The Housing Bubble

A report from Global News in Canada. “The Real Estate Board of Greater Vancouver says that home buyers weren’t very active in February as sales dipped below the long-term average. It says last there were 2,207 sales in February, a 9 per cent dip compared to last year, and more than 14 per cent below the 10 year monthly average. By property type, the board says detached properties were down more than 39 per cent. President Jill Oudil said that rising interest rates and stricter mortgage requirements have reduced purchasing power for home buyers, especially for those just entering the market. ‘We have also seen the detached category, it’s moving into… more heading towards the buyers territory as far as a buyers market there.’”

From Buy Association on the UK. “A new crackdown on UK property being bought using ‘murky’ money from overseas has seen the first ever instance of the National Crime Agency issuing two unexplained wealth orders (UWOs) on £22m worth of London and south-east property. A ‘politically exposed person,’ said by the Financial Times to be a central Asian politician, who owns a range of homes and offices in London and the south-east, is the first person to be investigated using a UWO by the National Crime Agency (NCA) – a measure which first came into effect on 31 January.”

“Donald Toon, NCA’s director of economic crime, said: ‘Unexplained wealth orders have the potential to significantly reduce the appeal of the UK as a destination for illicit income. They enable the UK to more effectively target the problem of money laundering through prime real estate in London and elsewhere.’ He added: ‘We are determined to use all of the powers available to us to combat the flow of illicit monies into, or through, the UK.’”

“According to anti-corruption campaigners, more than £122bn worth of property in the UK is owned by overseas firms, and it is vital that any of these properties where the owner cannot prove the origins of their funding should be investigated.”

From the Business Standard on India. “As many as 440,000 housing units were unsold in seven major cities at the end of 2017 with Delhi-NCR contributing maximum at over 150,000 property consultant JLL India said. JLL said, ‘as many as 440,000 residential units remain unsold across key cities of India at the end of 2017.’ Mumbai, Delhi–NCR, Chennai, Hyderabad, Pune, Bengaluru, Kolkata are seven cities covered in this survey.”

“Out of the total unsold housing stock, the consultant said, 34,700 units are ready-to-move-in flats. Delhi–NCR has the highest volume at around 1,50,654 units which remained unsold in 2017, while Chennai has the highest percentage of completed unsold inventory at close to 20 per cent. Upon analysis, Noida and Greater Noida together contributed to nearly 60 per cent of the total unsold inventory, mostly in under–construction projects. ‘Noida and Greater Noida have had a tumultuous past because of which, end users are circumspect in making their purchases,’ JLL said.”

From the New Zealand Herald. “Auckland’s average house sale price dropped by just over $15,000 in the last month while the city’s median fell $10,000, according to new data out this morning from Barfoot & Thompson. The agency, with more than 40 per cent of the city’s house sales market, today announced January’s $934,753 average sale price fell to $919,454 last month while January’s $830,000 median dropped to $820,000.”

“The number of Barfoot listings is up. Inventory jumped from 4320 available listings at the end of January to 4648 listings at the end of February. New listings rose from 1200 in January to 1747 last month. ‘Sales numbers for the month at 665 were up 12.1 percent on those for January, and were up 19.6 percent on those for the previous February. The average sales price at $919,454 was down 1.6 percent on that for January, and down 1.1 percent on the average price for the previous three months. A feature of February’s trading was the relatively high number of sales of properties valued at under $500,000,’ said Peter Thompson, Barfoot managing director.”

From The Australian. “Chinese buyers are returning home empty-handed as Chinese New Year, the 10-day holiday characterised in recent years by buying an offshore trophy home, draws to a close. This year, hopeful buyers have been caught by restrictions on transferring funds out of China and reluctant local banks asking for evidence of income earned in Australia rather than overseas.”

