Are the rungs in the property ladder growing further apart?
You’ll often hear said that you want to get on the “property ladder” as quickly as possible. Buy a starter property, then ride any price gains upward and upgrade the house when you can. Is that really true? And do price gains help you upgrade to the next house? Let’s take a look.
First of all, it clearly has made a lot of sense to own an asset that has appreciated at an annual average of about 3.75% after inflation since the 60s, especially with leverage which is readily available at low rates for real estate. No one knows whether this will continue in a very different interest rate environment, but it’s clear that the entire ladder has been moving up for a long time and it’s been beneficial to grab the bottom rung in the past.
The problem then for those on the first rung is climbing that ladder over time. It appears that within the spectrum of house prices, each level within the same product type appreciates roughly at the same percentage rate. The problem for upgraders is that if you start with two different numbers and grow them both at the same percentage rate, they will get further and further apart over time. This is evident if you compare the sales distribution from before the current runup to now.
Back in 2014, an owner in an entry level detached could have sold for $357,000, and with an extra $194,000 they could have jumped all the way to the median house.
The same owner in 2021 could have sold their entry level home for a staggering $729,000, but now it costs them $321,000 to upgrade to the median house, which has jumped to $1,050,000. Even though in this sales set the median home appreciated slightly less on a percentage basis than the entry level home, the gap in dollar terms still grew by well over $100,000.
I’ve seen lots of people get excited about gains in house prices and start dreaming about using all that new equity to upgrade, but perhaps counterintuitively, an increase in house prices is actually bad for upgraders. If you want to climb the property ladder more easily, you actually want prices to come down or at least stay flat. Exacerbating that is that transaction costs and taxes are usually calculated as a percentage of the selling price which works against the upgraders as well as prices escalate. There are of course some exceptions once you factor in the potential to move into or out of CMHC requirements, or that price declines can put you in negative equity, but in general it’s true that it’s easier to upgrade if prices don’t jump.
That’s even more true now as even low end single family prices have moved well outside what most can afford as a starter home. That means a condo is more often the starter, and in the long term those have been losing ground to single family homes. You may think that 40 years of dropping interest rates have kept this upgrade cost mostly constant in terms of carrying cost, but that is not the case. While interest rates helped, the upgrade path from condos to detached homes has been getting steadily more difficult for decades.
No matter what happens to prices from here on out, there is no particular reason to expect this trend to change in the future since condos are not fundamentally supply limited like single family is. However the upgrade premium tends to follow the real estate cycle, with substantial increase in the premium during price runups. The good news then is if we’re about to enter an extended period of stagnant prices which I expect, the premium to upgrade from a condo to a house should stay stable or decrease going forward.
Most people upgrade from a condo when they need more space, often for a family. The long run increase in the upgrade premium is another indication that we need abundant family-suitable homes that fill the gap between condos and detached single family.
Also the weekly numbers courtesy of the VREB:
| June 2021 |
June
2020
|
||||
|---|---|---|---|---|---|
| Wk 1 | Wk 2 | Wk 3 | Wk 4 | ||
| Sales | 168 | 808 | |||
| New Listings | 279 | 1430 | |||
| Active Listings | 1495 | 2698 | |||
| Sales to New Listings | 60% | 57% | |||
| Sales YoY Change | +68% | ||||
| Months of Inventory | 3.3 | ||||
As I suspected, the surge in activity to end May was temporary. Sales continued a drop last week and the sales to list ratio relaxed substantially as well. Sales for the past 14 days were 16% ahead of 2019 levels, compared to the 60% ahead of normal we saw earlier in the year.
We’ve seen the usual bump in new listings to start the month, but sales have yet to turn up as those properties are absorbed. I’m sure we’ll have upswings in sales again since we are still desperately short of inventory, but it’s clear the frantic pandemic market is subsiding along with the pandemic itself. Impossible to say yet if this is due to the stress test nibbling away at buyer’s purchasing power or just a continuation of the cooling trend we’ve seen for several weeks.
Half of houses still went for over the asking price last week, down from the peak rate but we will need months of inventory to go above 2 before this calms down substantially.
New post: https://househuntvictoria.ca/latest/
NIMBYism unites the left and the right
I see a lot of feel good talk and not many specifics. I do see this. The whole point of rental zoning is to make the land value less expensive than it would be if condos were permitted:
The following would give a tax break to speculators holding older or underbuilt rental properties for future development. Also note that in BC properties are assessed at market value, not “highest and best use”. The latter is a dog whistle to the right.
Quite clearly in 2020 the urban electorate judged the BC Liberals by their performance in office from 2001 to 2017. A wolf with a nice smile is still a wolf.
Huh, it’s almost as if left wing policies have made things worse…
We’re focused on local government, elections next year. Maybe it will expand to provincial at some point. I do like some of the proposed actions the liberals had last election.
“Very disappointment in Andrew lately”
Wasn’t this guy a candidate back in 2016 under the same banner as ultra-NIMBY Stephen Hammond?
“ If that’s too political, you could at least sign this petition to the BC government to “Stop blocking BC rental housing”
What does the BC NDP have to do with a decision by city council to reject a rezoning application? Minister Eby supported that development btw.
Why wait until elections for a “big push”? Start with a small push. You should publicize housing policy differences between the parties, to the extent that they take a different approach to housing.
For example, the BC Liberals housing plan for rental housing. It includes many of the ideas you’ve discussed here, including specific funding, zoning changes and tax incentives for rental housing.
(Page 20) https://www.bcliberals.com/wp-content/uploads/2020/09/BC-Liberal-Party-2020-Platform-Restore-Confidence-Rebuild-BC.pdf
If that’s too political, you could at least sign this petition to the BC government to “Stop blocking BC rental housing” https://www.bcliberals.com/rentalhousing/
It would depend on how much they are leveraged on how quickly it would be cashflow positive. If they have 0 leverage and are using only invested money, being cashflow positive is a very low bar.
