As someone else noted, the increase in rents is far outstripped by the increase in prices. But if you think about it, the tight rental market could also be partly explained by the grow-op effect. How many of the 18,000-plus grow-ops would normally be rental units? How many renters derive their income from the drug industry? Just more known unknowns.

2) “How many kilograms of pot sells for $20,000 ‘wholesale’?
Where is the bulk of the product being sold? (locally?, US?)”

It wholesales for about $1500-1700 a pound, depending on quality. All the good stuff goes south where the pricing is better. Good weed is apparently hard to find in Vancouver.

Current score: 0 (to vote for this comment, please visit the site)

I think that in a couple of years it will be much harder to rent-out basement suites with all the rental condos that will be available

This was definitely the case in the mid-1980’s.

Current score: 0 (to vote for this comment, please visit the site)

Talking to coworkers (many who are from Hong Kong) uncovers anecdotes such as, “My friend’s family found a house they liked in Richmond for $600k, and bought it. In cash.”

Current score: 0 (to vote for this comment, please visit the site)

I think that in a couple of years it will be much harder to rent-out basement suites with all the rental condos that will be available. A further difficulty for some homedebtors.

Current score: 0 (to vote for this comment, please visit the site)

Yes, but still at a fraction of the rate of RE appreciation. The gap has been widening if anything.

Current score: 0 (to vote for this comment, please visit the site)

The rental market would be interesting once this bubble bursts. Rentors might start doing credit checks on landlords to avoid getting kicked out due to bank foreclosure.

Current score: 0 (to vote for this comment, please visit the site)

freako makes excellent point about where the money ends up.

Let’s do some back of the envelope math here, but first some data, please:

How many kilograms of pot sells for $20,000 ‘wholesale’?
Where is the bulk of the product being sold? (locally?, US?)

Current score: 0 (to vote for this comment, please visit the site)

You can tap dance around the income question all you want, but that does not address the fact that rents, which are an indicator of actual demand for shelter and actual incomes, are just as out of whack with prices as official incomes.

Explain that one. It’s just a bubble, period.

Current score: 0 (to vote for this comment, please visit the site)

I suspect that’s just a number used to grab newspaper headline. Plus, I’m not sure if each and every one of these suspected grow-ops generate 20,000 in cash.

Plus, was grow-ops non-existent in 1999? Is the weed market in a bubble now as well?

Current score: 0 (to vote for this comment, please visit the site)

“I am not disputing this fact-because I don’t know, I do know the GDP of the GVRD is about $170 billion per year.”

According to BC stats, BC’s GDP last year was about $136 billion. The GVRD contributes about 55% of that.

Marxx said:

“The 4 billion figure is grossly exagerated, as usually done with financial figures regarding crime.”

Hardly. BC Hydro suspects there are 18,000 grow-ops in the province based on electricity usage. This is an undercount because most grow-ops rewire around the meter box so they’re off the radar.

Each grow-op generates about $20,000 a month in cash — at wholesale prices. Now do the math: 18,000 x 20,0000 x 12 = $4.3 billion.

As I said, this is an undercount of grow-ops and does not include all the weed grown outside.

Now $4 billion-plus may seem like a drop in the bucket out of a total provincial GDP of about $136 billion, but it isn’t really. Most of the value of overall GDP is channeled directly back into the business as operating costs and such. The average profit margin is about 12-15%, so out of that total GDP, about $20 billion is available for investment. But then that $20 billion is now subject to tax of say 30%, so now you have about $7 billion available for investment in something. How much of that $7 billion is directed toward real estate it’s hard to say.

Now, back to the drug industry’s $4 billion-plus. Well, their biggest operating cost is real estate, so housing gets a huge share there. Of the considerable profit remaining, how much goes again into housing in the form of residences and investments?

Again, hard to say. But any way you slice it, that $4 billion is suddenly the proverbial 900 pound gorilla.

And this is just one slice of the pie. Canada has a big and growing ex-drug, black economy and we’re a significant recipient of money earned from the vast web of corruption in China.

There are no sound reasons why Vancouver RE is behaving the way it is. I’m increasingly convinced that our market is decoupling from the usual fundamentals because our fundamentals are not representative of this city’s economy.

Current score: 0 (to vote for this comment, please visit the site)

Current score: 0 (to vote for this comment, please visit the site)

Strange statements indeed. Saying that condos are more affordable than low density is stating the obvious. Of course they are, and for good reason.

