The Renting Option

Well Global is certainly getting a lot of attention on this blog with their ‘Generation How’ series. This is an interesting one though, all about the renting choice and how much cheaper it is in Vancouver than buying.

Are young families in Vancouver better off renting?

During the height of the US bubble, many of the most expensive cities had prices that outran rental values. That trend has flipped now with the correction and it’s cheaper to buy in many US cities. It’s been cheaper to buy in the past here, will Vancouver ever see that again?

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kansai92
Guest
kansai92

Really? Renting by choice? Surely you jest.

Bulls say that's a myth like Santa Clause and the Easter Bunny.

patriotz
Member

"During the height of the US bubble, many of the most expensive cities had prices that outran rental values."

Rather all of the bubble cities had prices that outran rental values, because the very definition of a RE bubble is that buying is more expensive than renting.

It is impossible for buying to be more expensive than renting long term, because that's a Ponzi scheme and Ponzi schemes necessarily fail.

That's the whole issue in two paragraphs. The rest is commentary.

CanuckDownUnder
Member
CanuckDownUnder

I'm willing to pay 8% to rent but I only pay 4%.

patriotz
Member

@CanuckDownUnder:

"I’m willing to pay 8% to rent"

8% of what? The market price of the property? I think not.

More seriously, shelter is obligatory but buying is discretionary, so the market price of RE is set by how much buyers are willing to pay relative to rental costs. It's rental costs which are the independent variable in the RE sales market, just as earnings are the independent variable in the stock market.

jesse
Member

If you think Gord's communications with CRTC and this story aren't related, you're not thinking hard enough.

Manna from heaven
Guest
Manna from heaven

VanMag has published an article in their most recent edition regarding housing in Vancouver, entitled "Going, Going, Gone, Why We Are Losing Are Best People."

http://www.vanmag.com/News_and_Features/Gone

jesse
Member

@Manna from heaven: An interesting article. Broadly misses the root causes of the bubble, but provides some insight into what those close to the City are tossing around as "solutions".

Tyee Bridge obviously put a lot of thought into that article.

Devore
Member
Devore

@jesse: Misses, because all these types of articles assume Vancouver real estate will never correct, hasn't in 5 years, hasn't in 3 years, therefore it never will, and even if it did, it would not be enough. It's a world class city, dontcha know, right up there with Paris and New York (an inevitable comparison when talking Vancouver real estate).

Patiently Waiting
Member
Patiently Waiting

Looks like Occupy Vancouver will focus on protesting previous tax cuts to the rich:

"In 2000, the tax rate was fairly consistent across income groups, with the top 10 per cent of households paying slightly more. But after tax cuts by the provincial government, by 2010 the richest 20 per cent of households were actually paying a lower tax rate than the other 80 per cent."

I think they should focus even further by calling for the end of MSP. This is a BC-specific issue that really hurts the working poor and struggling small businesses.

Also this:

"Nearly a quarter of those in B.C. with debt say their success in managing it is "very poor" or "poor." Forty-four per cent of B.C. debt-holders say they're making sacrifices in order to deal with the burden of what they owe."

Read more: http://www.theprovince.com/news/Occupy+Vancouver+

Manna from heaven
Guest
Manna from heaven

Jesse,

Wonder why the pointy-head types didn't think that laws preventing foreign investment in real estate warranted a mention as a possible solution?

Honestly, as far as I'm concerned, foreign investors bidding up Vancouver's real estate negatively impacts me far more than the sale of Potash or MDA to foreign investors (Feds halted both the sale of Potash and MDA because the proposed transactions didn't or wouldn't provide a "net benefit" to Canada).

stagnate
Guest
stagnate

It’s been cheaper to buy in the past here, will Vancouver ever see that again?

not likely, growing population on a fixed land base. vancouver is one of the few places where land actually has value. the majority of real estate only has value in what its dwelling can generate. i wouldn't expect the rental premium to grow much from this juncture, but don't expect it too shrink a whole lot either.

Patiently Waiting
Member
Patiently Waiting

@stagnate: With vacancy rates at historic highs and migration becoming negative, rents could end up going down alongside real estate prices.

Flip Flop
Guest
Flip Flop

"Forty-four per cent of B.C. debt-holders say they’re making sacrifices in order to deal with the burden of what they owe.”

God forbid people have to actually make sacrifices in their lives, to pay back money that they borrowed in the past.

Talk about dysfunctional. It's like they think these CEOs and Execs that make the big bucks, didn't have to break a sweat to get there. There'a a reason companies are willing to pay millions of dollars for talent; they produce. And they get rich on stock options. If they don't produce, the stock options aren't all that profitable. ie. RIM.

