberg.com/news/articles/2016-02-01/hong-kong-...
One could argue, for all the many rich people buying in Vancouver who could shrug off market fluctuation, there are even more millionaires and billionaires in Hong Kong, which has the 4th highest billionaires per capita, who could shrug off even bigger market fluctuations. Yet it's property price is falling anyway.
One third of property buyers in Vancouver are Chinese. How many percent Chinese do you think are buying the property in Hong Kong?
Nearly all of these millionaire immigrants to Quebec move to BC.
http://www.scmp.com/comment/blogs/article/1929324/study-reve...
Isn't this a bit like any statement. 'People who get hit by a car never saw it coming'. Or 'people diagnosed with cancer weeks before they died, never saw it coming'. Well sure, ignoring the people who did saw it coming, which are events we then ignore. i.e. there may have been various formations of bubbles, people saw it coming, adjusted their investments, and the bubble diminished.
Further, it's not like today, people don't realise there's a bubble in Vancouver. It's pretty much the opposite.
Property price crash != property bubble.
Everyone knows there's a bubble in Vancouver. No one thinks the bubble is crashing next month or even this year.
You've got people on this very thread thinking Vancouver's people are selling their souls and never getting it back.
I think for a general statement, it's carries a lot more weight than the two examples you've given.
It's a general description of sentiment during a bubble, not a precise description of each person's state of mind. As a statement, I think it's fine as it is.
FUN facts - IF the Vancouver housing market crashed by 70%
1] - A Vancouver detached house would still be valued at OVER the current Canadian national average selling price(2016-02) for detached homes of 503K
2] If you exclude Vancouver and Toronto sales out of the national housing sale, the average price of a home drops from 503K to 355k
People always see the property price crash coming. People know, intuitively, housing can't go up 20% or 50% or whatever every year. It's just that they think they can make money and get out before the crash happens. Let me put on my Carnac the Magnificent turban and tell you there's definitely a property price crash coming in Toronto and Vancouver. Guaranteed.
The problem is you have to know when it's coming to cash in, and I can't help you there. If I could I'd be buying up million dollar houses. These things last way, way longer than I expect.
Part of the problem is much of the central property has been redeveloped, also increasing prices. Its tough to find place at <$800/bedroom or <$1000 for a studio in central Vancouver.
I would expect to pay $2200 for a central Sydney studio.
My apartment, 2 bedroom with study, half hour from the city, costs $2200 too.
I rent out the bedroom at $1050 and the study (size of 3 single beds tucked together) at $800 as a side venture.
Did Vancouver or Canada recently experience a huge economic boom and increase it's residents income band to more than the Reno, NV levels than it currently is? Actually, the opposite is happening with alberta's oil industry currently imploding and every imported good going up %30 in price due to the property increase.
I moved away, like a lot of younger people, to somewhere somewhat more affordable, and I suggest anyone who is a software dev to do the same. The compensation delta is %100+.
But for software devs, I definitely suggest the USA, either Seattle or even the SF Bay Area / NYC because the pay is so much more.
To pop the bubble you must not exercise any demand at all. And to short, you have to construct a financial scheme that benefits when the price goes down.
For example, you could 'borrow' a home, sell it at market price, then 10 years later when prices are much lower, buy it back, then give back the home to the person you lent it from. Or in fact, housing prices could rise, as long as they do not rise more than another guaranteed investment, it makes sense to short this stock and reinvest it into the other investment, and you'd still make money, interestingly, without having to need money in the first place. Of course in practice all of the above is tricky and risky, and so I appreciate that within the opportunity set of a normal citizen, renting is preferable to buying, but let's not call it the equivalent of shorting.
Now, it doesn't matter which you do, either buy or rent. They are both wrong, because both are sky-high.
That's only true if your rent covers their payment, which tends to not be true in a bubble. Where I am, in the years leading up to 2008 there were more rentals available than the market could really support. People were buying houses and getting rents that only covered part of the payment because they were counting on capital appreciation to make them money. If you were a renter it was a great deal. For $1600 you could rent a house that would sell for $700k, which isn't even close to covering the payment.
After the bubble popped the price of housing went down dramatically, and the price of rentals went up dramatically as people stopped buying houses assuming they would appreciate forever.