But Tsur goes one further and suggests that the affordability of condos precludes “overpricing”. Totally inappropriate. An Pinto is more affordable than a Mercedes, but that does not mean that it is a good deal for that fact alone.

As mentioned, there are very good reasons why relative pricing relationships exist with regards to condos, townhomes and SFH.

Current score: 0 (to vote for this comment, please visit the site)

Current score: 0 (to vote for this comment, please visit the site)

A quote from Housing Bubble Blog regarding Colorado. Why bother selling cocaine at a couple hundred a deal when you can get millions for signing a name on a dotted line?

Current score: 0 (to vote for this comment, please visit the site)

It does matter. Forest sector has been booming for the past few years, with the US housing bubble. The city is 50% asian, but the asians work local jobs and earn local salary. They work in an economy driven by forestry sector. They might be more inclined on RE speculation instead of stock speculation due to their culture, but that doesn’t improve the fundamentals a bit.

The rich man in Asian is in RE, not mutual fund or software, like Buffet or Gates. In that regard, we can say that Vancouver is more inclined towards RE speculation, but that doesn’t mean that bubbles won’t pop.

Current score: 0 (to vote for this comment, please visit the site)

Just like in Florida. The south american and European drug lords did pore money into the RE market, but it’s the local boys that created the bulk of demand. When the party ended, the local boys are the last fools left.

Illegal money is almost always exagerated in western society. When you look at the numbers, local police officers are probably bigger buyers than supposedly filthy rich crime lords.

Current score: 0 (to vote for this comment, please visit the site)

Current score: 0 (to vote for this comment, please visit the site)

Yes, in large part accounted for in the purchase of real estate. But what we don’t know, and probably never will, is the EXTENT that illegal business contributes to local RE. There are no metrics to track it.

What is obvious is that considering the:

1) size of the drug industry as implied by the estimated $4 billion of revenue a year,

2) the amount of money generated by the underground economy as implied by the very low number of tax returns filed by immigrants,

and finally 3) the inflow of often dubious foreign funds (for eg., 85-90% of China’s millionaires are estimated to be corrupt bureaucrats and their kin),

that Vancouver’s housing market will probably continue to defy fundamentals.

Current score: 0 (to vote for this comment, please visit the site)

And there is a downside to the global economy - like a global recession, brought on by maxed-out consumer demand you know where. Naw, can’t happen.

Current score: 0 (to vote for this comment, please visit the site)

I suspect that the reason that our RE prices are detached from fundementals is that they have nothing to do with the local economy. This city is 50% asian. There is also significant chunk of population from Europe. And then on a top of that you have rich Americans looking for some nice properties. So frankly whether or not some paper mill in BC is in trouble or not has nothing to do with RE prices in Vancouver. It’s all global.

Current score: 0 (to vote for this comment, please visit the site)

I see. The inference being a dual income family can easily afford a condo, so what are you complaining about? Bravo, Dr. Somerville! Bravo.

Banks have money they want to lend. People have jobs. Lenders and borrowers agree on loans that they think they can afford. Until the banks’ money spigot or debt servicing cash flow is crimped, party on. (Note the latter happened in the States followed in subsequent months by the former. This has not happened in Vancouver yet)

In any case, the renter’s discount is hands-down the best deal going. I think it is to the point now where you can pay rent, save for downpayment, AND take an expensive vacation and still be ahead compared to owning, if you can put a true cost on ownership

Current score: 0 (to vote for this comment, please visit the site)

According to StatsCan via the BC government, 18% of families make 100K/year or more in the lower mainland. Everyone else makes less.

So that 18% of the population is buying condos for a LOT of wanna-be actress babies.

Current score: 0 (to vote for this comment, please visit the site)

Current score: 0 (to vote for this comment, please visit the site)

Like I keep saying every time someone brings this up. SMART criminals, the ones who make lots of money and don’t get caught do what’s called, “money laundering”. Which is to say that they funnel their ill gotten gains through tax paying front companies.

Organized crime has been doing this ever since Capone got busted on tax evasion. So I’d imagine most of the drug money in Vancouver is actually accounted for.

Current score: 0 (to vote for this comment, please visit the site)

Current score: 0 (to vote for this comment, please visit the site)