The “Running out of Land” Club

You often hear of high price/rent for SFH in the City of Vancouver being justified because of the scarcity of land. I thought I would do a comparison with the City of San Francisco, which is slightly larger than the CoV and has a population of about 800,000. But the really big difference is that it comprises a little over 1/10 of the metro population compared with 1/4 for the CoV. So you’d expect San Francisco to have a higher scarcity premium. Well no.

Take a look at this listing for the West Portal neighbourhood in San Francisco’s west side for $1,075,000:

http://www.redfin.com/CA/San-Francisco/2531-14th-Ave-94127/home/662192

And here’s the same house for rent for $5200/mo:

http://sfbay.craigslist.org/sfc/apa/2471867467.html

The rest of the neighbourhood:

http://sfbay.craigslist.org/search/apa/sfc?query=west+portal&srchType=A&minAsk=&maxAsk=&bedrooms=3

Price/rent for this property would be 207.

What about the comparable numbers for, say, Dunbar? Maybe $1.5 million and $3500/month? That’s a price/rent of 428.

Now you might say yes but property taxes are higher in SF. That’s true so let’s see how much higher.

This property is assessed at $402,019 and has property taxes of $4,836 /year. That’s because of California’s looney property tax system which taxes at the most recent sale price, not market value. If you bought the house for $1,075,000 you’d pay $1,075,000/$402,019 * $4,836 = $12,931/year.

Total property taxes in CoV are 4.21377 mills, so a $1.5 million property would pay $6320/year.

Calculate price/(rent-property tax) and you get 261 in SF versus 504 in Vancouver.

And I didn’t factor in mortgage interest and property tax deductibility and the ability to lock in low rates long term in the US.

You’d pay more for just a lot in Vancouver than the whole house in San Francisco. What sense does that make? In which city is land really more scarce? What do the rents tell you?

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Romeo Jordan
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Romeo Jordan

it's elementary my dear McLosin

registered
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registered

Cogent analysis but that's not how the land game is played. Years of RET have taught me:

– Vancouver is out of land because you have to drive from Abbottsford, Tsawwassen or Squamish

– Toronto isn't running out of land because you have the option to drive from Oshawa, Burlington or Barrie.

That both cores are equally developed and travel time is equally onerous or expensive is irrelevant because Vancouver indicators, unlike the rest of the world, always point up.

chip
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chip

San Fran rents are skewed by rent controls that cause many landlords to give up on renting:

"In San Francisco, one of the toughest places in the country to find a place to live, more than 31,000 housing units — one of every 12 — now sit vacant, according to recently released census data. That’s the highest vacancy rate in the region, and a 70 percent increase from a decade ago."
http://www.economicpolicyjournal.com/2011/05/rent

San Fran also has some of the tightest land use regulations in the US, restricting new builds and propping up prices.

I'm not sure how San Fran's regs compare with Vancouver's but I don't see a forest of new condo builds when I'm there, as you do here.

real_professional
Member

Another suppressed interest rate country, but with a weak currency, and a bad economy (UK) is experiencing a thawing of their housing market. The article references foreign investors taking advantage of a weak pound… that would make sense, unlike here where we have phantom foreigners jumping on an already hot currency.

London Has $34 Billion of Luxury-Homes in Pipeline

http://www.bloomberg.com/news/2011-07-04/london-h

"… Mayfair and Kensington climbed to a record in June, real estate broker Knight Frank LLP estimates, as overseas buyers were attracted to London because of the weak pound and to find a haven for their wealth. Savills Plc, another broker, estimates that foreign buyers will spend 3.7 billion pounds buying prime residences in the British capital this year."

jesse
Member

There were some blog comments I read recently where it was full of complaints from landlords about rent controls, mostly around how they can't renovate and increase the rent on existing tenants. Having some exposure to property management, I laugh and laugh reading these comments. The landlords that I have seen who remain successful regularly maintain their properties up to "best standard" and keep rent rises in-line with inflation. Other landlords choose to delay renovations then act all surprised when they can't raise the rent to pay for them. It also helps the successful ones bought when prices were lower…

Oh and it's not just a Vancouver thing. Friends and family of mine living in European cities have similar tales of lazy cheapskate landlords who refuse to maintain the building. Cap rates are comparable to Vancouver, in the 3-4% range.

kansai92
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kansai92

Whats happening with DT condos?

A unit that I saw listed for 908k in 2009 was just listed this month for 749k.

jesse
Member

@kansai92: "Whats happening with DT condos?"

Oh yeah… I nearly forgot about those things, but I guess I couldn't hear the distress behind all that silence.

Noodlevan
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Noodlevan

A potential "grey swan" for the LM economy is the current review of BC Hydro by the Province. It is quite likely that Hydro will be foreced to layoff a large of number fairly well paid employees. And if that were to happen, these folks are unlikely to find equivalent employment opportunities (paywise)in Vancouver.