Also, people who've never owned a house drastically underestimate the costs associated with owning one. I bought my house after the crash, for cash. My housing outlay (with no mortgage) is about 75% of what I paid in rent. And that's not counting maintenance, like painting and appliance repair, or major stuff like a new roof. If the bubble had never popped I would have come out far ahead just staying in the apartment and investing the savings.
You're not financing the bubble.. The bubble is based on valuations that assume much higher income than what you provide by renting at going market rates.
True. In relative terms, and in this context, you could say it 'contributes' to the bubble.
I still maintain that the concept of normal (organic, non-speculative) demand contributing to a bubble is generally wrong. I don't think it's accurate to say that any and all sources of support for the price are contributing to the bubble. This conceptual framework will mislead people about the cause of a bubble.
But in the context you're using it, it could be considered accurate.
PS. you don't need to get hostile. I was explaining how I interpreted your statement, not 'putting words in your mouth'.
1) Alice owns a property.
2) Bob borrows the property and gives Alice an 'IOU one house'.
3) Bob sells the property.
4) Market falls
5) Bob buys the property back, hands it back to Alice, and destroys the IOU.
As a result, I think there would have to be something more like this:
1. Alice owns a property that she would like to keep, but will not be using for X months.
2. Alice's default course of action would be to lease it out for those X months and get rental income.
3. Bob offers an alternative: Alice sells to Bob, who promises to sell it back after X months at the same price, while also paying the expected rental income for X months, plus an additional cash incentive.
4. Bob signs a note promising to give back that exact house after paying Alice the rent-equivalent every month for X months, and an escrow agent secures the note by putting a lien on the property equal to its current value plus Y%.
5. Bob can now attempt to short, by selling to someone else for the current value, and putting up Y% in cash as margin, to clear the lien. Bob also has to insert a panic clause giving him the option to rescind the sale by paying the buyers that Y% before the X months elapse.
6a. If the market value drops, Bob re-buys the property and transfers it back to Alice as promised. The escrow agent returns Bob's margin and the difference in sale prices.
6b. If the market value rises less than Y%, Bob buys the property back and transfers it back to Alice. The escrow agent returns the remainder of Bob's margin.
6c. If the market value rises more than Y%, Bob is unable to repurchase the property with pre-secured funds, and Alice might be pissed. The escrow agent could hand over all the cash to Alice, but the property itself would be worth more than that. To avoid this, the escrow agent will activate the panic clause immediately, using the escrowed cash, whenever increase in value approaches a fixed fraction of Y%.
Note that if Bob does not sell the property, the terms of the note and security instrument make the deal indistinguishable from a lease. Note also that there is so much friction in the real property markets that it is just a hell of a lot easier to short shares in any public company that owns a lot of developed land.
Why indeed?
If there is a shortage of housing, why not build more houses?
Otherwise, if a person wants to exclusively use a piece of land, why shouldn't he have to outbid everybody else?
Unless of course an 'ordinary middle class' and 'the young' are somehow more valued than 'rich chinese people' and so should be given special privileges?
>In fact put one giant price on the whole of Vancouver and sell it ALL in one big job lot.
Well not everybody wants to sell obviously but if everybody does want to sell, why shouldn't they sell to 'rich chinese people'? Why should they not be paid the most for what is rightfully their property?
Because the new houses built are intended to be bought buy people who have money at incredibly high prices.
This argument is the one the property developers put whenever citizens object to selling real estate overseas.
In effect "don't complain, just build us more houses to sell overseas! that will solve the problem"
The demand is not infinite. If these new luxury houses actually do sell to the people who have the money to pay the incredibly high prices, what happens to the existing houses that were not purpose-built to sell to the rich? If the new houses satisfy even a part of the demand, prices on the existing houses have to drop.
This is like saying "all the rich chinese are buying up all the expensive top end iphones and now all the poor people of the earth and the seas can not have smartphones for their enjoyment".
Again and again I see the same 'fixed size pie' argument when somebody argues for special privileges for the 'special class' that they conveniently belong to.
What about all the canadians who bought their house 4 years ago and now have their property price increased 200%? Nobody talks about those guys. You only hear the 'evil rich foreigner chinese taking up out houses' narrative. If you are a rich foreigner you are taking our houses and if you are poor then you are taking our jobs.
