Friday, November 30, 2007

Are the lights ever on?

Drive down through the Songhees or "Humboldt Valley" at night and one thing is very striking, all these new luxury condo developments have no one living in them.

It seems this issue isn't isolated to Victoria. A great article in the Straight highlights the Vancouver situation:
  • For the 15 years between 1991 and 2006, the city grew by about 106,000 people.
  • The city also grew by about 69,000 housing units.
  • At 2.2 people per unit, that should have accommodated 151,800 more people, which could have created the conditions for a housing glut and falling housing prices.
  • Instead, housing prices doubled over that time period.
  • In 2006, there were 4,736 new housing units completed in Vancouver–the most in a single year since 1995.
  • The vast majority of those were in eastern downtown and the East Side.
  • Strathcona, Kitsilano, and Kerrisdale received the fewest number of new housing units.
  • In 2007, 3,294 new condo units will have been completed in downtown alone.

Sources: City of Vancouver Housing Centre; Statistics Canada; Canada Mortgage and Housing Corporation

My only issue with this report is the 2.2 people per unit average. I find it hardly likely that the number is 2.2; I'd bet it's closer to 1.7 as I doubt there are anywhere near as many 3 person (2 adult + child) households as there are 1 person. Anyway. It's telling non? When you go back over the historical time frame of 15 years and you offset the current influx of people with the 7-9 years of out-migration in the 90s, you get less than 1% growth in total, yet you see 5-6% (my guesstimate) growth in units available.

Perhaps this is the key information for Vancouver:
"Empty housing stock is very difficult to estimate," he said. "BC Stats has previously undertaken some analysis based on hydro usage, which indicated that four percent of all downtown apartments were identified as unoccupied in 2003, with eight to nine percent of condo apartments included in that number." In addition, he said, the 2001 census found that 2,600 downtown apartments were unoccupied.
So much for 0.5% vacancy rates, eh? When the market shows signs of cracking, think you that those owners of the empty places will be keen to hold onto a losing "investment?" Victoria is in the same boat, to a lesser scale, but I'd say the percentages of vacant properties are likely higher here.

As an aside: I haven't been around much lately I know. I actually have, but just not posting. I had let this blog get the better of some of my emotional common sense and decided a little break was necessary. I appreciate the discussion that happens here. When it tapers off as it had over the past month or two, I take it as a sign that my rants are not doing the readers, or me, any service. I'm not yet sure if the break is over.

17 comments:

Anonymous said...

HHV You are my fav and I think you bring timely discussions to life with your insights and invites to discuss and explore further.

You are doing a great job!

I think RE in Vic is stagnating, likely due to time of year but I am ever hopeful that people have had enough of paying ridiculous prices and we will see some changes in the spring.

Hang in there, enjoy your holidays, give your fiance something romantic for Christmas.

I will remain a loyal reader even in the lean times.

farfromhome

greg said...

I'm with you HHV.

Posting malaise is really for your own good, I'm sure. Its great when you get the readers involved, then hopefully some discussions can start without needing a rant!

Patrick Killelea is the best at that, he just runs his site and says very little on a regular basis. Mind you, the site says it all

Anonymous said...

Privately, even city insiders acknowledge that in some of the newer condos upwards of 60% of the units sit vacant for the majority of the year. Many of the units are occupied by absentee owners who visit Victoria for a few weeks or months at a time.

If you can afford to pay upwards of $600K for a condo that you only use for such a short period of time, then you probably are not too worried about renting it out.

Walk downtown on a Saturday or Sunday and there are FEWER people wandering around then there was a few years ago. There are still lots of restaurants closing each year for lack of business and retail shops are not bustling.

It is a myth that the redevelopment of the downtown was to add more people to the core and re-vitalize it. All that is being accomplished is that a few property owners and developeors are becoming extremely wealthy building condos for arabs and oilmen while the average folk can no longer afford to live here.

hhv said...

What I don't get is why would anyone pay Victoria prices for a few short weeks a year when they can get better locations at comparable if not better prices for the same duration? If people aren't moving here for year round, why buy here at all?

Anonymous said...

If you are wealthy enough then having a few furnished condos around the world means that you don't have to pack every time you want to take a trip and you have a familiar place to go to.

Heck look at the last owner of the Eagle's Nest. Not only was he only in Victoria a total of a few months out of the year, he had a full time staff of 5 maintaining the house all year round!

vg said...

"Its great when you get the readers involved, then hopefully some discussions can start without needing a rant!"

I have to agree with greg,if you keep changing the topic too quick then the one previous never gets a chance to develop over 4-5 days.

Prairieboy said...

HHV, I greatly appreciate the insight you provide in your blog. I can understand your funk. Same for me. I like to hide behind my charts and numbers. I haven't provided half the insight you have. Take care of yourself and yours.

