Do high priced cities attract the wealthy?
Despite the fact that house prices have spiked across the country during this pandemic, there are still radical differences between prices between our most expensive and cheapest markets. The chart below shows the difference between Victoria average prices and several major cities.
I’ve written in the past about the wealthy buyers in Victoria, with data showing that while Victoria as a retirement destination has more all cash buyers than most cities and we certainly are influenced Vancouver overflow, our high house prices seem to be fueled by a proportionate level of mortgage debt. However recently I was interviewed about why millennial home ownership rates in Victoria are the lowest in the country, a topic we discussed a couple years ago. While there isn’t an obvious answer, my theory is that we have an unfortunate combination of high house prices and relatively low levels of wealth which contributes to our low ownership rate for millennials. Toronto and Vancouver both have more expensive houses and higher millennial ownership rates, but they’re also both global cities and likely have access to greater wealth or at least have longer tails in the wealth distribution.
It’s difficult to really test this theory, because of course real estate values and wealth are highly correlated. Given most are home owners and have owned for some time, if the value of your house goes up, your net worth rises too. With the notable exception of Ottawa where people have a higher net worth than their houses would indicate (something something politicians), this is clear in the data. Victoria doesn’t appear here as it often doesn’t, as StatsCan considers us somewhat less significant than Winnipeg or Edmonton and thus not worth breaking out in the data.
But what happens if we remove real estate holdings from net worth? Are people that live in more expensive cities also wealthier in other assets than those in cheaper cities? As it turns out: not really.
The clear relationship between house prices and wealth breaks down when you factor out the real estate itself. Even disregarding Ottawa, Vancouver families have about the same non-real estate wealth as those in Edmonton, and Toronto is on par with Winnipeg. The extra wealth that families in high priced areas have seems to come entirely from the appreciation of that real estate itself, rather than wealthier people flocking to those high-priced centers.
An increase in price decreases future expected returns so just the fact that we’ve seen a big runup in recent years will decrease expected return in the medium term. We’re also at or near the end of a multi-decade period of declining rates which I suspect will initiate a secular decrease in long term real estate appreciation rates. Those wanting to buy now in the expensive cities need a lot more existing wealth to start, and building it through real estate will probably be more difficult going forward.
Also the weekly numbers courtesy of the VREB:
| May 2021 |
May
2020
|
||||
|---|---|---|---|---|---|
| Wk 1 | Wk 2 | Wk 3 | Wk 4 | ||
| Sales | 259 | 532 | 793 | 457 | |
| New Listings | 365 | 716 | 989 | 1095 | |
| Active Listings | 1495 | 1505 | 1462 | 2544 | |
| Sales to New Listings | 71% | 74% | 80% | 42% | |
| Sales YoY Change | +151% | +178% | +141% | ||
| Months of Inventory | 5.6 | ||||
A surprising uptick in sales in the last week at the same time as new listings faltered brought the sales to new list ratio up to a level we haven’t seen since March and also reversed a multi-week trend of increasing inventory. I doubt this is more than temporary, but another reminder that despite the slight cooling in activity, you definitely don’t want to jump to conclusions until you’ve seen a trend hold for some time. I’ll dig more deeply into the stats in next week’s month-end post.
The increased stress test is coming into effect in 6 days, which will reduce purchasing power by about 4.5% for any regular buyer. Some of the recent sales may be motivated by that deadline, as deals signed before June 1 can still be qualified under the old rules. Wealthier buyers of course are not affected as lenders regularly make exceptions for those well qualified.
The last 30 measures to restrict demand didn’t solve the problem, but I’m sure this one will.
New post launching Houses for Living. https://househuntvictoria.ca/2021/05/28/houses-for-living-and-lots-of-them/
Next post Tuesday for the month’s stats.
I have never seen as much compulsion to keep up with the Joneses as in Alberta. Everyone was previously accustomed to making huge money in the oil fields/Macmurray etc. Everyone has new trucks (multiple per family), new toys and a need to get out of dodge for the summer.
Should be “not the epicenter of high paying jobs.”
I don’t have the stats at hand, but I seem to recall reading that consumer spending levels in Alberta are the highest in the country.
And on late-model pickup trucks, perfect for grabbing groceries at Safeway.
Does not inspire confidence:
Calgary and Edmonton have younger populations than Victoria, in particular far fewer seniors. Non-house net worth increases substantially with age.
Regardless of whether 2M is still an appropriate “cutoff” for luxury homes, there is still a massive uptick. Almost certainly a result of the pandemic, with so much other “luxury” spending like travel, dining, & entertainment being curtailed consumers may be shifting their luxury dollars to a fancy mortgage.