At the end of the day these narratives are just appeal to group-identity and nationalism. They are very thinly veiled attempt at enraging people to get more 'engagement' 'views' 'clicks' or whatever. And they are clearly working because people who are sensible otherwise start losing their minds.
If the chinese people are of Chinese nationality then that is exactly true, from the perspective of the government of Canada.
> Well not everybody wants to sell obviously but if everybody does want to sell, why shouldn't they sell to 'rich chinese people'?
Because nurturing a foreign rentier class is not the best plan for retaining your sovereignty and keeping local people happy and wealthy?
Their perspective might as well be that canadian citizens are tax-cows to be milked until dry.
We should care about the people not the government.
It's not as solid of a distinction outside the U.S. where there is so much anti-government "them vs. us" mentality (rightly or wrongly).
If I say "the Government of Canada wants to legalize marijuana", it's generally safe to assume that is the will of the people unless evidence is presented to the contrary.
Of course, the government can and does occasionally go against the will of the people but that's more the exception than the rule.
I'm an Eastern European living in a relatively big Eastern European city, and I'm now writing this from an apartment that I'm a renting from a very cool French guy, the owner, who is in his late 50s or so. At the height of the local real estate bubble (in 2007) the Norwegian sovereign wealth fund invested in buying 500 apartments in a local project, the investment flopped (I don't petty the Norwegians, though, that fund is huge). And I could go on and on with other examples of foreign-owned properties in the city where I'm living in.
Point is, this is capitalism. I'm paying rent to the French owner of my apartment with the money I'm gaining from my current American oversees employer, and there's nothing wrong with that. You guys cannot choose which aspects of capitalism you want to like and which not, i.e. you cannot be allowed to invest freely in other parts of the globe (like Canada is now allowed to do) and in turn not allow other nations to invest in Canada (like not allowing Chinese real estate investors to buy property in Canada). Because if you do that you're economic colonialists.
Every country chooses which aspects of capitalism they want, via regulation, taxes, social programs. Even the most laissez-faire county does. There is no pure capitalism, it doesn't exist.
Yes they can, all countries do this. Minimum wage laws, environmental protection laws, progressive taxation etc... All designed to restrict elements of capitalism we don't like.
>You cannot be allowed to invest freely in other parts of the globe
Their are all kinds of property restrictions on foreigners in many many countries. Until 6 months ago foreigners couldn't buy property in China without first living there for a year.
If a country wants to restrict foreign property purchases that's their business. They don't owe anything to other countries who let their citizens buy property. The reason those other countries allow foreigners to buy properties is not altruistic, it's to attract investment. They would continue to allow Canadians to buy homes even if Canada completely shut their citizens out. But if Canadians started driving up local home prices to the point that they are causing problems, they would add restrictions.
So Canada doesn't want FDI, got it. Well, good for them, it means they're self sufficient.
It's interesting because when the going was good, meaning when Canada was making tons of money out of selling their mineral riches to China, I didn't use to hear so many bad stuff about the Chinese. Now, when some of those Chinese people want to invest their money back into Canada somehow it's bad for the middle class Canadians. I'm missing something, because I can't make sense of all this, but I'm just a programmer.
You're using the word "investment" to make it sound like they are starting local businesses that create well-paying long term jobs, grow the economy, and contribute to the community. The truth is that these houses sit empty 11 months of the year (or more).
Lastly, guess where that profit is going to end up when they sell? Not in the Canadian economy like it would have if a purchased by a Canadian. So again, is this a net gain? It's hard to say, but don't over simplify it.
Citizens should be granted privileges over non-citizens.
CBC did a great piece on it: http://www.cbc.ca/doczone/episodes/the-condo-game
Let me know the address of this secret cabal that meets every evening plotting misery and pain for the young and the middle class.
On a more serious note, this is just capitalism and free market economy playing out against you.
Also remember those days when people screamed real estate being a bad investment from the roof tops, while people belittled real estate investments and glorified stocks, a section of people have quietly invested in this area.
The fact of the matter is these opportunities were available for every one, but just like other things like in life like age, education, marriage, kids- time is a critical factor in these things. If you don't make the right moves at the right time blaming others hardly makes sense. People can't buy expensive homes for the same reasons, people with no education can't go back in age and do their schooling.