Sounds to me that they are just trying to take advantage of dumb money and make a quick profit off management fees.
Condo developer plans to buy $1-billion worth of single-family houses in Canada for rentals
https://www.theglobeandmail.com/business/article-condo-developer-to-buy-1-billion-worth-of-single-family-houses-in/?ref=premium
Sorry, it’s behind a paywall. FYI, here’s how I get past them:
https://github.com/iamadamdev/bypass-paywalls-chrome
Do the councillors not understand the economics of a large construction project: the jobs created, the investment, extra business activity, etc…. I guess they live in their own little overpaid world.
Great idea.
Not only that, as the situation gets worse and worse land values and construction costs increase. That means developers have to propose bigger and bigger projects to make a profit which will be a larger and larger jump from the density of the surrounding neighbourhood and attract more complaints about greedy developers.
We could have done it in a gentler way if we wouldn’t have ignored the problem for so long
Problem is no one knows what these councillors do. We are tracking voting records and will publicize them and do a big push when it comes to elections.
Very disappointment in Andrew lately…there is simply no hope. The people electing these officials do not understand basic supply/demand concepts and hence the elected officials do not understand either.
In my estimation it cost the developer 250k to 350k to get the rezoning paperwork, only to be voted down by one vote. Strongly encourage everyone referencing to developers as “greedy” to give it a try. Reason they have to be so greedy is the risk in insane.
Stephen Andrew: “ to bring rents down, or at least hold steady, we need to keep building more housing, of all types, across the city and continue to focus on bringing purpose built rental projects, and non-profit projects, through the approval process efficiently.”
Also Stephen Andrew: Votes no to a very modest rental project
Yes. Many parts of Vancouver were down zoned in the 1970s
If a city council voted to upzone a certain area, couldn’t a future council theoretically vote to downzone that area?
Another solid re-zoning application voted down 5 to 4 -> https://tender.victoria.ca/webapps/ourcity/Prospero/FileDownload.aspx?fileId=1C522BDE-CEAE-4D41-9D60-1BCF886501D2&folderId=34210C190612150748671298
I do not think anything will change in my lifetime. Might as well just take advantage of the idiotic situation. It is like savers complaining about government giving near free mortgages. It sucks but learn to adapt to the system you are operating within. If the government is lending you at 2% and you can obtain 4% return take advantage of that.
NIMBYs is here to stay.
Agreed, some sort of evaluation like that makes all of the difference.
The current system provides great incentive to NIMBYs to complain to achieve their goals. Upzoning removes that entirely,and provides unrestricted incentive for developers to make as much profit as possible. This will lead to more units being built, yes, but it’s not a proper alignment of incentive (max profit) and end goal (affordable family housing). An analogy would be health care in the US, where the ultimate incentive for providers is profit rather than patient care. Yes, people still receive health care in the end, but the system has serious flaws. Aggressively upzone within a coherent city plan and then unleash developers to maximize profit within the boundaries provided.
I think Lisa Helps is actually someone who is attempting to execute a plan like this, but most of the rest of council is either too anti-developer or too NIMBY to let things move along quickly. It feels like a miracle that the bike lane network has made it as far as it has given the noisy opposition to it.
Yep that would be good too. proposed development sites are scored based on proximity to amenities like transit, commercial, active transportation, schools, parks, etc and then approved if they’re above a certain threshold.
It doesn’t address building our new centres but it’s a good start.
Anything is better than our current system where the loudest neighbours are given the most weight in the decision
“It absolutely does. Energy use per dwelling is way down compared to a detached house.”
I mean, yeah, definitely it’s more energy efficient to construct and run higher density dwellings compared to a SFH. But a higher density building built 10km+ out of the core, with the majority of the residents driving to get to work/groceries/other errands signifcantly or entirely negates the benefits.
“You can’t isolate density so this is a bit academic. AAA active transportation and commercial comes to where usage and customers will be highest (i.e. density).”
That’s one way of looking at it. Perhaps a better plan would be planning certain areas to become higher density and then building supporting infrastructure/densifiying in tandem. Otherwise you’re sort of hoping that densification happens in a coherent manner on its own? Brisbane already tried this, and it didn’t work.
It absolutely does. Energy use per dwelling is way down compared to a detached house.
You can’t isolate density so this is a bit academic. AAA active transportation and commercial comes to where usage and customers will be highest (i.e. density).
Municipality single family prices.
“Allow people to live more sustainably. The climate is global. The more sustainably we can house people here rather than them living in a house in Calgary the better.”
Increasing density alone does not improve sustainability. As an isolated factor, density does not, for example, lead to more public or active transportation usage. What does lead to that are the amenities normally associated with areas of increased density (mixed-use developments, for example). A random smattering of individual higher-density developments throughout a city doesn’t really help this.
Ref: https://www.researchgate.net/publication/303635728_Impact_of_neighborhood_design_on_energy_performance_and_GHG_emissions
Hard to redevelop without capital and most people would be better off buying a house with a suite in terms of stress and monthly cost. If you need to sell to a developer to experience the gain I would expect that the roi is less predictable than a SFH with a suite.
“I like Saanich better, but depends on how large of a lot I guess. Dev potential or not?“
Definite dev potential as it’s zoned duplex and in a very attractive area .
Are people fleeing urban blight?
”
‘
My guess is more younger renters moved back home when they were let go from their jobs, or wanting a safer covid environment, I met several clients whos kids moved back home in the last year so that would be a net loss in Vic and net gain in suburbs
LeoS
Can you post them again, what I saw seemed to just be the total jobs for greater Victoria. Sorry if I missed the break down. greatly appreciated.
