Douglas Todd: Vancouver's 'soft landing' in housing prices remains elusive
Credit to Author: Douglas Todd| Date: Fri, 29 Nov 2019 01:16:18 +0000
There are different ways to stop an out-of-control real-estate market from crashing — by creating a so-called soft landing that helps prices slowly subside and become more affordable — without hammering too many homeowners or the economy.
But are provincial and federal governments pushing the right buttons to help Metro Vancouver, Victoria and Toronto touch down in a soft landing after two decades of rising prices, which especially skyrocketed in 2014 due to extremely high demand, including from offshore?
Analyst Stephen Punwasi, of Better Dwelling, says Canadian real-estate prices peaked in the middle of 2017. And there might be signs prices in Vancouver and other supercharged Canadian cities are going in a ‘good’ way for those who don’t own a home.
Postmedia’s David Carrigg produced a couple of catchy stories last week about prices of some detached homes falling sharply in Metro Vancouver. In less than three years, one west-side owner lost $800,000 on a home that sold for $2.4 million. No doubt the owner felt that was a “hard landing.”
But homes in Metro Vancouver, Victoria and Toronto are still out of reach of most people. And the Canada Mortgage and Housing Corp. says prices will rise in 2020. “We’re hearing a lot of the (real-estate) industry say Canada has achieved a soft landing. But that’s a little early to declare,” said Punwasi, who is based in Toronto.
UBC geography professor David Ley forecasts a long way to go. He says Demographia, a global ranking agency, defines housing affordability as a ratio of 3:1 between median prices and annual median household incomes.
“In Canada’s 12 largest cities, the median value of the ratio was 4.3:1 in 2018, a bit above affordability. But Vancouver’s ratio in 2018 was 12.6:1 and Toronto’s was 8.3:1, with a similar number to Victoria. Ratios like those are classed by Demographia as ‘severely unaffordable,’” Ley said.
“Despite (recent) price declines of 10 per cent or so, over the past five years housing prices in Greater Vancouver have still risen by a net of 50 per cent. More needs to be done to even approach affordability.”
Even though the B.C. NDP government has brought in several tax measures to curtail foreign and domestic housing demand, Ley is not alone in warning governments can’t put too tight a squeeze on prices for fear of causing a market crash.
“It’s important that unsustainable price inflation be stopped. But too extensive and rapid a decline would destabilize the market in terms of household and corporate debt, unemployment and tax revenues. … The NDP do not want to destabilize too much an economy and tax base that have become dangerously dependent on real-estate sales.”
Steve Saretsky, a B.C. analyst and realtor, says policy-makers try to avoid a hard landing because it would be too painful in the short-term for people in a consumer-based economy that over-relies on mortgage debt and real-estate transactions.
“The NDP, love them or hate them, have actually followed through with everything they said they would do on the housing file. And (polls show) they seem to have political support.” The NDP will stay the course, Saretsky predicted, barring a severe housing slowdown and job layoffs.
While a “soft landing” is a real thing in the world of aviation, Punwasi suggests it can seem like “gibberish” in housing. “The concept implies that irrational markets will act rational if the government tells them to,” said Punwasi, who notes Ontario politicians have failed to resolve any of Toronto’s affordability problems.
Many continue to hope governments and businesses will do what they can to create a bona fide soft landing in Metro Vancouver and other cities with over-priced real-estate markets, which have been fuelled by population growth, limited supply and governments and developers encouraging foreign investment.
One thing politicians and businesses could do to increase affordability would be to boost incomes in Metro Vancouver, which has relatively low wages, says Saretsky. “But that has been largely unsuccessful for the past several decades. The cost of living, especially housing, is growing faster than real wage growth, hence the frustration.”
Prime Minister Justin Trudeau recently promised to “limit the housing speculation that can drive up home prices” by placing a one per cent tax on vacant homes owned by foreign nationals who don’t live in the country. The federal NDP is pushing for a 15 per cent tax on foreign buyers. And both parties, in a minority government situation, are also talking about building social housing.
But some real-estate insiders are not impressed with such spending and tax promises, and others doubt Trudeau and NDP leader Jagmeet Singh will follow through. A highly informal Postmedia Twitter poll, for instance, found only 22 per cent of respondents believe Trudeau will bring in his anti-speculation tax.
Will #JustinTrudeau live up to his promise to bring in a 1% tax on vacant homes owned by non-Canadians, to help prevent foreign speculation driving up housing prices? #CDNpoli #BCpoli #BCNDP #torontorealestate #vanre #onpoli #ableg https://t.co/TfibwqfGSF
Yet creative government policies will undoubtedly be necessary to bring about the kind of soft landing that will make housing anywhere near affordable for local wage earners in Metro Vancouver, Victoria and Toronto.
Ley, author of Millionaire Migrants, says government action has been effective in other “gateway” cities like London and Singapore, which also attract foreign capital and well-off migrants. Royal Lepage recently reported foreign-born newcomers buy up 21 per cent of Canada’s overall housing, and a much greater percentage in Metro Vancouver, Victoria and Toronto.
If prices don’t fall further in Canada’s top urban housing markets, Ley says, governments will soon need to accelerate social-housing construction “and tighten the taxation screws. As Singapore does.”
Twitter.com/@douglastodd