Investments are all about time, in fact I'm sure there are good house deals at the outskirts which many people are investing in. The young and middle class isn't buying them because they are too far/<regular excuses>. And yet when the prices go up after a few years and that too becomes expensive, same people will come up with the same complaints.
You simply can't own a house unless you're a millionaire, and a small condo will be upwards of $200k for a mortgage when you don't own the property. It's just insane.
http://www.payscale.com/research/CA/Location=Vancouver-Briti...
Even if I'm pulling in a quality $80k (high-ish by here standards), I'm nowhere near affording a $2mil property. I'll be lucky to have a small condo with 2 bedrooms. What's the incentive to stay?
Ha!
https://www.reddit.com/r/vancouver/comments/4bo9wz/were_buyi...
"We have 540k as a down payment and we are going to take a 160k mortgage. Adding strata fees for the place we want its going to be 1200$ a month for the next 30 years, and we end up with a 950sq 2 bedroom in a decent condo off Davie."
$1200 / month (this is mortgage + condo fees) for 950 sq ft, and this is after putting down $540k - and it's not even a brand new building. And compared to SFH, condos are actually realatively reasonable priced, by Canadian standards at least.
Beyond insane.
Otherwise, condos within easy reach of downtown are somewhat affordable. Single-family homes in Vancouver are very much a 1% luxury item at this point.
You can look at a very long term chart of real estate vs GDP growth and see something has recently gone askew, do low interest rates completely explain that? And if so, what would happen if interest rates normalized in a relatively short period of time?
Suitable land is artificially constrained, fiat money issuance is unconstrained, ergo prices are rocketing as rent seeker banks shift resources from wealth producers to themselves.
In Cambridge 1 in 20 new-build properties is purchased by non-resident Chinese buyers, which has been one of the contributing factors that has seen prices rise by 50% since 2010 [1] and are 47% above 2007 pre-GFC peak [2]. Note - unlike Vancouver that has a a big (30%) local Chinese population, only about 1.4% of the Cambridge population is Chinese or of Chinese ethnic origin [3]
To some extent this is just about free markets and a movement of capital. But it is starting to price out many local people out of the property market that does have a social impact.
There are other factors at play including a booming tech & biotech sectors, restrictive planning, stock-piling of building plots etc, but the foreign buyers issue is a major contributor.
[1] http://www.theguardian.com/cities/2016/mar/22/china-cambridg...
[2] http://www.thisismoney.co.uk/money/mortgageshome/article-328...
[3] Guardian data - available in a Google doc https://docs.google.com/spreadsheets/d/1yc8W1SiCbWd9V4I9KmTl...
Let's grow some cabbage on the most expensive land on the planet?
Because forget money - it's cabbage that counts.
> And Cambridge is really not suited transportwise to becoming a big city.
We have this recurring thing that people only want to move to a very very small subset of cities. There are multiple solutions to be proposed, but just turning blind on this doesn't sound feasible.
It doesn't make sense that a small town is so congested. Public transportation needs a serious upgrade.
It's a shame a fantastic place to do science and business is getting a bit held back by congestion and expensive real estate.
Food security is not something that should be entirely handwaved away, although I agree that plenty of places manage to live entirely on imports.
I agree with the idea of not limiting ourselves to a few cities: that's why it makes little sense to try to turn Cambridge into a London suburb. It's a market town of historic buildings that was spared bombing. The tech industry growth there is great but somewhat accidental. I doubt you've been there, but there's very little that can be done about the traffic problems without demolishing a college. The building of a new railway station north of the river should help greatly though.
I'd suggest trying to build up tech industry in one of the 'post-industrial' cities instead. Maybe we could buy up the £1 houses in Stoke-on-Trent and market those to China at huge markups instead.
One of major contributors to rising property prices is the gutting of trust in the stock market or any speculative market for that matter, over the past two decades. Super low interest rates haven't helped either with people looking to park their cash left with property as the only safe place which provides a rate of return.