Anonymouse
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Anonymouse

@kansai92:

"Whats happening with DT condos?"

The CULT index is still half of what it was when it was created, just over a year ago. There are still many selling for over their listing prices, and still many selling for under.

space889
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space889

@Noodlevan: I doubt many can find similar jobs in most other parts of the world where you can get paid so much with so many weeks of holidays for so little work and job security. I honestly believe that a lot of crown corporations are just way too heavily loaded with non-productive workers making way too much money and benefits. And yes, this starts from the top, CEO and goes downward so I don't entirely blame the unions.

kansai92
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kansai92

@Noodlevan:

Expect large public sector cuts in the coming months at all levels of government.

Those who don't lose their jobs can expect wages to be frozen or rolled back.

kansai92
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kansai92

@Anonymouse:

I don't use the CULT thing. Not sure if it's accurate or working.

My info is pretty low tech. Keeping a historical spreadsheet and using a VOW account and BC assessment site.

My target market is quite narrow as well so it's easy to track.

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Patiently Waiting
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Patiently Waiting
Anyone else notice the declining food and service quality when dining out lately in Vancouver? Going to the Okanagan opened my eyes. Food there was quality for the price and service was excellent. The recruitment of overseas service workers has to stop if we're going to get young people employed again: The faces of the staff at Tim Horton’s, Denny’s restaurants and many other Canadian food chains have been rapidly changing. The servers and cooks at countless Canadian food outlets, as well as the staff in seniors care centres, are increasingly migrant Filipinos, says University of B.C. PhD candidate Lawrence Santiago. “There’s been massive recruitment of temporary workers from the Philippines in recent years.” While some employers have been pleased to sign up more foreign workers to meet what they maintain are labour shortages, the trend comes with controversy. Indeed,… Read more »
domus
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domus

This is a brilliant post. Thanks!

Devore
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Devore

@kansai92:

I don’t use the CULT thing. Not sure if it’s accurate or working.

It is working, and accurate for what it shows. I think it should be retired or changed to be market-wide, instead of tracking select buildings.

The re-sale condo market has been less than hot the last couple of years. Every so often Larry posts detached/attached/condo stats, and there's definitely no HAM pounding on those doors.

PSO
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PSO
"Expect large public sector cuts in the coming months at all levels of government. Those who don’t lose their jobs can expect wages to be frozen or rolled back." Your comment demonstrates how out of touch you really are. First, there will be no layoffs within the provincial sector in the “coming months.” The public service was already cut in 2008, with just under 10% of the BC’s 33,000 public sector workers being cut. The Province cannot cut anymore, lest it repeat its 2001 experience where they cut everyone off and had to then ramp up recruitment. The demographics of the public service in BC are such that there are too many soon to be retirees and not enough replacements. Salaries have already been frozen for almost three years now. Second, cuts never really happen to the extent they are… Read more »
Devore
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Devore

@Patiently Waiting: Very few of my regular places to eat out have surprised to the upside on food quality or service. Mostly it's downhill, with higher prices. I don't know if that is something particular to the industry (cost cutting, laziness) or to Vancouver at this time.

Anonymouse
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Anonymouse

@Patiently Waiting:

"The faces of the staff at Tim Horton’s, Denny’s restaurants and many other Canadian food chains have been rapidly changing."

You're going to such places and complaining about declining food quality and service?

Try some of the newer places in Gastown (Cork and Fin, Pourhouse, L'Abbatoir, Cobre, Pekkinpah). There's something for every budget and the quality is excellent across the board.

Rme
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Rme

@jesse: I don't know about other places, but it seems like there are two lessons people in this town need to learn for themselves (and we all eventually do):

1) Never rent from an amateur landlord.

2) Never become an amateur landlord if you don't want to work or pay for repairs.

These two things tie together. Anyone whose rented for a while has probably rented from an amateur at some point, and run into the problem where they don't want to pay a professional to come in and fix things. They always end up paying more because the fixes are always cheap and slapdash, usually leading to bigger problems in the future.

Anonymous
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Anonymous

@Anonymouse:

Since when do we care if a unit sells for below or above asking price. Last time I checked, the market doesn't determine the asking price, just the selling price.

Anonymouse
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Anonymouse

@Anonymous:

"Since when do we care if a unit sells for below or above asking price. Last time I checked, the market doesn’t determine the asking price, just the selling price."

You might not care, but kansai pointing out an example of a place selling below list and asking "what's going on with downtown condos" as if that one sale were representative of the whole. I was countering that by saying that many sell over list, too. Of course the market ultimately determines the selling price.

Li Kai Shing
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Li Kai Shing

Yup

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