It’s interesting that Langford, Sooke, Colwood, View Royal, Saanich and Oak Bay are up a lot over the past year. Meanwhile, the population of Victoria has actually declined.
Are people fleeing urban blight?
Yup, makes sense from your point of view.
I don’t quite follow. Are you arguing that population growth increases economic diversity? Because we’re going to have population growth regardless of how much we densify.
And your positive example of local tech job creation occurred over a 20-year period during which Victoria didn’t densify very much at all.
You’re right. If it was up to me I’d say the federal and provincial governments have to act to limit the power of local governments to obstruct housing. The reason I’m not focused on it is that it feels like there is exactly zero interest from the federal side to do that, and near zero on the provincial side. That’s why I’m focused on the local side where it feels like it could be reachable within 1 or 2 local election cycles (so 1-5 years)
I’ve seen it first hand. When I got to Victoria 20 years ago to study engineering it was understood that you would have to leave Victoria after graduation. Tech jobs were few and far between. Now there are lots.
I like Saanich better, but depends on how large of a lot I guess. Dev potential or not?
I posted them last time we had this discussion
Maybe scarce as a % of all households but probably not scarce as a % of houses available. You have to keep in mind that these people will have to compete with people that have and make “real” money who love real estate. I think you need both demand and supply side intervention from government to fix this.
I also referenced semi successful on a normal career trajectory, not a drone who is stuck in the same job for 10 years just satisfied with CPI raises.
There seems to be an assumption that most people who live in the West Shore commute to work to City of Victoria. How true this actually is I am not sure and I have not been able to find stats on even how many full time jobs are actually in the CoV, There seems some stats for greater Victoria but not each individual municipality that I have been able to dig up.
I already know two people whose jobs have actually been moved to the West Shore. For that matter how many jobs are actually in Saanach and not C of V.
I dont know what the numbers but I am questioning the assumption that the vast majority of jobs are actually in the C of V, At least it would be nice to know where the jobs are these days.
Valid.
That’s a touching aspiration, but see my response below.
Valid. However, I’m not cool with Victoria trying to solve global/national problems in isolation at the cost of many current Victorians’ quality of life. Steps to “solve” the housing crisis must be undertaken in all major Canadian cities simultaneously in order to fairly distribute the negatives associated with densification and avoid relatively large net migrations of people from any one area to another.
Yes, demanding a pan-Canadian approach doubles as an excuse for local inaction, but that doesn’t mean that it’s not what is needed. If all cities are to varying degrees facing a housing crisis — which they are — then it stands to reason that what is required is a well-coordinated and planned nationwide approach.
I think you’re reaching.
I referenced a survey from the CIty of Vancouver performed for a major economic development bid. And what other surveys am I “always” referencing? Have you confused me with someone else? The census is not a survey BTW.
I do know a lot about IT, I’ve been in it my whole working life. It’s uncommon for people not in leadership positions to get more than 100K in Vancouver. Yes with 10 years experience. Go take a look around Glassdoor.
I don’t claim to know much about other professions, but I can look at census data and see that >200K households are relatively scarce in Vancouver.
Whenever my tenants move out, i am going to fence up the backyard so both the upstairs suite and the downstairs suite has their own separate private yard for use. I guess I could do this now but there is no point making the investment if i can’t charge anymore for rent than I otherwise could.
Ok patriotz, Looks I am going to have to give you some real world examples to counter these random poorly done surveys you seem to always reference.
I define semi successful professionals as people with a professional degree/designation that progressed through their career in a normal trajectory without any extraordinary breaks or jumps (be it luck or hard work). By mid thirties most people would have somewhere between 7-10 years of professional work experience.
Lawyers: all in compensation should be $150k+ at 6 year call. Source: ZSA recruiting https://www.zsa.ca/salary-guide/
keep in mind salaried associate lawyers typically have 20% bonus on top of salary. Again I am just looking at the ones that are still associates in their mid 30’s which is actually pretty old as the successful ones would have made partner by then.
Accountants: you typically would start out right from university so by the time you are in your mid 30’s you should be atleast at the senior manager level if you haven’t made partner yet. Total all in compensation at Deloitte vancouver is $165K (all big 4 will be very similar). Source: glassdoor https://www.glassdoor.ca/Salary/Deloitte-Senior-Manager-Vancouver-Salaries-EJI_IE2763.0,8_KO9,23_IL.24,33_IM972.htm#:~:text=The%20typical%20Deloitte%20Senior%20Manager,can%20range%20from%20%24126%2C021%20%2D%20%24165%2C533.
General middle management at decent sized companies: again, you either start off right after university or after you spend a few years obtaining whatever designation is required. I am going to use this random UBC job posting as an example: https://ubc.wd10.myworkdayjobs.com/en-US/ubcstaffjobs/job/UBC-Vancouver-Campus/Operations-Project-Manager—Change-Management_JR2522-1
Keep in mind that larger private companies (LULU, Teck, Telus etc.) will pay more than public sector ones. One should expect 120k a year for public sector job and 150k for private (in lieu of DB pension) in Vancouver.
I left out capital markets/institutional investment management jobs as those will all be well over 200k plus after 10 years or experience or else you would have been let go. I have industry knowledge in this sector.
Don’t know much about IT, but I seriously doubt software programmer or engineer with any reasonable competency will work for less than 120k a year with 10 years of experience in Vancouver.
As you can see most combinations of the above will get to a HH income of around $275k and there are lots of them in Vancouver.
Looking for input on the supportive housing going in on Prosser rd and one on Albina. Are these going to be staffed with support workers or are they more like homeless shelters?
10 year outlook would you guys rather have a small house in James bay on a big lot or a large house in Saanich with a basement suite ?