With regards to Chinese buyers, there is some truth (again stressing that it's only a part of the picture). For the past 20 years nearly every trading partner with China has incurred a massive balance of payments deficit. That money's coming home to roost (literally). The same thing happened in the 80s when Japan was an exporting powerhouse - they bought real estate and companies across the US and Europe, pushing up the price of real estate.
There was actually an excellent piece in the Prospect by Andy Grove (former Intel CEO) which lamented the loss of manufacturing in the US and the effects it would cause: http://prospect.org/article/andy-grove-trade-globalization-a...
Again just a facet to the picture, but you put all these pieces together and you can see the problem a lot more clearly.
The Japanese were like the Chinese at one point too, selling crappy electronics in the 60s and being seen as extremely wealthy in the early 90s.
Everybody feels this way about the next wave. I'm not unsympathetic and am similarly unable (and/or unwilling) to buy a house in this overheated bay area market.
Reminds me of an article I recently read: http://www.atlantamagazine.com/homeandgarden/the-gentrifier/
Nevada beat me to it though: http://www.motherjones.com/mojo/2015/10/nevada-settles-busin...
why instead not try to make some non-nice non-safe area a nice and safe one?
rich chinese people displacing middle class white people is called "this is totally unfair, why isn't this illegal?".
of course, guess who's making all the money selling these units? the rich white people (developers, bankers, politicians, contractors, lobbyists, lawyers) who decide what's legal and illegal. as per usual, they are the winners in this whole charade, while the middle and lower classes just blame the dirty foreigners. it's even better when they're chinese -- who doesn't hate the chinese??? so convenient. shhh, let's not mention the other 2/3rds of buyers.
the aforementioned elites are playing and winning a game as old as time, as they do.
How to prop up weapon sales? Sensationalize a crime (revenge/burglary) and say crime is on the rise with a linked article that says weapon owners/NRA members likely to repel break-ins.
"the process of renewal and rebuilding accompanying the influx of middle-class or affluent people into deteriorating areas that often displaces poorer residents." (Merriam-Webster)
There's no particular area in Vancouver that fits this description with regards to foreign buyers. They seem to have interest almost exclusively in established areas. Not so much "deteriorating" ones in need of "renewal and rebuilding".
The difference between a housing shortage and a housing bubble is when rents disconnect from housing prices. Rent is about 1/2 or less compared to an equivalent mortgage in many parts of Vancouver.
Rents in Vancouver are 60% higher than Berlin, where as purchase prices are only ("only") 35% higher (net income is practically the same, with Vancouver being just ~4% higher than Berlin).
[0] http://www.numbeo.com/cost-of-living/compare_cities.jsp?coun...
In this case German house prices are relatively high & rising faster, when compared to rents.
In Berlin in particular purchase prices have increased by 8-10% per year in recent years where as rent prices have only increased by 3-5% per year (both are still cheap compared to Vancouver).
I have a tech salary in the low six figures and I'm considering a commute from Providence because I'm priced out of Boston. I don't want roommates any more in my thirties, and I'd like to actually have a place for my car (long-distance work and personal trips). I'd love to buy in Boston (or Cambridge, Somerville, Brookline, or other places served by mass transit), but I'm simply priced out of the market. In what world can anyone afford to buy the $1-2MM 1-br condos here and the $2-3MM houses? Local financiers, sure, working physicians, and some corporate execs, but they're a minority of the population.
Paying rent in Boston, you know you're being exploited, but you don't have a choice. My current place is owned by a Chinese "investor" who uses unlicensed contractors to do unpermitted construction on an illegal third-floor apartment above mine. The construction quality is abysmal (think toilets not attached to the floor and fluorescent lights half-hidden behind drywall), but unless I want to be homeless I have no recourse because all leases turn over on September 1st. My place just has peeling paint and cabinets that fall off the wall, and at least me and my roommates are only paying $5k/mo for it. shrugs
Prices to buy in Vancouver are completely insane and detached from local incomes.
And small community business, how will they exist in the future. If someone wants to set up a local 'physical presence' vet/daycare type business that are typically mixed into residential areas the threshold is now so high ot exist and especially set up a new business. How can a daycare buy a million+ dollar house and expect to make money paying that back on having 30 local kids being looked after.