Yeah tough to define for sure. Any fixed price cutoff has an inherent problem but no matter where you put the cutoff the same trend line appears post pandemic. It also started before prices went ballistic so it’s not just because of increasing prices
How do you define a “true luxury house”? Price is some multiple of median SFH? Some multiple of local median income? Sqft? Amenities/finishings/features? Lot size? Postal code? All of the above?
The subjectivity and nuance seems daunting to accurately track. Unless we reframe it as Expensive Home Sales and just go on price.
With the uptick in price I guess one has to continuously move the “cutoff” for luxury higher.When I moved here in 2008 2,000,000 would have got you a true luxury house or else a decent house on a lot of land out in some of the more rural areas.
For sure 2,000,000 still gets you a really nice place but maybe not what a lot of people would call “luxury”
This chart continues to amaze me. In 2017 I spoke to a WSJ reporter about the increase in luxury sales in Victoria. Just look at it now.
I wonder. In the 2017 Census the median income for families was $102K in Calgary, $101K in Edmonton and $95K in Victoria. Yet, the people in Calgary and Edmonton’s net worth excluding equity in their homes is less than in Victoria. Houses in Victoria are over twice the price to purchase than in those two cities. Do homeowners pay their homes off in half the time? Doubt it. If they do, that would be one thing…but if they don’t…..why don’t they have a heck of a lot more savings than those homeowners in Victoria? I guess without forced savings in purchasing a more expensive home, a lot of Canadians just throw it away on cell phones and fancy coffee.
This table is apparently from BC stats. Assuming the data can be trusted the city of Victoria is most definitely the jobs centre of the region.
By a mile.
https://www.victoria.ca/assets/City~Hall/Mayor~Council/Documents/Victoria%203.0%20EAP_MAY%2023%20DIGITAL.pdf
New stats on forced moves. Greater Vancouver has the worst record on purpose built rental construction in the country, and highest forced moves. I’m sure it’s a complete coincidence.
https://doodles.mountainmath.ca/blog/2021/03/29/forced-out-in-canada-new-data-from-chs/
Thank you Leo. You are a real gem when it comes to stats/ I am assuming that that is the number for greater Victoria, I was actually trying to find city of Victoria. A banking friend was suggesting that the CoV is not the epicenter of jobs that people assume it to be. It may be that the CoV has not so much lost jobs as other areas have increased their job market.
Multiple bids flood Sooke’s red-hot real estate market
https://vancouverisland.ctvnews.ca/multiple-bids-flood-sooke-s-red-hot-real-estate-market-1.5446096
Yes. https://www150.statcan.gc.ca/t1/tbl1/en/cv.action?pid=1410037801
See below image. Note these are estimates from the Labour Force Survey, and a 3 month moving average. There is no actual source for “counts”.
Does anyone know of a site where there is a count of the actual number of full time jobs in Victoria?
3927 Orchard Lane sold in 1 day at listed price of 1.4M seems like a steal compared with some of these other recent sales.
I can’t wait till I get old enough that I find change impossible. Bike lanes, we didn’t have bike lanes when I was young. We’d walk uphill both ways in 6ft of snow…
Makes sense, but if it’s a continuous roof then I assume it’s not practical to replace just the piece above your unit. I guess you just have to come to an agreement.
Edit: some info here: https://forums.redflagdeals.com/townhouse-roof-neighbour-not-wanting-do-potential-issues-2287249/
SomeGuy and Caveat Emptor: I believe that about it being a very vocal minority. I moved here from Vancouver 5 years ago and thought the commuter cycling options were great. I was shocked by the shameful vitriol against Mayor Helps about bike lanes and the pro-car attitudes. I love how Victoria is changing for the better, but the entitled, nimby, boomer voices are a nuisance.
“How does common property like the roof get maintained, just via informal agreement between neighbours?”
Hmm. My understanding is that there is no common property other than the party wall which is subject to a party wall agreement. You own the roof above your unit, so you have to maintain it/replace it.
Does anyone know how freehold townhouses work? https://www.uplist.ca/h/ChrisEsbati-984-Firehall-Creek-Rd
No strata fee, no strata title. How does common property like the roof get maintained, just via informal agreement between neighbours?
Sure. The actual market price is 10% less than the nominal price, so they’re really not giving you anything.
Don’t take it from me, take it from a lender.
Just going by the pictures 2604 Roseberry looks like really good value for Oaklands at 1.299, given recent sales. I’ll be interested to watch this one.
Down payment matching?