The induced demand theory. Part of it is true. Let’s say we magically made homes cost $100,000, we would certainly get tons of people moving here. However we of course won’t make them that cheap, but we might build lots of more affordable smallish but still family suitable homes. Some people will come to live in those homes, but many will still prefer to buy a cheaper much bigger single family home in Calgary. The demand is not limitless.
What doesn’t follow for me even if building increases growth is that this means building homes is pointless.
I can think of a few reasons we would want to build:
I think entire house or upstairs of a house (with 3 beds or more) and the yard. I think given the situation most upstairs renters+yard will accept a basement suite.
I also think renters, in particular, would rent a three bed townhome with a tiny yard as an alternative, but there really isn’t any of that either.
Marko, do you think its the entire house for rent that is currently in demand as opposed to separate suits in a house? or is it anything that is 3 bedrooms or more?
Wow, no regrets on losing out on that bid… The other person wanted it a 102k more than me…lol
I just don’t see it as a disingenuous argument. Take a look at the growth rates of the various municipalities.
Oak Bay at a long run average of basically 0%
Metchosin: 0%
Sidney and all the Saaniches: 0.5%
Somehow I forgot Esquimalt below but it’s 0.6%
Victoria: 1%
What happens when the demand for growth is say 1.5%/year and almost the entire core restricts growth to well under 1%? It spills over into Langford, where growth is 4% a year.
I’m not saying that Langford would have changed their politics with 1.5% growth instead of 4% growth. But the simple fact is, fewer people require less land to live on. If Langford was growing at a 1.5% rate instead of 4% most of this sprawl would simply not exist. Langford is the pressure relief valve for the entire region.
“Downtown core with all of the conveniences, drugs, homeless, and shared walls with neighbours. Or, SFH in the suburb where everyone have their own yard, and privacy.”
Core is usually used to refer to the core municipalities, e.g., Saanich, Oak Bay, Esquimalt, Victoria, etc. I don’t think the discussion is about the downtown core, which seems to be imagined as a post-apocalyptic wasteland by Boomers who never go there.
Perhaps we could do a poll to see where families prefer to live.
Downtown core with all of the conveniences, drugs, homeless, and shared walls with neighbours. Or, SFH in the suburb where everyone have their own yard, and privacy.
I’m going to spoil the future for you. In the long run, most of it will get opened up. At best, the speed with which we open up new lands for development will be slowed by densification elsewhere. At worst, we will hasten the opening up of new lands due to the induced demand created by densification and successfully housing more people.
If Victoria is too successful at accommodating population growth, we will hasten population growth (because one of the best cities in Canada is now so livable!) and we will never relieve ourselves of the pressure to develop never-before-contemplated greenfield land.
So you’re entirely correct when you say “this never ends.”
Indeed, many would choose the core townhouse. My issue, however, is with your disingenuous either/or proposition in service of your otherwise strong argument for core densification.
The case for densification is a solid one, so make it on its merits. But please don’t suggest that Langford would halt building on greenfield land if only different choices were made in the core.
Some of the stories from families in the rental market these days are heartbreaking. Paying $3400/month for a crappy house and doing all the maintenance themselves because they fear if they are a bother the landlord will sell it out from under them. Single mom working two jobs to afford $2600/month for half a house on one income.
As recently as 2013 we rented a whole house for $1850/month.
Condos are great and we need more of them, but we need secure housing for families.
Perhaps, but given the choice, how many people would buy a townhouse in the core instead of a small detached house on a small lot on a mountain in Langford? I bet if there was a lot of family-suitable housing choice in the core a ton of people would prefer to live there instead of further out and do the commute every day.
Less demand will absolutely reduce the pressure to move on these developments.
Right now the only option is to bulldoze the mountains because those people can’t live in the core, and so that is what gets done.
Could be done. The problem I think is that they’ll manage to ban development on the westshore and then forget about the allowing density part.
By the way this never ends. Right now we have land to develop on in the westshore. Perhaps the end of the decade that will be gone. Then there will be massive pressure to open up new land for development. Highlands, Metchosin, up the Malahat. That land is off limits now but with enough public outcry about prices it could be opened up. Is that what we want?
I am pro everything…flatten Langford and infill in the core. Due to our cultural there is going to be a huge percentage of buyers that will always simply demand a SFH which only the Westshore can supply. A lot of people will rather commute to Sooke than live in a townhome in the core.
I’ve thrown up some rental properties I own in the last few weeks for rent. Studio downtown at a super reasonable price imo, three inquires over a week. Crappy SFH I am planning on tearing down after rezoning….30 inquires in 2 hours.
Why? A TON of supply has been added in terms of rental studios/1 bedrooms/2 bedrooms
and we’ve added zero rental supply in terms of townhomes/duplexes/SFH.
I think Leo is 100% on the mark we need to start building family friendly rentals asap.
Barrister- I just googled Ladysmith average age and it came up 51. I guess it is mostly retirees and long time residents. It’s probably attracting younger people who can work remotely given the lower house prices. I suspect that’s why it is becoming so popular. I doubt prices will ever approach Victoria’s, but another $100,000 appreciation in the next couple years could be expected.
Leo, regarding your thread on Twitter…
https://twitter.com/LeoSpalteholz/status/1403209909177491463
You’ve set up a nice false choice between EITHER flattening forests in Langford OR densifying the core. Let’s tell the truth: Langford would flatten its forests for development irrespective of any housing policies enacted in the core.
The only way that false choice could be a real one is if Greater Victoria was all one city (amalgamated), and a conscious decision was made to preserve West Shore greenfield land IN EXCHANGE for allowing greater density in the core.
Amazon rumours continue to swirl in Langford and Sidney
https://www.timescolonist.com/business/amazon-rumours-continue-to-swirl-in-langford-and-sidney-1.24329389
Patrick, now you are destroying a really great myth.
