Friday Free-for-all!
It’s the end of another work week and that means it’s open topic news round-up time! Here are a few stories to kick off the chat:
-Vancouver crime among worst in North America
-BC economy not so bad, but #1 in poverty
-TD: We’ll stop taking free money when everyone else does
-VREAA on CBC: we hope we didn’t scare you.
-Investment advice possibly written by broken robots
-Our housing market will sidestep US style bubble.
-Will our market sidestep US style bubble?
-Get your zero down mortgages!
-Beware fine print on ETFs
-Bond investors receive coal in their stocking
-The ghost cities of China
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So what are you seeing out there? Post your news links, thoughts and anecdotes here and have an excellent weekend!
December 20th, 2010 at 8:11 am
@jesse:
Housing has to return better than bonds long term. If it didn't it would be in a perpetual bubble, which is impossible.
December 20th, 2010 at 7:54 am
@Yalie: "This is why history shows that housing is a piss-poor investment compared to stocks or bonds"
Stocks, yes, bonds I'm not so sure. Do you have data to show this? I guess it depends on the bond and its terms.
December 20th, 2010 at 7:53 am
@fixie guy:
All US metros have substantially decreased in population density over the last century, although of course some pockets have increased, so I don't think it's very useful to try draw any correlation between a metro index like CS and density. The decline in density is a result both of inner cities losing population and of suburbs increasing their percentage of metro population.
That's also true to a lesser extent for metro Vancouver. Note that CoV population declined for a couple of decades starting in the 60's and didn't turn around until the big projects on former industrial land got going after Expo.
December 20th, 2010 at 7:51 am
@fixie guy: "I believe the city CS curves show pretty much the same thing as far back as they go. Flip it around, how are these recent run-ups in any way historically proportional to changes in pop density?"
I can't find city-specific data before 1987.
To answer your question, the recent historically high price changes are not in and of themselves supported by the long term increase in density, which has been going on in Vancouver since its inception. The density premium has always been there. As a background effect, as density comes closer to reality, values will increase simply due to future value discounting. That train stops when density increases slow down
It gets a bit confusing because neighbourhood income changes brought on by general density increases can support real price inflation as well, either in the form of higher incomes for a given property or redevelopment to support higher total income. On that measure the west side of Vancouver has seen its prices increase at 1.5X inflation since the early '90s, compared to Richmond which has been 1X inflation. (Regular commenter M- did this analysis a few years ago.) That trend seems significant to me and I see it worth understanding why it has occurred and whether those gains will be made permanent or clawed back.
The question that hasn't been answered is what sort of premium, if any, could be placed on a property? A small bungalow on the westside carries a huge price-rent ratio and has for as long as I've been alive. What premium, if any, should exist on this property? If density increases do not affect home values its value should be supported entirely by cash flows from rents assuming the structure is maintained ad infinitum, or am I missing something?
December 20th, 2010 at 7:27 am
@patriotz:
I agree with you that some people can get rich by buying and renting out real estate, since it does produce a known return over time (in fact, housing is essentially a perpetuity, and should be fundamentally priced as such).
As you also pointed out (and I agree), whether you actually get rich or not depends on the price you pay. If you pay less than the property's net present value (taking into account all taxes, fees, interest, maintanance, etc), then you will eventually make money.
In practice, however, property is rarely a "good investment" on an NPV basis, precisely for the reason I gave – unlike other investment, in particular stocks, the money you put in goes to paying for an asset that will never produce increasing real returns. No extra value is created beyond the known (admittedly, perpetual) rental yield. Add to that the fact that you can buy it on leverage (something you can't do with most investments), which increases the price because the buyer no longer needs to account for the time value of money – since it's not his own money he's sacrificing. Add it all up, and arbitrage eventually sets the price at a point where it's not a particularly good buy. This is why history shows that housing is a piss-poor investment compared to stocks or bonds, and that's at non-bubble prices. Today it's off-the-charts bad.