I received an email from Chard developments yesterday about their new development called Haven. They talk about how if you put 10% down payment they’ll match the other 10%. Does anyone have any details on how this works?
Interesting co-ownership proposal. I’d be investigating if this was 20 years ago. https://earthsong.eco/about
I think a proportion of Victoria folks just have a knee-jerk opposition to anything new.
On the subject of bike lanes I remember vocal opposition even to the Dallas Road bike lane. These lanes took up no roadway space and just a handful of parking spots. They have actually improved Dallas Road traffic flow by taking slow bikers off the road. They were subsidized by the broader region as they were part of the sewage project. All around it seemed like a no-brainer amenity in a tourist focused city to put another path along our most beautiful and accessible waterfront.
Now that they are built they are predictably seeing lots of use by bikes, rollerbladers, skateboarders, dogwalkers, strollers, mobility scooters, etc.
City of Victoria – 258 kilometers of roadways,
Bike lane network once complete in 2022 – 32 km
Those bike lane haters are sure hard done by…
Or maybe it’s just a clothier that is dealing in brands/fashions that aren’t that popular anymore with the people who like what else our downtown has to offer?
Seems like there’s broad support for our council + mayor. Cities change and grow. We can’t entomb Victoria in amber to satisfy peoples’ yearning for the olden days.
MacT: I agree with your sentiment, but don’t be so hard on our city. Victoria has, as of 2016 anyways, the greatest percentage of cyclist commuters out of any Canadian city. The bike lane complainers represent a very vocal minority of the population and fall under a larger envelope of people who don’t bother to consider that the existence of a service or facility that they don’t directly use may both: a) benefit them indirectly, and b)benefit society as a whole.
Safer for who?
Bike thefts on the rise in Victoria, owners turn to Facebook to find them — https://www.cheknews.ca/648099-bike-thefts-victoria-facebook-648099/
It look like social engineering is working out perfectly, and people are voting with their wallets.
Cities that provide high paying jobs and good economy attract hard workers and talents. Cities that handout free needles, drugs, and accommodations attract the bottom of the barrel and SJW.
The challenge would be where to move to find better biking. UBC research rated Victoria as the most bikeable city in Canada. This study was done about 10 years ago, and things have improved since then.
https://www.cbc.ca/keepingcanadasafe/m/blog/bike-friendly-places-canada
“UBC’s Cycling in Cities Research Program examines how people can be encouraged to cycle, and how our cities can be made safer for cyclists. Their research recently ranked 10 Canadian cities in order of their "bikeability."
The top bike-friendly Canadian cities are*:
Back to housing now, is there any way of actually knowing how many of the sales over two million are to people from out of town?
MacT: But it would be so much easier for you to move and instantly get what you want. Being surrounded by some many people who just dont see it your way must be really difficult. Dealing with people who either hate or resent you must be draining.
Barrister: nope, time for the city to change.
MacT: I see you point of view, time for you to move as soon as possible. Anywhere else is better for you.
Only in this bizarrely narrow minded, backward city are people against bike lanes and not even embarrassed about it.
Poor Wilsons.
There is a category for people who earnestly try to run a downtown business in a city where the council has decided that bike lanes and statue-virtue-signalling trump the responsbility to enforce civil order.
Cannon fodder.
W&J Wilson closing its Downtown Store:
https://www.timescolonist.com/news/local/after-159-years-w-j-wilson-leaves-downtown-will-focus-on-sidney-and-oak-bay-stores-1.24323072
Not really. Social housing means 100% rental to low income, run by the government (or NGO). A for- profit rental that is 70% market and 30% non-market wouldn’t meet that definition. More people would support the 70/30 idea if Vancouver didn’t confuse the issue by mislabeling it “social housing”, a term people correctly associate with government run, 100% low income.
Cambridge dictionary definition https://dictionary.cambridge.org/dictionary/english/social-housing
“ houses and flats that are owned by local government or by other organizations that do not make a profit, and that are rented to people who have low incomes”
This is funny.
Broadly speaking “social housing” means non-market priced housing. It doesn’t mean that the residents are afflicted with anything other than an inability to meet market prices to buy or rent.
https://www.straight.com/news/city-of-vancouver-proposes-to-shelve-rezoning-rule-for-social-housing-in-neighbourhoods
What did 3343 Curlew St sell for?
Good point. The other 70% could be luxury apartments, rented out for big $$$$.
I think they could find some good renters making < $55,000 income per year to rent the other 30%, probably at near-market rents. As an aside, Vancouver shouldn’t describe this affordable housing as “social housing,” as that has a different meaning.