Also what is going to happen with retirement and periods of unemployment. I suspect society will be less stable as either the government has to foot high rent costs (unlikely) or we will see increased population movements during retirement, and now the government has to look after older people that before a family who lived nearby could help out with. And during low employment cycles society can absorb this downturn if people dont have large loans. Historically people cant 'tighten belts' for a year while things improve, harder when your neck deep in debt. So we will again see more movement of people, debt default etc. It will serve to exacerbate recessions etc.
Also these higher prices skew the economy. When people are tied up in these ever increasing loan/income ratios there will be less spending on dining, holidays, hobbies etc. It will weaken the economy by concentrating the spend in limited areas.
I believe we should look to ensure affordable housing for owner occupiers. Residential investment need to be discouraged (note I'm not saying stopped) as a speculative asset class. I've seen a few suggested methods to achieve this but I feel the simplest is to place a yearly 'asset tax' on non-owner occupied residential property (I would also include farms). Having a % tax would make it easy to adjust to find the right balance given economic cycles change. Also this would encourage property hoarders not in heavy debt to sell for lower taxed asset classes. This I feel is important as most solutions focus on controlling the investment lending side which is limiting in reach.
I agree. Entrepreneurship will increasingly become the domain of the rich (or rather, the children of the rich).
>Also these higher prices skew the economy.
Pricing is how an economy works. It is the messaging system communicating changes in demand/supply balance. If it is 'skewing' the economy in the sense that it causes changes, then it is working as intended.
>When people are tied up in these ever increasing loan/income ratios
There is only so much land to go around so if you want to use a particular piece of land that is highly desirable then you ought to outbid everybody else.
>I believe we should look to ensure affordable housing for owner occupiers.
the solution to this is georgian land value tax. There is no reason otherwise to ensure 'afforable housing for owner occupiers' except your personal belief that society should subsidise a particular class of property ownership whereby the owners use the property directly. What is going to happen is that people who cant afford to own a house (or dont want to borrow money from banks to buy one) is going to have to pay the tax for renting.
Price is one tool. Government skew pricing via subsidies and other to business all the time. Imagine primary schools in a pure capitalist system. It would be a mess. There is loads of intervention all through the economy that overrides pure pricing so I dont buy into this view.
> There is only so much land to go around so if you want to use a particular piece of land that is highly desirable then you ought to outbid everybody else.
Land supply is fixed. But demand is variable. If you reduce investment incentive for this limited land pool, prices should reduce via less competition freeing personal capital for other spending.
> What is going to happen is that people who cant afford to own a house (or dont want to borrow money from banks to buy one) is going to have to pay the tax for renting.
Maybe... 1) there were studies in Australia when the gov removed tax breaks on investment property. Some people made a claim similar to you this cost would be passed on. Empirical results were the majority of regions (some exceptions of course) found little to no impact on rental price and this cost was absorbed into investment returns. And 2) Don't forget this action will reduce house prices, so those that do buy residential property for investment will require lower rental return as the initial house price is lower.
I am surprised the baby boomers aren't downsizing in droves at this point. They should be the ones getting out of homes, locking in their gains and grabbing a condo where they don't have to spend too much effort doing maintenance. I suspect some are holding onto their homes for their children's sake?
Based on people I know, I think a lot of it is that if you own a typical suburban/exurban house and you have the house like you want it, you like the location, you have friends in the area, etc., for many, it's just not worth the trouble/expense of moving even if they could potentially downsize. The exceptions that come to mind are a few people who wanted to move to a warmer climate and/or adopt an urban lifestyle with their kids out of the house.
It's tragic any way you slice it.
What will happen to their houses? In some cases, they'll become their kids' residences. In other cases, their kids will now own TWO properties, and now they'll rent out the 2nd house, adding supply to the rental market. In still others, the reverse mortgage scumbags will own the property, and it'll add to the corporate-owned housing stock.
And the highest bidder is not middle class people.
And when you raise taxes that are directly levied against overseas buyers, then the government becomes addicted to those taxes and therefore addicted to overseas buyers.
Jobs tend to concentrate in urban centers. Building 1 or 2 hours out is a shitty commute and frankly a shitty solution.
Although this "study" was based on back of the envelope estimates, and the 1/3 estimate is probably inaccurate, there is anecdotal evidence of large-pursed foreign investors from around the world -- not just China but Australia, Russia, etc -- who are sustaining, if not increasing the demand for housing in populous areas.