Median age in Victoria is 42. (2011 census, all averages are probably a little higher now, but city rankings won’t change much). The oldest millennials turn 40 this year.
https://www.huffingtonpost.ca/2012/05/29/canada-census-2011-median-age-cities_n_1552429.html
Median age, by city ——-
Quebec City: 43.5
Saint John: 42.3
Charlottetown: 42.3
*** Victoria: 41.9 ***
Halifax: 39.9
St. John’s: 39.9
Vancouver: 39.7
Toronto: 39.2,
Ottawa: 39.2, Winnipeg: 39, Fredericton: 38.7, Montreal: 38.6, Regina: 37.1, Whitehorse: 37.1, Calgary: 36.4 , Edmonton: 36
I actually found that Ladysmith had a very nice “Andy of Mayberry” feel about it,
Is the local economy simply based on retired folk?
Victoria is where old people go to visit their parents.
Cruise ships began the idea of registering in foreign countries (e.g. Panama) not to get cheap labor, but to avoid prohibition laws (1920-1933) and be able to serve alcohol to passengers. The Jones Act (1920) and related bills made it harder for them do that by requiring the foreign stop.
Nowadays, it’s cheap labor, low taxes and less regulation (alcohol, gambling) that keep them flagging the ships in foreign countries. For a ship to be flagged in America, it needs to be built and staffed mostly by Americans, a high hurdle only cleared by one big cruise ship (Royal Caribbean Pride of America ) that putters around the Hawaiian Islands. Of course it has no casino on-board. And no alcohol drink packages can be sold.
It’s not a law to stop in Canada per se. It’s a law requiring domestic US shipping to use US crews (Jones Act). The cruise lines, which like to use cheap 3rd world labour, got around it by including a stop in Canada and making a trip to Alaska an international cruise.
Since even before moving here, I had heard the saying that Victoria is the city of the newlywed and the nearly dead.
Did Victoria ever attract newlyweds?
Are We 100 Thousand or Nearly 2 Million Units Short? — https://tinyurl.com/49sjd2xb
Odd, not long ago environmentalists were bitching about the polluting cruise ships at Ogden Point, and now they are lobbing for the diesel/bunker fuel to come back to Victoria.
Why did the law to stop in Canada get enacted in the first place? Seems weird
But if the passengers don’t want to stop in Victoria then why make them. Makes sense to me
Barrister- Glad to hear about the high prices in Ladysmith, I bought an investment property in 2005, it hasn’t been the most brilliant investment decision. Prices has been stagnant for years, it’s just in the last few years that prices have started to escalate. I read somewhere that it had the highest population increase in Canada for communities over 5000 people last year. My property manager said there are almost no places to rent and they get several inquiries every day. It maybe “the middle of nowhere “ but there are probably few homeless people, that is going to appeal to more and more buyers as Victoria’s problem only gets worse. Sometimes you have to wait a long time for an investment to pay off, patience is key to being successful. There are some great views on many streets in the town, that’s what impressed me.
Not a real surprise about the US Congress bill. Why leave American tourist dollars in Canada, If it passes we might rename Ogden point again which will fix everything. I imagine a few will stop along the way but most wont. For one thing you dont want to limit passengers to ones with a passport.
I dont think most US senators will object especially if they would be viewed as hampering a recouvery from covid effort.
Something I’ve noticed in my career….buyers that overanalyze somehow always end up in crappy houses in the end. It’s like their overanalysis burns them out or something. I’ll have clients look for yrs and then buy on a super busy street or similar and I am thinking wtf we looked at >25 other better houses that you overanalyzed and talked yourself out of and then you pick this?
Seriously? By what metric? Certainly not dwelling space per capita. Only the US has more.
Average number of people per dwelling? Canada is 2.4. The US is 2.53. The other G7 are lower in that respect, because they have fewer children – but they have smaller dwellings, particularly far fewer detached houses.
https://tinyurl.com/2fmtphxh
We have just gotten back from a fun drive up to Ladysmith. Did look at a real estate office window and was shocked at what they are asking for houses ing the middle of nowhere.
“Edit: 4369 Northridge Cres sell? Thank you”
$985,000
Edit: 4369 Northridge Cres sell? Thank you
Did 4369 Ridgebank Cres sell? Thank you
Oh please. For example:
Vancouver criticized for boasting about low pay of its tech workers in Amazon HQ bid
Just making the point that price appreciation, relative to a flat market, will usually result in a homeowner being able to put down a larger down payment (not just in absolute terms, but also in percentage terms) when moving up to the next rung of the ladder. So, for buyers where the amount of down payment is a key constraint in moving up the ladder, price appreciation could help.
I generally agree with the premise of Leo’s article, that price appreciation is usually bad if you are looking to upgrade. However, that is because for most buyers the negative impact on mortgage payments will trump the positive impact on % down payment when moving to the next rung. But that might not be the case for all – e.g. those with high income but low savings, who may otherwise struggle to make the required down payment needed to upgrade, depending on whatever minimum down payment rules are at the time.
Peter just saw that pop into my PCS today. It’s cute, similar to 679 Daymeer Pl which just sold for 700k. But Daymeer said it was a 3bed, was actually only a 2bed, and Capstone appears to be an actual 3 bed. Watching it and 683 Redington, thinking both go for 740k but if they don’t maybe there’s some hope out there for us.
PS Cadboro, what about 2641 Capstone Pl. in Langford? Looks really nice, and a lot of value for $689k (just browsing Realtor.ca….)