I think in the vancouver case the other 70% would be market rentals.
Neighbourhood character, no public hearings for each building means losing democracy, shadows, affordable housing yes but not here or now or ever, non-profits are evil money makers (?), we’ll wait for the city-wide plan, not affordable enough, etc
In other words: Not In My Back Yard.
I am seriously concerned that housing will strangle our economy. People have forgotten what an extended economic downturn is like but this misallocation of capital and struggles to house ordinary people will be a real drag.
Agreed. Those “social housing” buildings would just need to reserve 30% for rentals to people with gross household incomes below $55,000 (for 1 bedroom) to below $83,000 for a 4-bedroom. The other 70% can be sold as luxury etc.
This seems reasonable to me, to reserve some units as rentals for the many hardworking people that make below average income.
Victoria social housing definition has similar limits. ($44,000 for 1 bedroom, $81,000 for 4-bedroom ) https://www.bchousing.org/publications/2021-Housing-Income-Limits-HILs.pdf
I see. I wonder why there was so much opposition then?
This motion was not about supportive housing. Social housing as defined by Vancouver is 30% subsidized units, 70% market. That’s it.
I think the problem is that supportive housing is not something that everyone thinks is a great bare minimum solution. And when you are talking about the most “vulnerable”, this is a mixed group and some of the them have dangerous predatory behaviours – both to neighbours and other residents of supportive housing.
It seems like the issue of criminal behaviour, mental illness and addiction are being combined in a way that is bound to create issues. I think there would be more broad-based support if there was stringent screening and those that could function as neighbours with support were housed in supportive housing, those needing addiction treatment were given this first, and those with serious mental illnesses were not brought into neighbourhoods if not stable and, instead, there was a institutional response with adequate medical resources for both mental illness and addiction.
Finally, if someone is engaging in criminal behaviour the underlying cause needs to be examined. If it is a brain injury causing behavioural issues that cannot be controlled with medication, supportive housing in a residential neighbourhood might not be the answer.
Ginger Goodwin is spinning in his grave no doubt.
Wow they didn’t like their source eh?
“I can understand why some people are worried about what’s happening in Cumberland with affordability, but affordability depends on what your budget is,” Lister says, displaying typical realtor logic.
Growth hasn’t been all bad. In fact, it can be viewed as a function of a town that is doing many things right. Brown and certainly Lister, who won’t sneeze at the handsome commissions, agree on that.
Well the lefties voted in favour so at least they can’t be accused of hypocrisy. Greens and NPA/ex-NPA Independents (righties) voted against.
Tragic that Vancouver can’t even do the bare minimum on housing for the most vulnerable.
https://www.capitaldaily.ca/news/from-coal-to-cool-cumberland-booms-again
Very interesting charts and information. What I think it shows is, it is easier to increase net worth through real estate investment than working your fingers to the bone. High taxes have always provided an disincentive to work harder, as far as I’m concerned. The work required to buy a property with someone else’s money and watch it appreciate while receiving monthly rent to cover costs is negligible compared to the work required to save up the cash for the down payment. That’s what makes it so enticing. I have to admit that the majority of my net worth (maybe 75%) is the result of property appreciation, not hard work.
Thank you Chris Logan and MacT!
Hey Abby, “What did 3460 Sparrowhawk go for?”
$1,150,000. 17% over list, 48% over assessment
3460 Sparrowhawk $1,150,000
What did 3460 Sparrowhawk go for? Thank you!
Ottawa has historically had low RE prices for a major city, and high incomes. It’s not a city where people have expected to get rich owning RE and it’s not a big city for amateur investors like Vancouver.
That’s the reason for the large non-RE wealth compared to other cities. Keep in mind there are not only federal workers with DB pensions but a lot of tech workers who have built wealth through stock options and RRSP contributions.
“The extra wealth that families in high priced areas have seems to come entirely from the appreciation of that real estate itself, rather than wealthier people flocking to those high-priced centers.”
Either that, or after a certain level of wealth accumulation people are likely to start considering further investment in real estate. This could also potentially explain the Ottawa outlier, as it is largely populated by government workers who have much of their net worth locked up in their DB pensions.
That last line. LOL.
30th time’s the charm, I’m sure.
As always, great analysis Leo! You put so much work and effort into this blog.
I don’t know how to quote articles properly but this is a very good one with lots of interesting info:
” Point 2 – May 24th, 2021″ “Top Millenial Hot Spots in 2021 – 85 Cities Ranked”
In 2018 Victoria was in the tope 3 as the most desirable urban centre for young people to live. Three years later, in 2021 it has slipped to #8 position.