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?
This post was submitted by patriotz.