“The slower sales come amid a broader cooling with prices falling 1.2 per cent across the capital cities over the past three months and Sydney posting its first annual price drop since 2012. Treasurer Scott Morrison said in April that foreign investment applications for residential housing had fallen to an expected 15,000 last year from 40,000 the year before. ‘We’ve been very busy showing the properties but as far as transactions go, they’re down on last year, mainly because people are having trouble getting the finance,’ ­Sydney Sotheby’s International Realty managing director Michael Pallier said.

“Non-resident buyers can buy only new property, not an established home, under Australian regulations. Monika Tu, founder and director of Black Diamondz Property Concierge, had more than a dozen clients — including Kathy Zhou and Nicole Shi — flying into Sydney for the holiday, with her buyers recently receiving permanent residency and now looking for somewhere to live.”

“Credit Suisse research in October found that foreign buyers, mostly from China, were buying about one in four new homes sold in NSW, 17 per cent in Victoria and 8 per cent in Queensland.”

The Vancouver Courier in Canada. “My take on the NDP affordable housing strategy: they wimped out. So I find it amusing to watch while people set their hair on fire over the provincial government’s modest attempts to cool down the real estate market. The influx of Chinese — excuse me — foreign capital has been at the heart of escalating real estate values here and many places around the globe.”

“Anne McMullin, the CEO of the Urban Development Institute, was left to sing that same old song: we need more supply to increase affordability. She also predicted that adding or increasing taxes such as the foreign buyers’ tax will only drive prices up.”

“But the simple fact is, as a number of academics have concluded, and the Globe and Mail’s Kerry Gold has reported, the problem is not supply — it is a matter of the right kind of supply. We produce more new units of housing per person coming into Metro Vancouver than Toronto or Calgary. But it is the kind of supply that appeals to wealthy foreign and domestic speculators not your average working stiff. If, as Simon Fraser University’s Andy Yan points out, you can only afford a Honda and all the cars in the show room are Lamborghinis, well, welcome to Vancouver.”

“Of course, Metro Vancouver isn’t the only place plagued by housing affordability. That why the NDP’s proposed changes extend beyond here and will include Victoria, Nanaimo and bits of the Okanagan. This has caused the mayor of Kelowna, Colin Basran, to have a severe case of the vapors. ‘There may be some dire unintended consequences,’ he gasped to the CBC. He predicted that taxes like the empty home tax ‘is potentially going to stop people from investing in our economy.’”

“Exactly. Because that is part of the problem: Housing is treated as a commodity, like a stock share to make a profit off of and not a place to live.”

“Barrie McKenna, writing in the Globe and Mail. is even more alarmist. He says if B.C.’s Minister of Finance Carol James ‘gets her hoped for real estate correction, it could push many home owners into default, depress retirement savings and even trigger a recession.’ Wow. Of course it is not declining house prices that would stretch people. Assuming they could handle their mortgage payments when they bought their house, it would be raising interest rates that may cause them grief.”

“He also argues parents will have less money to pass on to their kids if prices drop. Well, if prices drop, the kids will need less money to buy their little piece of heaven. Of course, he may want to talk with Anne McMullin (see above) about her prediction that prices will actually go up as a result if the NPD’s measures. In fact, if I have any criticism of the plan introduced in the NDP’s budget last month, it is this: It simply did not go far enough. At the very least they should have banned foreign ownership of residential property in this province.”

“Last month Premier John Horgan headed out on a trip to Asia as generations of Canadian premiers and prime ministers have done before him, searching for foreign business and foreign capital to be invested here. Before he left he had this to say about banning foreign ownership of residential property as is done in New Zealand: ‘British Columbia is the gateway to Canada and I don’t believe we should be curbing people from coming here. I’m the child of an immigrant. Virtually everyone I see here is the child of an immigrant.’”

“Nobody asked about immigrants. But his answer reminds us that one major reason for the housing affordability problem is that governments of every stripe crave real estate-generated foreign capital filling their treasury to the point they are willing to be duplicitous.”