This foreign investment is great for people who are trying to sell a home in one of these markets but horrible for buyers, who can't compete with all-cash fast-close-best-price offers. Further, the few realtors who are boots-on-the-ground for these investors have market insights -- they know what's potentially about to go on the market but hasn't yet, get insider information, etc -- and use this information asymmetry to their advantage by offering on homes even before any real home buyers have a chance or offer on the first day of listing! I have personally gone through losing multiple times to these sorts of customers while trying to buy a new home (in the NYC metropolitan area on the NJ side), not an investment property.
The experience of buying a home in a high-demand housing market where institutional/major investors are participating really challenges my thinking about whether free market practices should be allowed to operate in housing at all. Considering the rising cost of housing, it is tough to side with capitalism on this subject.
I'd like to see a study about the "artificial growth" of housing prices by investors. Interestingly to note is that such a study may conflict with the agenda of at least some leading universities who tend to publish reports about rising cost of housing after receiving generous funding from housing investors. NYU Furman, for instance, has a long-lasting public relationship with Capital One (and god knows who else in private).
Assuming you mean "with the philosophy of free markets and individual rights" by the catch all "capitalism", it's not.
The foreign buyer is benefiting from state-provided services, such as the police providing some degree of safety from robbery and damage, safety from invasion and confiscation by the armed forces, and a sound legal framework and justice system that protects their property right.
Citizen pay for this via income taxes and their employer's corporate tax, as well as value-added taxes on products and services purchased (since there is no modern country that generally allocates a certain type of tax income to a certain type of spending). Non-resident owners do not. They get a free ride.
Thus, the free market, moral, individual rights protecting solution that might be Barry Goldwater approved is to charge the non-resident owners a yearly tax that covers the cost of services provided.
Assuming what you mean by "a yearly tax that covers the cost" , which I have also quoted although it's obvious what was meant by what was said, it's not covering the "true cost to society". I don't have to stretch far to define this cost as there is a limited supply of housing and you know where this leads.
I like your suggestion that we charge investors, at least of the high-net-worth or institutional kind, for participating in housing. However, how we measure that tax needs to include variables other than taxes paid for waste management and law enforcement.
Oh this is good stuff. Thanks for contributing! ;)
100% correct. The property tax rate in Vancouver is 0.35%, which is a small fraction of what other cities across North America pay, while income taxes are significantly higher on the middle class. NYC suburbs, for example Weschester, charge 1.93% of assessment, and even in California, property tax is 1.25%. Some Texas counties are 2+%.
In the absence of a reasonably high property tax, like in Vancouver, homes become much more like an expensive savings account. This is especially the case as interest rates falling below 0 in much of the Western world (some banks in Switzerland charge you to put your money there). And day-to-day services like police, schools and ambulatory are paid for by locals through income and sales taxes. UCLA professor says CA could get rid of income taxes through a 3% property tax. http://www.latimes.com/opinion/op-ed/la-oe-adv-welch-califor...
My suggestion to reduce property speculation is to reduce income taxes drastically (1/2 to 1/3), raise property taxes to at least 1.5% (5x) and provide basic tax assessment increase controls for owner-occupied dwellings, up to say $1m in value.
Exactly. Unfortunately, the short term effect in most countries would be a brutal recession, probably some banks going under/being nationalised, a flight of capital out of the country, and so on - enough to dissuade any administration to try.
It does not help that most politicians are from the middle upper class and own large amounts of property. Few will have the courage to devalue their own net worth by double digit percent.
Thus I think it exceedingly unlikely that we will ever see a shift from production taxes and consumption taxes to "dead" asset taxes. In fact, the historical precedent is the other way round.
There are many others, but France's ISF (wealth tax, of 1.5% of the government-assessed asset value per year) is one of the reasons you can buy a large castle there for less than a studio in Sydney.
This is the real reason. As I've mentioned on other threads, California's main business is and always has been real estate.
There are similar issues in Toronto, but here we are building new towers on every corner, or near enough. Toronto, fortunately, has plenty of room to spread in three directions.