When did Victoria become a ‘hip’ city for youth to work in?
https://www.capitaldaily.ca/news/victoria-hip-city-for-youth-work
Developer scales down proposed $65M warehouse at Victoria airport
https://vancouverisland.ctvnews.ca/developer-scales-down-proposed-65m-warehouse-at-victoria-airport-1.5464812
In Vancouver, 2 semi successful working professionals in their mid thirties should have a combined HH income of around $275k, so you can do the math on what they can afford assuming they got anywhere between 300k to 500k for a down payment factoring in savings and equity from a prior condo or town house.
Sorry, I am not sure what you meant here. Are you meaning to say that if you bought in certain areas which appreciated more than other areas then it would make a trade up easier? I.e. like 7 years ago where there was no way anyone would trade you two older renoed Oakland houses for a waterfront home in south Oakbay/Gonzalez but now that is possible?
Lifestyles are not comparable. Houses were more modest, one car was the norm, people ate out much less often, people didn’t take vacations in Hawaii, Mexico, etc, kids wore hand me downs, no electronic gizmos except TV, radio, record player and phone on the wall.
But yes that modest house was affordable on one income.
“Sometimes you just have to go with your gut. Over analysis can be paralyzingly, you’d never accomplish anything.”
Totally. Adding up all those pesky numbers to calculate actual ROI can be a real buzzkill.
For sure, if you’re moving into or out of CMHC requirements it can change the equation slightly. In that case the buyer in the flat scenario would have to pay the CMHC insurance (and get a lower mortgage rate) or come up with the extra $32k
These should be legal everywhere
Yes, they’re poorer, just in one or two generations society has moved from both spouses having to work in order to support a lifestyle at all comparable to what one person used to be able to do. This isn’t meant to be judgmental about the value of work/career satisfaction vs. raising kids at home, just commenting on the economics.
We live in Vancouver (moving to the Island this summer). Friends at work are a young two-income no-kid professional couple earning something like $400k combined and with about as much in downpayment. They feel “ok” taking on a mortgage of 1.5 million (…). Keep bidding on older houses in East Van just under $2 million. So far, being outbid by people paying over $2 million with no subjects (last one they bid on, the house went for $700k over assessed).
This is why, if we can, we should help our kids (and why, as a society, we need to realize that bigger solutions should be considered) – the whole landscape has changed, it’s just not comparable to the prospects for getting ahead that we had when we were at that stage.
Josh: We are back to wondering who is buying the SFH in Vancouver? Obviously, people like my wife who immigrated here a few years back can afford it easily but is it mostly transplants? Are Canadians overall just poorer than a couple of generations back?
I kinda feel like that’s what happened in Vancouver though. Not in the literal sense but I don’t personally know anyone that can afford more than a small condo. Even then they have to be retirees or double income no kids professionals.
Sure, you can wade into something with just a gut feeling, but for a 6-figure asset I’d rather spend a couple hours running some numbers.
You’ll just have to trust me, I did it almost twenty years ago, the property was far superior and less risky from my perspective. I’m speaking from experience and don’t have time for minutiae, I’m too busy making money in a new investment. Sometimes you just have to go with your gut. Over analysis can be paralyzingly, you’d never accomplish anything.
Long time lurker here. Thanks for the excellent analysis as always, Leo. I used to be firmly in the “of course price increases are bad if you want to upsize” camp, but I think there is another important aspect that works in the opposite direction, related to the impact on down payments.
Consider the following example: Five years ago, a first-time buyer purchased a condo for $305K (June 2016 median price according to the graph in your last article), with a 20% down payment of $61K. The buyer would eventually like to buy a SFH (June 2016 median price of $644K). In the five years since, let’s say that all home prices have increased by 50% (actually very close to what has happened), and the buyer wants to upgrade to the SFH. Are they in a better or worse position to do so than if prices had stayed flat?
Scenario 1 (all prices have increased 50%): Our buyer’s condo is now worth $458K, while the SFH is now $966K. After repaying $35K of mortgage principal on the condo, they now have equity of $249K, and can put down a 26% down payment on the SFH.
Scenario 2 (no change in house prices over five years): Our buyer’s condo is worth what they paid for it. After repaying $35K of mortgage, they have equity of $96K – only a 15% down payment on the SFH.
Of course – as you point out – the mortgage is much less affordable in Scenario 1 than Scenario 2 ($718K vs. $548K), and in most cases that will make it harder to reach the next rung of the ladder. However, where the level of down payment is a significant constraint in reaching the next rung, price appreciation could make properties available to the buyer that otherwise would not have been. And yes, I know this is a bit of an oversimplification (doesn’t take account of transaction costs, etc.), but I think the point is still valid.
There is so much missing to substantiate your claim of that property being a “far superior” investment, even leaving aside the principal residence angle.
You didn’t speak to:
• specific carrying cost of mortgage
• utilities, maintenance + repair
• transaction fees buying + selling
• property management fees (otherwise it’s a job, not purely an investment)
• actual rental income (including income taxes on that rental income)
• rental utilization % (if it’s only rented 1/2 of the time, that’s impacting the numbers)
• capital gains on sale (if comparing to tax sheltered investments)
Also note that I am not claiming that it was an inferior investment – just that your claim is unsubstantiated until we see more data.
The property ladder only works if your income is growing faster than house prices.
It also works if interest rates keep falling, so you can borrow more money with the same income. Never underestimate the importance of this trend, or the implications of it ending.
I don’t consider this “working” though. This just allows buyers to borrow more on the same income and stupidly get into battles with other buyers to pay the most for a thing that has an intrinsic value long left behind. If you ever want to pay off that mortgage and live a peaceful self-directed life at any point, borrowing more on the same income just increases the principle that needs to be repaid, committing you to work for longer and lowering your quality of life and ultimately retirement.
I get it though – most people don’t see it that way, which is a shame. As I have pointed out on several occasions, too much Canadian GDP is reliant on persistent Canadian financial illiteracy.
No.