December 20th, 2010 at 7:18 am
@troll
"@fixie guy: Hey, grab a clue. Posting a list of cities with high pop. densities and saying that cities in India have lower prices than NYC doesn’t prove shit about the effect of densification on land prices. I know it’s hard to concentrate, but try and stay on topic. Either you’re being disingenuous or you are just plain stupid. Judging by the quality of your posts I’d say the latter. But please, prove us wrong with some stunning insight on anything at all, you don’t even have to limit it to real estate. But no using Wikipedia."
Well, i suppose the worst thing that will happen to me is that I will be wrong about the direction of real estate. You have the misfortune of being a turd. I fear no amount of chinese immigration
or population growth will remedy that.
December 20th, 2010 at 7:04 am
@vreaa: There's no question rapid changes in pop density have an impact on prices but I'm cautious of spinning that into permanance. It might only be transitory. As was pointed out using the late Nineties, once they figured out repatriation wasn't the death of Hong Kong and immigration cooled Vancouver prices waned even though population and density continued to grow.
The 'eternal external pop pressure pushing prices' crap being advanced by some clowns is little more than BPoE, everyone-wants-to-live-here in disguise. Rennienomics.
@ jesse: I believe the city CS curves show pretty much the same thing as far back as they go. Flip it around, how are these recent run-ups in any way historically proportional to changes in pop density?
December 20th, 2010 at 6:17 am
"147
Troll Says:
December 20th, 2010 at 1:02 pm
@fixie guy: Hey, grab a clue. Posting a list of cities with high pop. densities and saying that cities in India have lower prices than NYC doesn’t prove shit about the effect of densification on land prices. I know it’s hard to concentrate, but try and stay on topic. Either you’re being disingenuous or you are just plain stupid. Judging by the quality of your posts I’d say the latter. But please, prove us wrong with some stunning insight on anything at all, you don’t even have to limit it to real estate. But no using Wikipedia."
Oh my, who from RET does that sound like? Try making a counterpoint with more mental meat behind it than 'no way d00d, no way'. Keep typing.
December 20th, 2010 at 6:04 am
Somewhere in all the banter there has been good discussion, thanks for that.
The relationship between population growth, density, and RE prices is clearly complex and, as fixie says, 'obvious' conclusions may not be correct.
It's intriguing that fundamental values of properties may rise at just the rate of inflation, even with densification.
Westside density has increased over the last 10 years via steady increase in number of basement suites, and now too via lane-way units.
So, theoretically, cash yield per unit of land has increased and thus underlying fundamental value of that land should also have increased. And that 'step-up' may (or may not) be greater than inflation (intuitively we'd guess it'd be greater).
However this doesn't justify higher prices. It would probably justify higher prices if we were in an environment where properties were fairly valued based on fundamentals. But we aren't. There is already so much froth between fundamental value and market price that increasing fundamental value via increased density doesn't close the gap much. So, in this kind of environment, densification doesn't apply the same kind of traction to prices.
However (possible contrary force to above) the whole concept of densification could fuel speculation "We're densifying" could become another mantra (like we need more) for local speculators.
Another point: Densification requires capital outlay. If you turn your 4 BR 3 storey SFH into a 3 unit triplex and build a laneway unit too, you: 1. have to pay for the building/renos, 2. only get to use 25% of the property yourself.
jesse's point about steady-state is a good one, too.
I'd not be surprised if, when the bubble bursts and all the empty condos, unrented basement suites, new laneway houses, stealth inventory empty SFHs (there are some) all come on the market at the same time, that we find we've easily got enough shelter for our population. We could go through a whole half-cycle where the pressure to densify disappears.
December 20th, 2010 at 5:57 am
Population density as an excuse for outrageous prices in Vancouver is simply a non-starter, but the worthless cheerleaders will keep trying to trot out this myth among others.
Vancouver is #123 in world for population density.
There are many cities ranked higher that have seen horrific real estate busts such as Dublin, Dubai, Vegas, LA & Miami.
Yet another extremely stupid theory put forth by extremely desperate people that has no basis in reality.
http://www.citymayors.com/statistics/largest-citi…