John Horgan’s weekly newsletter #42, addresses housing affordability in southwest British Columbia and points at the Clark Government’s past denials and its continuing reluctance to take effective action:
Christy Clark and her government have dismissed, mocked and outright ignored the housing crisis facing this province.
Last year, Housing Minister Rich Coleman called the Lower Mainland’s housing prices “actually pretty reasonable” just days after a report found Vancouver to be the second least affordable city in the world.
Premier Clark suggested that those who can’t afford housing in Vancouver should move to Prince Rupert and Fort St. John.
Just two months ago, when asked about the province’s lack of support for affordable housing, Minister Coleman told a reporter: “I guess some people just have to get up and whine every day.”
The Liberal’s public response to irrational exuberance in BC’s housing market was denial, then acceptance:
There has been no housing market bubble, but, if one is developing, it is good for the province, attracting much foreign money to Vancouver and encouraging the city’s pathetic whiners to move far away from here.
In reality, Liberals are pleased with things the way they are. Politically, they will feign action, but as with usual practice, it is the appearance of activity that matters, not results.
BC has a government owned by special interests. Natural resource companies and private power producers were large winners for most of the last decade but, in recent years, real estate speculators and developers have been at front of line. Government has been bending over backwards to reward its generous friends.
Liberals moved BC Rail’s vast land banks into private hands; it altered the Agricultural Land Commission’s role from protecting farmlands to ensuring orderly and profitable conversion of reserved land to industrial and residential use. To claim “balanced” budgets, government sold valuable crown land to developers for cents on the dollar. Ignoring warnings of illegal gambling and money laundering, Liberals eliminated the provincially funded police enforcement team investigating the gaming industry. Government also permitted the real estate industry to self-regulate even knowing the supervision was inept.
Award-winning news writer Douglas Todd commented:
Unlike most jurisdictions around the world, the governing B.C. Liberals refuse to even provide data on foreigners who buy Metro Vancouver property, let alone restrict the extent to which they can do so.
The B.C. Liberals have also been regularly accused of overlooking shady real-estate practices and failing to enforce Canada’s tax-residency requirements, leading to wealthy migrants gaining advantages over domestic buyers.
Almost every person not a Liberal partisan has recognized a dangerous financial state exists. Barry Nielsen, in Why Housing Market Bubbles Pop, explains:
The laws of finance say that markets that go through periods of rapid price appreciation or depreciation will, in time, revert to a price point that puts them in line with where their long-term average rates of appreciation indicate they should be. This is known as mean reversion.
Prices in the housing market follow this law of mean reversion too – after periods of rapid price appreciation (or depreciation), they revert to where their long-term average rates of appreciation indicate they should be.
Famed Wall Street investor Mark Cohodes, a California resident, is betting on British Columbia’s bubble bursting soon. Talking to Toronto real estate blog Better Dwelling, he mentions a perfect storm in Toronto and Vancouver housing markets, “a mixture of rising home prices, foreign money laundering, and an unregulated sub-prime lending system most Canadians don’t even know exists.”
The entire article is well worth a reader’s time so follow the link above and read the story. It includes:
“Home Capital Group has admitted to $1.9B in fraudulently underwritten mortgages last year alone,” he explained. “FSCO, who regulates the brokers, hasn’t punished the brokers. The problem is when there’s criminal behaviour going on—and originating fraudulent mortgages is criminal behaviour… you’re allowing one class of individual to benefit another. If you allow it to go on, what’s the deterrent?”
Find that a bit confusing? Marc broke it down for us, “if I went to your town and robbed a bank and broke the law…and you caught me and know who I am. My punishment is ‘you need to leave town tomorrow, I won’t name you but you can’t do this around here no more’, what urges me to stop? Me and my whole crew should be put in jail, there should be an investigation by the RCMP on exactly what happened, and who was involved.”
How crazy has the real estate market become in Greater Vancouver? I imagined a couple seeking a 3 bedroom home in the region. Here are examples of properties offered for $1 million.
Imagine two people in a household that has a single earner with a salary of $100,000, an amount considerably above the 2016 mean income level in BC. After tax income would be $75,000. If the couple managed a $250,000 down payment, their mortgage and property tax payment would be $50,000 or 65% of take home pay. That calculates interest at 3.39%, which is VanCity’s 3-year fixed rate.
Obviously, with so little left for clothing, transportation, food, health care and other exigencies, that’s not doable. And, when fortunate people cannot afford a low rung on the property ladder, the situation must change. Christy Clark and Rich Coleman may regularly shake hands with the province’s most wealthy residents but, the ground upon which they stand has grown dangerously unstable.
I pulled photos of housing available in other parts of North America for $1 million. Unlike property in southwest BC, most of these are built on large plots of land.
My sense is that these photos are almost proof that our bubble must soon burst.