There won’t be shortage of places that are more suited to a car-heavy lifestyle. But if we densify in amenity rich areas we simply don’t have the space for all those cars, and that will attract those with fewer. Public roads as free parking spaces for private owners doesn’t make sense anyway.
I wasn’t talking about renting vs. owning, just investing, assuming one had already established a principal residence and was looking for investment opportunities. That was the initial comparison, don’t complicate the issue with other scenarios that were not mentioned.
would it be okay to still have “a mess of cars everywhere” if they were electric?
speaking of which, since every new house seems to have a suite… how do you charge the tenants car? and the others parked all over the street?
or do we pretend that tenants don’t own such things?
When teachers’ continued commitment to real estate is the number one priority we have a big problem in this country.
100%. No lot is too good for a townhouse.
For sure. No such thing as a silver bullet. But often two single family lots can accommodate around 10 townhomes. It could make a big difference to how many families we have room for in Victoria. We definitely need parking maximums, transit improvements, end free on-street parking, and active transportation infrastructure to continue to be rolled out to ensure that it’s not just a mess of cars everywhere though.
“Author
Leo S
My push for family-suitable homes between condos and single family comes from the fact that the gap between the two will keep rising over the long term which is consistent with the trend in a densifying city, so we need some way to fill it to give families a path up as they have kids.”
Townhomes can be extremely attractive additions to a cityscape and meet that need from families. Look at Bath, UK – beautiful world heritage townhouse architecture. Actually, much of the UK’s most desirable housing are townhomes.
In Victoria there are a lot of somewhat bland, featureless neighbourhoods with dated SFH housing stock with little architectural excitement but very well located, close to services/retail etc. I think changing to townhomes (think Carberry Gardens style would actually be a huge improvement for some of these areas).
In Vancouver, the transformation of parts of Marpole into a townhouse area has been a huge success. Formerly bland cheaply constructed 1960’s/1980’s single family homes are being replaced by elegant 3-4 bedroom rowhouses, some brick or stone, some neo-Georgian, some modern and all very suitable for family housing. The streetscape of these areas look much better now since this redevelopment.
All that said, this approach in the end won’t solve the affordability issue. It’s a short to mid term fix. Again, if you look at the most expensive areas in the world, Mayfair, Upper East Side New York, Belgravia are all rowhouse/low rise with some high rise density apartment areas. And those $3,000,000 houses in Vancouver demolished for townhouses are being replaced by what will soon be $2,000,000 townhouses.
There are variables which cannot be priced when comparing a principal residence. How do you price the risk of getting renovicted or the inability to do renovations as you see fit. Conversely there are benefits like moving on a whim, having the landlord take care of everything that goes wrong and being debt/liability free.
Disagree that it’s a waste of time. Financial outcomes of buy vs rent+invest is a common and worthwhile exercise.
When comparing returns from the stock market vs. property appreciation, you must treat them both as investments, therefore, a secondary property. To compare stocks vs. principal residence appreciation would be a waste of time.
For sure. But if it’s a primary residence then you might not be getting any or as much rental income as Frank supposed. My point is there are a ton of variables at play and it’s a flawed analysis unless you account for them all.
When I bought my current house I was looking at rent equivalance at about 5% interest. If I had been looking to buy in Victoria I would have used the same metric.
Property on Shawnigan bought in 1987 for $122,000 just resold for $2 million.
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Is the property more or less the same or were there major upgrades, juts curious?
My push for family-suitable homes between condos and single family comes from the fact that the gap between the two will keep rising over the long term which is consistent with the trend in a densifying city, so we need some way to fill it to give families a path up as they have kids.
That’s not the case. I still believe prices are constrained by incomes and I don’t see the evidence that they’re not. Looking at the affordability charts we are not beyond historical trends for either single family or condos. We’re just near the high/strained end for both in terms of their historical ranges, but we aren’t beyond it.
https://househuntvictoria.ca/2021/02/15/when-are-high-prices-a-bubble/
And because we are near the top end of affordability for single family, I expect basically no more gains as a result in the medium term.
https://househuntvictoria.ca/2021/04/06/dusting-off-the-crystal-ball/
If prices were detached from incomes then they would just keep rising for the next 5 years. We’ll see, but so far that hasn’t happened in the last 3 cycles and I don’t think it will happen this time.
I’ve done this calculation in the past and I think I posted it but don’t know how to find it now. Def a leveraged house in Victoria with a suite has been a better investment over time if you have only the down payment amount – which is the case for most starting out. You need to live somewhere so you have to do the rent vs. buy calculation alongside this.
Frank, I don’t think you’ve covered enough to show the property as a “far superior” investment over time. Just going off of the $30k downpayment isn’t enough since you need to pay the mortgage every month, and the rental income would need to be quantified to make the calculation whether or not it would cover the mortgage. That delta could be invested instead. And if it were a secondary property it would come with capital gains compared to if the S&P500 investment were tax sheltered. And what about historical mortgage rates over the terms? Property tax drag? Maintenance? Utils? Property management?
It can’t be deemed “far superior” unless you cover these things.
When is the last year that you would have answered ‘yes’ to “is buying a home this year a good idea?”
Good point Frank.
I was mainly pointing out that the gains on the house are not outrageous compared to other investments.
You’re just telling us that buying in 1987 and selling in 2021 was a good idea.
The question is, is buying in 2021 a good idea?
Former Landlord- I’m not going to dispute your calculations, however you are not comparing apples to apples. In 1987, you would need $122,000 to purchase an index fund or individual stocks ( unless you bought on margin). An investor only needed $30,000 down to buy that property. An investor also would have received rental income to help cover the mortgage and expenses while paying down the principal. It was a hell of a lot easier to raise 30 grand in 1987, than 122 grand. It would also depend on when in 1987 you entered the market, there was a huge crash in October that would have put you in a big hole to dig out of.
