Tuesday, July 11, 2017

Praying For a Real Estate Crash

A year after getting married, Alex Taylor and Rachel Tuttle decided it was time to buy a home and start a family. The two Vancouver residents were in their late 30s, and each had stable, full-time jobs—Taylor served as an urban planner while Tuttle worked for a credit union. They were debt-free, and after years of hard work, frugal living, and the sale of a previous home Tuttle had owned in England, they had a down payment ready. The couple figured they could buy a fixer-upper in Vancouver’s historically low-income Downtown Eastside neighbourhood. But soon after starting the hunt in 2015, their hopes were dashed. Detached homes were averaging $1.2 million, and even though Taylor and Tuttle qualified for a mortgage, they would have faced steep monthly payments of $4,000. They adjusted their expectations and set their sights on a townhouse on the outskirts of the city. Still, the cost was too high. “It felt very risky to put that much of your savings into one investment,” says Tuttle.

That risk hasn’t stopped plenty of their peers from diving into the white-hot real estate market. Some got in before the bubble; others took the plunge more recently in a fit of panic as it seemed prices would never stop escalating. Taylor and Tuttle sensed an opportunity last year, when the province put in a place measures, including a foreign buyer tax, to temper runaway house prices. Sales slumped, but prices are picking up again. “It’s discouraging,” says Tuttle. “We look at people who bought two years ago and they’ve now made 30 per cent on their purchase. You definitely feel like you’ve been left behind.” Taylor is tired of talking about the issue. “I know it’s mean to say and I know it would hurt those of our friends who completely over-extended themselves,” he says, “but honestly, we’re praying for a crash.”

He’s not the only one. As prices in Vancouver and Toronto have skyrocketed and affordability has eroded, scores of Canadians fear getting permanently shut out of the country’s two largest regions. Paying for all of the costs associated with a detached home in the Vancouver area requires 121 per cent of median household income; for a condo, it’s 46 per cent of income, making it Canada’s least affordable city, according to economists at the Royal Bank of Canada. Toronto isn’t far behind. Aggregate housing costs are 64.6 per cent of income, the worst level since 1990, when interest rates spiked.

Soaring prices have for months stoked resentment between the haves and have-nots of housing, as young, educated Canadians who in the past could be assured a shot at purchasing a home and achieving financial stability feel the opportunity slipping away. With every price spike, the antipathy has deepened, but the hostility has come into sharper relief after Ontario followed B.C.’s example this spring by introducing its own market-cooling measures. In May, sales dropped 20 per cent compared to the year before in the Greater Toronto Area while active listings surged 42.9 per cent from a record low. Those are the kinds of numbers that cause indebted homeowners to sweat, but serve as a balm for those on the sidelines in Toronto: like Taylor in B.C., many now openly cheer for the market to collapse.

Nowhere is the antagonism more evident than on social media. Facebook and Twitter are home to daily (even hourly) outrages, of course, but a recent Toronto Life article touched off a firestorm and revealed deep frustrations about the state of the housing market. The author, Catherine Jheon, recounted the “nightmare” renovation she and her husband undertook, sinking hundreds of thousands dollars into a “crack house” purchased almost on impulse, with seemingly little to no concern for the low-income tenants who were evicted in the process. Many saw the couple as the worst kind of gentrifiers: privileged, callous and clueless. Jheon and her husband made numerous bad decisions during the renovation, but were still able to continue borrowing money (including from a wealthy relative) and ultimately rewarded for their fecklessness with a palatial detached house in an up-and-coming neighbourhood. On social media, readers expressed intense loathing (“I hate these people so much,”) threats of physical violence (“Dear god, I want to punch them in the face,”) and a longing for karmic justice (“I’ve never wanted the entire real estate market to completely collapse until now”).

It’s not all jealously, envy and social media griping. Missing out on home-ownership often means missing out on housing stability and security. Rental markets in Toronto and Vancouver are extremely tight, units suitable for raising families in are highly coveted, and being subjected to the whims of a landlord can make for a precarious existence. Hundreds of tenants in Toronto’s Parkdale neighbourhood, for example, have been withholding payments for more than two months to protest steep rent hikes in apartments meant to be rent-controlled. Many believe the goal is to squeeze them out so the building’s property management firm can re-list the units at market rates, well above what the current tenants are paying. Last month, the firm’s CEO nearly ran over a tenant advocate with his truck. (...)

“A lot of people have these totally unsustainable lifestyles they’re only able to pull off because, by doing nothing but sit on their ass, their net worth goes up by a few grand every month,” says Toronto resident Phillip Mendonça-Vieira. “I don’t think there’s anyone who doesn’t own property who’s not secretly, like, ‘F–k you, guys. This is unsustainable.’” Mendonça-Vieira has taken a keen interest in housing. He co-founded a group called BetterTO to organize discussions on issues facing the city—the first, held in March, focused on housing. The 30-year-old has shared a rental for the last two years; the owners of the house took advantage of the city’s exorbitant prices and cashed out a few months ago. Mendonça-Vieira faces the prospect of moving again, at a time when he and his partner would like to settle down in preparation for having kids in the near future. Had Mendonça-Vieira, who runs a small startup, and his partner, a lawyer, been in this situation a year or two ago, they might have been able to purchase a home. But then the average home price soared more than 30 per cent since the start of 2016 alone. “Frankly, it’s kind of inconceivable to own a house,” he says. (...)

What makes matters more frustrating is homeowner opposition to rental and multi-unit developments. “We have a housing shortage, and a large group of people who don’t want more housing—often people who already have secure housing, and who get richer if there is a shortage,” says Daniel Oleksiuk, a member of Abundant Housing Vancouver, an organization that advocates for changing zoning practices to build more multi-unit housing. “There’s a class of landowners that passively grow wealthy, and another class that’s struggling to pay rent,” he says. “That’s not the Canada I learned about growing up.”

by Joe Castaldo and Catherine McIntyre, Macleans | Read more:
Image: uncredited
[ed. It ain't just Canada.]