This is what's happening in Chicago right now. Single family homes and two story apartment buildings, which dominated Chicago and made it a pleasant place to live (lowish density, lots of room, decent sized backyards, etc) have been replaced in gentrying areas with super dense condos that are 3 to 6 units large on the same tiny lot. No yard, no parking, no front yard, tiny bedrooms, etc.
It really changes the character of the neighborhood and the system really can't handle this kind of density. You would have 3-4 people in a SFH which is now a lot with 6 condos with 18-24 people. This means not only higher pricing but more traffic, no parking, higher load on utilities, local parks being overfilled, etc.
No one talks about density it seems, but something very real happens when we quadruple density like this.
Some are fond of perpetuating the narrative that the city will be hollowed out with empty homes and locals fleeing the city. Yet a recent report to city hall reports that detached homes are not as vacant as "popularly" believed:
"The vacancy rate in Vancouver for single-family homes, duplexes and row houses is only about one per cent, and that rate has been static since 2002, according to the report. Meanwhile, the combined vacancy rate for condominiums and purpose-built rental apartments is 7.2 per cent. That number is in line with the findings of a 2013 study by the Urban Futures Institute, which put unoccupied apartments in Vancouver at 6.2 per cent on 2011 Census day."
Read more: http://www.vancouversun.com/business/affordability/more+than...
As someone living here, one big problem is that there is far too much noise - too many studies and bad articles (like the original one here.) There's obviously problems but everyone is running around chasing the hot topic of the day ("shadow flipping," for example) as the various governments either pretend it's not a problem, or sponsor yet another flawed study on it.
Waldorf Astoria in NY was one of their big purchases
They were bidding on Starwood Hotels http://www.reuters.com/article/us-starwood-hotels-m-a-anbang...
Fidelity Life is also theirs http://www.bloomberg.com/news/articles/2015-11-09/anbang-to-...
We stopped this last year. Non-citizens can't buy residential properties within town boundaries. Outside of town boundaries, they can buy residential property but must build a home within two years... and there's a minimum $ amount they have to spend building the home.
The law was enacted because locals just couldn't compete with the Chinese.
If you last visited a few decades ago, then a lot has changed since then (and probably not in a good way)
The downside is that absentee home ownership encourages property crime, and the most common item on the town's police blotter is "audible home alarm".
It takes me about 2.5 hours to drive from Seattle to the middle of Vancouver.
The "city" of Vancouver technically lies about 20 minutes north of the border.
I really like Vancouver and I was asking around about opportunities for work there. It seems to be reasonably easy to get a Canadian work visa as an Australian, at least while I'm under 30. The rent/mortgage prices pretty much killed that idea - salaries seem about the same as where I am now (Canberra) but living expenses seem much higher. Which is really sad. I'd put the city on par (or better than) Melbourne, Australia for "culture" (Melbourne still beats most of the world for coffee shops, though!). Yaletown and Gastown are impressive, and also extremely expensive.
One of the other articles on Van said that people were leaving to Victoria - which is nice, but has the issue of being on an island, plus still very much feeling like a small town.
People buying here are doing so because they feel like the prices will just continue rising, so they sacrifice a lot now rather than a lot more later.
On the other hand renting feels like dead money so people won't stretch as much.
I continued to visit for various reasons at lead a week a year until just a few years ago. What started in the late 90s only continued.
I think the answer to that is yes - a lot of people seem to disagree but seem reluctant to explain why.
It looks like salary / rent is still much more sane in Vancouver than in London.
I would guess London is in a much advanced stage of this problem?
But I like the salary / rent more as I am not planning to buy in either cities
Any estimates not based on actual property record searches is just reading tea leaves, basically.
http://www.zillow.com/homes/for_sale/pmf,pf_pt/house,townhou...
I could never afford it with my Google income but the real estate people who put up the ad believe a Googler in SF should be able to afford it.
As for everybody else... Not so much.
The owner -- possibly not even living there -- is only paying $1245 a year in property tax, or a rate of 0.06%.
If you buy and move in you'll be paying 25x that.
YEAR PROPERTY TAXES CHANGE TAX ASSESSMENT CHANGE
2015 $1,245 -- $52,629 +2.0%
2014 $1,245 +44.8% $51,599 +0.5%
2013 $860 +14.0% $51,367 +2.0%