You want less tax pain, elect a government that doesn't spend $600M to put a roof on a 30 year old stadium that only cost $260M (in today's dollars) to build in the first place.

Ziggy Strawdust
Guest
Ziggy Strawdust

@Patiently Waiting: I've heard some bubble cities saw rents drop with prices, but did others see rents rise as prices dropped?

What about Vegas where population continued to grow as prices crashed?

Li Kai Shing
Guest
Li Kai Shing

Oh Good.

No more realtors commissions discussions, more important stuff like Schneider versus Luongo or Umbrella Hedge funds for BC Place patrons.

kansai92
Guest
kansai92

@Patiently Waiting:

I care not about tax cuts to the rich.

Fact is the rich are mobile and will flee to whatever jurisdiction provides them with the suitable taxation rules.

That's not what got us into this mess.

Governments promoting home ownership above all else is the culprit.

We think we live in a free market society but that could hardly

be further from the truth.

They stick their hands into different markets and then when

things don't work out, they bail out risk takers.

Occupy Wall St organizers may be well intended but too

misguided to bring about any practical change.

4SlicesofCheese
Guest
4SlicesofCheese

OT

Where your taxes go.

http://money.ca.msn.com/taxes/gallery/top-10-plac

9. HR & Skills Development Canada

Your contribution: $1,069.97

Percentage of total tax bill: 17.78 per cent

Total government spending: $46.9 billion

Human Resources & Skills Development Canada's mandate is to offer economic services to help Canadians buy homes, find work, get skills training and move into retirement. The agency provides funding for The Canada Mortgage & Housing Corp., the Guaranteed Income Supplement and Spousal Allowance and Old Age Security.

patriotz
Member

@Manna from heaven:

"foreign investors bidding up Vancouver’s real estate negatively impacts me far more than the sale of Potash or MDA to foreign investors"

It doesn't have to impact you because you don't have to buy.

Foreigners who buy Canadian RE at terrible yields are giving money to Canada, just as if they'd bought a Canadian dot-com company in 2000.

On the other hand foreigners who buy productive Canadian businesses are going to be repatriating real profits to their home countries.

I would prefer the former. But, as I've said, I don't think foreigners are responsible for this bubble in any significant way.

patriotz
Member

@Ziggy Strawdust:

"What about Vegas where population continued to grow as prices crashed?"

Population continued to grow in every US market. You don't think people picked up and left did you? Where would they have gone to?

Someone posted a link to a chart showing falling US median incomes. Incomes are what determine rents.

patriotz
Member

@kansai92:

"Fact is the rich are mobile and will flee to whatever jurisdiction provides them with the suitable taxation rules."

That isn't the fact. It's not even the fact within the US where some states have much higher taxes than others.

Where did Steve Jobs live all his life? Do any rich people live in New York City, which has the highest taxes in the US?

Melster
Guest
Melster

I thought this segment was pretty good, but I feel like they could have done a better job of spelling out just how much less expensive it really is to buy vs. rent. I could see a lot of people watching this segment and then thinking, "well, it might be cheaper to rent, but then you're not building equity, so buying is still better. They make it seem like the home equity trade-off wasn't a part of the renter thought process – which I'm assured it is for many lowly renters.

I mention this because it's the argument I usually face from friends and family who own. They don't believe me until they see the spreadsheet.

Also – did they say that it's 30% less expensive to rent than buy? I'd like to know where that number comes from

patriotz
Member

@Melster:

"They make it seem like the home equity trade-off wasn’t a part of the renter thought process – which I’m assured it is for many lowly renters."

The "home equity trade-off" is a completely bogus issue because it assumes before the fact that prices are going to go up. You can't assume that for anything.

If renting is less than ownership expenses – interest, taxes, maintenance, opportunity cost of down payment, etc. (but not principal payments which are not an expense) the renter is ahead.

kansai92
Guest
kansai92

@patriotz:

Everyone has a breaking point. Just because they are here now, doesn't mean they will be after tax reform.

Tax the rich all you want, it won't solve the fiscal problem.

We need lower taxes and smaller government.

No more bailouts.

Not much of a name...
Member
Not much of a name...

@patriotz: There is also an assumption that the savings on rent is not invested. When that difference is invested there seems to be a further assumption that it sits in a savings account earning 0.5%, but RE will rise at a rate of 10% forever.

Anonymouse
Guest
Anonymouse

@patriotz:

"opportunity cost of down payment"

… which could easily be negative in today's market.

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