Here is another reason, and its one that is largely overlooked
- 1) Government regulation of the mortgage lending rules making it difficult for the average resident to obtain a mortgage to get into the housing market.
- 2) The obscenely expensive housing market in the Greater Vancouver Area and the causes of it.
This article is about point number 2. But its a new slant on it!
Re-zoning and land assemblies
The real estate development market is as hot and crazy as the rest of the market. Speaking with one of my associates, Dianne Grendovich of RE-MAX City Realty, she had said that it re-zoning of properties from single family to high-density residential development is a driving force behind the increase in property values.
How does this happen? The City of Vancouver looks at the properties in the area and says “these parcels of land are best suited for new strata development. Let us re-zone these properties so that in the future, a strata development can be built on the land instead of a house”.
The land that this has happened with then increase in value by double or more of what they were worth before. It is happening all over Vancouver. Virtually any lots with a detached house on them along a main street of the city is being assembled with other properties and being put up for sale.
I have never seen anything like this in my life. I drive from the downtown east side and by the time I get to the Oak St. bridge, I have probably passed over twenty new or recently completed developments or land assemblies. Many really decent residential properties are vacated and boarded up while the the wheels of the development bureaucracy grind away slowly.
I would imagine that the city has reasons to justify such decisions, and by my eyeballs, those projections would possibly be accurate. The population of Vancouver is increasing and people will need somewhere to live, and there is no new farm land to turn into housing. Therefore, some of the current land will need to be converted to higher density land. HOWEVER, the more cynical side of me thinks something else is going on here.
China’s housing bubble and its insatiable appetite
The latest census numbers are not yet available, but in 2011, the population of the city of Vancouver was 603,500. According to this government website, the population of Vancouver in 2015 was 667,000. I do not know if this is considered fast population growth, but given the amount of development going on in the city, I would have expected much higher numbers. Rental availability is also paradoxically low on availability, despite all the new developments. Airbnb short-term rentals are taking 5000 property units out of the rental pool. This can contribute significantly to a housing problem. Then there are the people who own homes and leave them vacant.
All of these items combine for the following:
- population growth is moderate.
- a large and increasing number of properties remain essentially vacant.
- rental availability is critically low.
I rarely watch 60 Minutes, but I happened to tune in on a day that they had a segment that to me was unforgettable, and I think is quite applicable here. The topic is China’s housing bubble and its “ghost cities”. Aspects of the gigantic investment of property in Vancouver parallels the investment done in China, as well as occupancy being low (or in the case of the 60 minutes segment, 0% occupancy in whole artificially built cities) strikes a chord here.
Again, this brings up the question of a housing bubble. Is there one here? There are no exceptional circumstances that lead to that conclusion, as demand is strong and vacancies are still low. The housing market is based on fairly strong fundamentals…at the moment. There are no specific statistics that are kept on this, but it is still my belief that the majority of our crazy housing market is being driven by foreign investment with the majority of it coming from China.
If you are Chinese and you have money, and you look at the above video and then compare it to the Vancouver housing market, where would you rather put your money? Wouldn’t you be happy with paying a premium on the price to ensure your money is here in a democratic foreign nation with no currency controls compared to investing in one of the cities shown on 60 Minutes? If I were them, I know where I am taking my money. And they are. Vancouver’s housing market is an outlet valve for the Chinese housing bubble, and it is inflating.
The $5,000 fee to make an offer on a pre-sale
So, back to the subject of re-zoning. I will tell you my personal opinion based on 9 years in this industry. The housing market, and the mortgage market, has the potential for great personal income and wealth for those who are in our industry, and because of the money available and human nature, ensures that there are many unscrupulous business practices that are happening.
If I were more cynical, I would come to the conclusion that all these low density housing lots are being re-zoned at the request of building developers who “lobby” local politicians to do so, knowing that they will quickly pre-sell the entire building to foreign investors and make a lot of money. The investors will rent it out, leave it empty, or list it on AirBNB. They hold the property and a small percentage of the properties get utilized. The city gets more tax revenue. The scarcity of properties perpetuates as the purchase are held for the long-term. Everyone fights like cats and dogs to get into the market and prices rise.
When one VERY PROMINENT developer is charging buyers $5,000 in order to have the privilege of making an offer for one of their properties, we have crossed into the twilight zone. Please do not misunderstand. This is not a deposit. It is an up-front, non-refundable fee to make an offer on one of their properties, that may not be accepted. According to one of my sources, that is happening RIGHT NOW. There is no mention of it anywhere. It is undisclosed.
I would write their name, but given the above, they would surely be able to afford more “justice” than I could. Oh and I forgot, none of this is the problem. The chartered banks are telling us it’s the 5% down mortgage for residents that needs to be scrapped.
Good luck everyone. Its a jungle out there and the gatekeepers are hibernating.
Photo credit of Rod Pennington.