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episode # 247

Vancouver Housing Market Outlook 2020/21 with Professor Tom Davidoff

What is happening in the Vancouver real estate market? Covid-19 cases are rising, the NDP just won a majority in BC, the US Election is around the corner… and everyone is nervously awaiting to see what Justin Trudeau dresses up as for Halloween. Professor Tom Davidoff, Associate Professor and Director of the UBC Centre for Urban Economics and Real Estate at Sauder School of Business, joins Adam & Matt to cover all things Vancouver real estate. Does the current market make sense? What new buying trends are here to stay? How will municipal, provincial, federal and politics beyond impact our market? And what is Tom’s prediction for the Vancouver real estate market for the last quarter of 2020, 2021, and the foreseeable future. This is an info-packed episode that is a must listen for any real estate enthusiast. Grab a handful of snack-sized chocolate bars and listen up!

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Episode Summary


Tell us about yourself.

I am an economist and I study housing, mostly. I teach economics and real estate at the Sauder School of Business at UBC. I’m involved in local political issues and would like to think the speculation tax was my idea. We have a lot of single family zoning in Vancouver and I think that has made it harder for us to respond to the housing crisis.

Do you ever get bored with Vancouver real estate?

I never get bored! What an endlessly fascinating market we have. On my last appearance on the podcast, I didn’t understand how bad covid would be and I thought if it did get bad, it’d be terrible for the housing market. And how wrong I was. It hasn’t been great for downtown real estate but people want more space, which boosts the market.

How does Vancouver real estate relate to larger real estate trends during Covid-19?

I like to think of my two friends when it comes to the changing market. One of my friends bought a luxury apartment in New York City. The other has a suburban house. The one with the suburban house in New York could not sell it for the longest time. And then covid comes along, and the guy in the Manhattan apartment is living far away to give his family more space. He’s not even bothering to rent his Manhattan apartment because the rental market is bad. And the guy with the suburban house was able to sell quickly.

The demand for single family has been out-stripping condos, which isn’t something we’ve seen for a long time in Vancouver. This is a correction I think should’ve happened anyway, but it got pushed there by covid.

Will Covid-19 create new real estate investment opportunities?

Well, that’s the question. Is the world going to change? That’s a hard question to answer. A long time ago a great economist, Edward Glaeser, asked if the internet would kill cities, since people didn’t have to meet in person. On the other hand, he wondered if cities would flourish with everyone connecting over the internet and wanting to network in person. And that’s what happened.

But now with covid, we wonder how people used to commute for an hour and a half in traffic to get to and from work. It’s a big waste of time and resources, including the environmental damage, especially for people who would fly for meetings.

My instinct is we will go back to people wanting to live in cities and meet face to face, but who knows? 

We’re seeing depressed rent and rising vacancy rates downtown as well as undervalued property. Is downtown Vancouver in decline?

I grew up in New York City in the 80’s and you didn’t want to be in the city. You wanted to be in the suburbs. Part of that was crime and neglect. The big problem with homelessness is you have people like you and me who are out on the streets suffering. It’s sad and that’s why we should fix homelessness; we shouldn’t fix it because of the people who have comfortable homes. But people will flee the city if it isn’t a nice and pleasant place. The number of people who are homeless will increase with a worsening housing crisis. It’s possible that neighbourhood decline related to homelessness will get worse going forward.

We’re seeing stores boarded up and increased inventory downtown. Will tourists and renters return to downtown Vancouver?

Tourism will come back once covid is over, so that will affect downtown. My instinct is we’re seeing an overreaction and too much decline in the city. That’s my best guess. But you do have a fiscal mess, rising homelessness and who knows how much political instability. My best guess is there will be a correction after covid but there’s a possibility it continues going down.

Is Kennedy Stewart a good mayor of Vancouver? Is the Vancouver City Council doing a good job?

Kennedy Stweart is always a yes on turning places like parking lots into apartment buildings. He’s clearly been an advocate for more density. He wants the subway built to UBC and not everyones want to fund it. On the big picture issues, I think Kennedy Stewart’s been good. He hasn’t solved hoemlessness single-handedly but I don’t think he could; it’s a very big issue.

The council is very multi-party so it feels like things get held up and there’s no cohesive vision for the city. The council is very divided. It’s great that multiple perspectives are there but it’s hard to get things done.