I don’t know if many banks will lend money with stocks as collateral, but most of them will gladly let you refinance a property that has appreciated in value, allowing you to invest in another property. If you do your calculations on the initial investment of $30,000, you’ll see that the property was a far superior investment.
That is an annual return of 8.5% over 34 years. If you had bought an index tracker of the S&P500 in 1987, you would have had a similar return just based on the index. That is not including the average dividend yield of between 1% and 2%.
Property on Shawnigan bought in 1987 for $122,000 just resold for $2 million.
Umm yes, you are constantly hoping for prices to go up while also stating that you would like to get into a house in a nicer area.
You could have noted that quote is from a US source:
https://www.vox.com/22464801/housing-bubble-market-crash-supply-shortage-great-recession
However I’ll make a comment about BC markets. Back in the early 1980s condos were still a very small % of owner-occupied housing stock, so most first time buyers were buying SFH (including myself). What’s happened after four decades is that far more first time SFH buyers are likely to already own a condo, and are going to use the equity to outbid would-be buyers who don’t. Thus the market for the former “starter house” is no longer there. The starter property is a condo.
It’s the market which determines what is a starter property. If tomorrow developers all switched to building “luxury” houses and condos, and the same number of properties were built, the same number of properties would have to be sold to first time buyers. The developers are meeting the market, not controlling it.
Because of increased rezoning and development regulations and associated costs and expensive time delays have led Developers to fewer and fewer entry level homes;
” entry-level homes make up an increasingly smaller share of new construction. Starter homes dropped from 40 percent of newly
built houses in the early 1980s to just 7 percent in 2019, according to the same report.”
Um, no. As first-time buyers 12 years ago, we made the conscious decision to buy a median house that we planned to stay in for ~25 years. We purposely avoided buying a starter home and playing the property ladder game.
similar to how a lot of people want the stock market to do nothing but go up (get more expensive). That viewpoint makes sense if you are approaching retirement. If you are in your early saving years and putting money into the market on a regular schedule you should be rooting for some serious market slumps.
lol see introvert.
The affordability graph doesn’t show that. It shows that prices are becoming less and less affordable but within that trend have times that are more affordable. That’s why its slanted up as opposed to flat.
Affordability for detached houses in G.Victoria can indeed worsen forever, since they are highly sought after (by 80% of buyers), but are an ever-shrinking share (43%) of dwellings.
The term “priced out” is used without completing the phrase. I assume by using the term “priced out”, we are referring to being “priced out of a detached house.” An indication of this is that the “property ladder” chart in this article only has detached houses. I can’t recall any account here of someone priced out of buying a condo.
Greater Victoria has <43% SFH (as percent of total dwellings). City of Victoria has <15%. That 43% isn’t a cyclical number. It has been falling for decades. As Greater Victoria densifies, that 43% will approach the <15% seen in City of Victoria. And a much higher % will be “priced out” of owning a detached house.
Yet we have been presented here with charts implying that SFH affordability is cyclical, with upper limits. It may be that prices for dwellings in general is cyclical, but it is a mistake to assume that this also applies to a type of dwelling (SFH) that remains in highest demand but is disappearing over time.
So no, not “everyone” will be priced out of a detached house, but unfortunately more will be priced out each year.
I think your position has evolved from “prices absolutely can’t rise past incomes/monthly affordability” to “oh, it is the effect of densification” to now, “yep, prices can and have risen faster than affordability so we need to create more affordable housing”. And I think that is ok. You’ve done better analysis than anyone else I’ve seen.
I’ve definitely shifted focus. But I don’t disagree with myself from 5 years ago. You can’t price out everyone, because someone has to buy. The idea that everyone will get priced out forever just can’t happen. I think our history of affordability shows that.
$1,002,500
Shouldn’t be, and yet most people when they buy they want prices to go up, even if they fully intend to upgrade later.
I always find this a bit odd. Like I wonder if some people in the United States circa 1870 when they had as many people as we do now were like “You know if we keep growing our population we’ll need to build a city the size of Boston every year!”
Odd how in the second largest country in the world we suddenly find it incredibly difficult to accommodate a 1.5% population growth rate.
An interesting statistics for 2020. Only in one year, Canada’s debt-to-GDP increased by 80%. Its substantial increase in household debt was unique when compared to other developed countries.
https://www.visualcapitalist.com/debt-to-gdp-continues-to-rise-around-world/
It also works if interest rates keep falling, so you can borrow more money with the same income. Never underestimate the importance of this trend, or the implications of it ending.
Is this analysis really news to anyone? I thought everyone understood this? The property ladder only works if your income is growing faster than house prices.
Josh, what was the median HH income after tax in 2014? And was that enough to buy a detatched home? Also the comparison below is made for 2016 to now not 2014 to now.
Per Leo in this post:
($729k – $357k) / 7 years = $53,143 / year
Victoria median household income after tax: $61,151. Account for rent, food, car payments, gas, kids, etc and yes, the median household is priced out.
Are there many people who could afford to buy in 2016 that is actually priced out now? I suspect if you could afford to buy in 2016 and didn’t do anything stupid to blow your money you can still afford to buy now. 5 years of increased savings/investments, pay increases and lower rates.
Wow, great post! Makes you wonder if it’s better to financially stretch yourself a bit for your first home to ensure you won’t need to upgrade too soon.
Also, do you know if 642 Ridgebank Cres sold?
So I clicked on the link in today’s post that takes you to the Brief History of Prices post, because I love it so much.
Scrolling through the comments from that 2016 post, it’s fun to see Leo’s evolution…
FROM THIS:
TO THIS:
We need to upzone all of Saanich.
🙂
Fascinating post, Leo.