Futura said...

Your rants are read and appreciated. Don't take lack of comments as a lack of interest (at least from me).

I moved here 13 months about and have been gathering information many sources (including your blog) to decide on my purchase decision.

I could buy tomorrow but I don't have to.

The correction has already started. To take full advantage I just gave up the house I'm renting and decided to sign a one year lease on a two bedroom apartment in Cook Street Village.


So I'm going to live cheaper in a cool neighbourhood, building an even larger down payment, as I watch RE prices fall.

HADENOUGH said...

Not to be dramatic but you have saved me from being frustrated all the time and taking it out on my husband.

I never wanted to move here in the first place and now we have 4 kids and no space and jump from 3,000 sq. ft. in Oak Bay to something larger is so huge we can't afford it. We own and don't rent but need more space.

I can read b logs and feel a bit better that there are people that think like me. I can also get important information.

Please keep it up.

vg said...

As if we all here didn't know this but as predicted sooner or later they have to break it to the masses that all good things come to an end.



B.C. economy weakening but surplus still expected

Deteriorating U.S. economy, high Canadian dollar and volatile commodity prices pose risks to B.C., says finance minister
Taylor warned that a deteriorating U.S. economy, high Canadian dollar and volatile commodity prices pose serious risks to B.C.

The U.S. housing index is currently at its lowest level on record.

"At some point, what's going on in the States will inevitably affect not just Canada, but British Columbia," she said.



http://www.canada.com/victoriatimescolonist/news/story.html?id=96901fd9-e0ad-4d38-99bb-d7138ce2ab2c&k=39119

greg said...

Looks like Taylor is picking a good time to get out of provincial politics, if things turn out the way they are looking, economically.

Anonymous said...

Yay, hhv is back. I was seriously starting to get worried. I enjoy very much what you write, your point of view is always appreciated. I may not post much but this is one of my favourite blogs. Don't burn out now, the really interesting part is coming up real soon.

homewardbound

roger said...

HHV,

Interesting post about these dark condos. I was on craigslist today and saw a lot of condos up for rent in Bear Mountain. The rents range from $950 to $1600 and are well below the owners carrying costs. They must be hoping for the big capital gain in the future while they lose money today.

Then I dropped by Canadian Mortgage Trends where they discussed Debt Service Ratios Easing. Seems like the lenders want to make it easier to qualify for a mortgage by changing the Gross Debt Service (GDS)and Total Debt Service (TDS) requirements for borrowers.

Quotes from the article:

Gross Debt Service (GDS): The percentage of the borrower’s income that is needed to make all payments for costs associated with housing.

Total Debt Service (TDS): The percentage of the borrower’s income that is needed to cover housing costs (GDS) plus any other loans that an individual has, such as credit cards and car payments.

The acceptable ratios for both have generally been 32% and 40% respectively.

Now, various lenders are dropping GDS requirements altogether and bumping their acceptable TDS ratios up to 44%. On an exception basis, clients are sometimes approved with TDS ratios of 46% or more.

If you've got a big enough down payment, at least one lender will even waive their GDS/TDS requirements completely.


CMHC and the Mortgage lenders seem intent on blowing the bubble bigger and bigger. I feel sorry for the folks being conned into taking on these huge loans and being mortgage poor in an overpriced home. The shock and outrage when the market corrects is going to be ugly.

Tony Danza said...

Anonymous November 30, 2007 9:50 PM,

It is also a myth that even 10% of Victoria's condos have been bought up by rich foreigners and Albertan oil sheiks. Think about it for a little while, why would a wealthy person want to stay in a two bedroom condo when they come to Victoria over the Empress or other such fancy digs? The wealthy are much more frugal than you would imagine and they will not be propping up this market for you or anyone else.

Anonymous said...

Roger - you cannot say the rent is below the carrying cost.

I know many people (in the wealthy category) do not put down 5,10,15, or 25%.

Some pay for their second homes outright or very high downpayments.

And 1600 rent on a place you bought two years ago for a 2bd for 275 is not a bad deal in my opinion.

hhv said...

"you cannot say the rent is below the carrying cost."

Actually, you can if you understand the definition of "carrying cost."

Mortgage Broker said...

HHV,

Happy New Year. Just to toss in another 2 cents, most rental property clients we see put down 5-10% or less. In that case you're hard pressed to earn a good return on most NEW rental properties in BC--given the mortgage, taxes, maintenance, etc.

Here's an anecdotal story we did on renting versus buying earlier this month.

It seems the biggest money is often made by Vancouver/Victoria investors who don't need a mortgage. But, even then, the opportunity cost of money means that you better find a good buy if you want to cash flow properly.

Cheers,
Rob