How is the Covid economic recovery different from past recessions? How does a K-shaped recovery impact Vancouver real estate? 

So that means the top of the market is doing just fine while people at the bottom, like service workers, are in the worst position. That’s the way the world has been going for some time now. If you’re a barista and covid shut down your coffee shop, you’re in trouble. Whereas realtors, lawyers, professors and similar are doing just fine. Some of us are really lucky and others are facing not being able to pay rent in the middle of a pandemic. It’s hard to not see that continuing.

How does increased inequality impact the real estate market?

We might see marginal buyers get pushed into the rental market but renters also have less income. It’s complicated to think how it will affect the market. Income inequality is generally bad for housing markets because if you take money from the bottom and give it to the top, that’s bad for aggregate housing consumption. But it’s more complicated when you look at ownership vs renting. Low income people generally aren’t owners. When you look at Vancouver, a global city, there’s more demand for property in Vancouver as the global elite move in.

Did housing policy help the NDP win the BC provincial election?

The loss of the BC Liberals could be because they were over determined. They did terribly and the NDP really cleaned up. I think because people feel the pandemic was relatively well handled, they gave the current party the win. I don’t think housing had much to do with it. But housing was interesting in a few ways. The NDP has been pushing for more social housing, they have the speculation tax and the school tax, and they’ve been pushing for rental housing. But that wasn’t an emphasis in their campaign.

The BC Liberals wanted to swap out the speculation tax for a tax on pre-sale flipping, which I thought was a terrible idea. The speculation tax helps when we have too many people chasing too little real estate. Taxing flips on pre-sales is fine as an idea but it doesn’t improve affordability. Wilkinson was basically saying if you buy a property and hold it empty, we won’t tax you, but if you sell it before it is built and don’t hold it empty, we will tax you.

I will give them credit: The BC Liberals did say municipalities are not providing enough affordable housing and it’s an incentive problem. Each municipality kicks the can of density down to the next community. I thought it was good that the Liberals identified this as a problem.

How will the US election impact Canada and Vancouver?

I will say I’m biased. I hate the Republican party – I always have and I imagine I always will. I think Trump is pure evil. That’s a personal view. I disagree with a lot of what he’s done economically but I think he’s a bad guy, personally.

Some polls are showing 80% for Biden. The Supreme Court is very interesting; you now have a very right wing court. I think they will take a lot of steps to suppress votes. Many states count mail-in votes after the election. Trump may ask the Supreme Court to put a stop to counting after election day.

There’s then the question of if Biden can win states like Florida or Texas. If he wins one of those, it’s game over. If not, it’s going to be some ugly weeks. People will not like the election uncertainty. It will hurt the market and it could be bad for global growth.

A lot of us thought a Trump-win in 2016 would see a big US exodus to Vancouver. But that didn’t happen. However, it could happen after his second win. If Biden wins, I don’t think people will flee the US. You wouldn’t have the same instability or uncertainty as you would if Trump won.

Will Justin Trudeau and the Liberals take away the capital gains exemption for homes?

If you look at the school tax the BC NDP put in, they went after a small group (homes over $3 million). That’s where most people benefit and just the top lose. So the federal Liberals would probably do something similar where there would be a capital gains tax exemption for people at a lower price point. I think it would be smart to have an exemption for a certain amount of gains, and it’s just a question of where you put the threshold.

Would you buy Vancouver real estate right now? What are your predictions for the future of Vancouver real estate?

I just spoke with a realtor and they said we’d see a downturn that’s going to get worse through December. The idea being that we didn’t have a spring market so the summer was making up for that. I’ve always thought the longer the covid run, the worse for the market, but we haven’t seen that yet.

However, while covid cases are up, mortgage rates are low. I’d hate to pass up those mortgage rates but I would probably wait a few months and see what happens in the winter. In Alberta, I wouldn’t be buying but in BC, I would wait a few months and then buy. In condo the opportunity might be there already. The play today might be a downtown condo and hope it’s overcorrected.

The market has been pretty resilient so far. The rates really are unbelievable. The first time I bought a house, people were excited when rates were below 7% and now we’re at 1.75%. You don’t need a lot of rent to justify buying at those rates but the question is: how long will those rates last?

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