Vancouver's "King of Condo sales" is a helluva salesman, and a trigger for debate
Post has been updated with a clarification on the condo rental figures – see below.
Last week Bob Rennie, one of the people who took the idea of "selling the dream" to new heights in the Vancouver condo housing market, made his annual speech at an Urban Development Institute (UDI) luncheon. The topic of his speech was "What if it's not a bubble?" Rennie was positing the idea that the bottom is not about to fall out of Metro Vancouver's housing market, despite a decade of almost unrelenting price inflation.
What makes Rennie fun to write about is the inevitable reaction from those who don't see the world through his realtor's lens. In his UDI speech last week Bob asserted that one only needs a household income of just over $50,000 to get into the low end of the housing market as an owner. It sounds like a bold claim, but Rennie seems to have the numbers to back him up. Rennie admitted he needed good data if he was going to be credible, so he enlisted the help of the Urban Futures Institute.
A few details of Rennie's speech were splashed out onto media, such as in this Vancouver Sun coverage, and a short interview by CBC On the Coast host Stephen Quinn. Quinn's interview was interesting partly because of the undercurrent of frustration evident in the host's questions. He clearly was not there only to be persuaded by Rennie's numbers, but to challenge the realtor's analysis.
As Rennie says to Quinn, "if Bob's going to be optimistic, he's going to need a lot of data." Here are some of the details he presented.
- The market indicates that "you have to build differently". Rennie interprets the growing market of aging baby boomers in the market means that developers must build many more larger one bedroom units.
- Between 2009-2018 – 65-74 y.o. population is going to grow by 58%.
- 55-64 y.o. grow by 36%
- "Working/tax-paying population" (35-54 y.o.) only grows by 4.6%
- According to Urban Futures' statistics, the amount of clear title home ownership by 55-74 year olds in Metro Vancouver is valued at $88 billion (113,000 homes, average $777K).
- Where is first time buyer getting all this money? Out of 3,900 pre-sales "from Vancouver to Langley" in 2011…
- Two per cent put down a 5% deposit
- Two per cent put down a 10% deposit
- Rennie's Answer: Aging baby boomers and their parents are "cashing out, and helping their kids. In part to maintain their lifestyle." They're risk averse and real estate is a safer investment.
Rennie looks at the average condo prices, and determines that home ownership is not out of reach of many buyers. Of 19,300 condos registered in land registry in 2011 (the average price: $427,000), the bottom eighty per cent is averaged at $315,000, which according to Rennie only requires $52,800 downpayment.
Pressed by Quinn on how many units were bought by real estate speculators, he had some more facts at his fingertips. Of 414 buyers at Marine Gateway, 170 responded to a survey. Of these 170 buyers, 62% were "investors" and 38% were home buyers. Quinn underlines that "two-thirds" of these buyers are buying in the hope the price will go up.
Rennie counters by pointing out that of this 62% who "invested" in a unit, half of them will move family into them or re-sell the units. The other half will simply hang onto them after putting 35-40% down. In this scenario the market has created 128 units of rental supply. And because the investor has put over a third down already, they are effectively creating subsidized housing supply. In a region that is twisting itself into pretzels on how to make affordable rental housing, Rennie seems to be saying it's staring us right in the face.
Rennie also states that while he doesn't sell houses, he believes that eighty per cent of home purchases over $2.5 million on Vancouver's west side are made by Chinese buyers.
The whole of Vancouver, says Rennie, should now be looked at as the "Shaughnessy/Kerrisdale" (expensive part) of Metro Vancouver, and the suburbs are what East Vancouver used to be – relatively affordable. This explains why Rennie repeats the mantra that rapid transit is what buyers are looking for near their home purchases. Reliance on automobiles is declining among young people, Rennie said on The Bill Good Show. "Today young people don't need their cars to get laid, they use their iPhones," he quipped.
UBC professor of land economics Tsur Sommerville commented on Rennie's findings. "Compared with other cities, that income [$52,800] gets you a house," he said.
"Here, it gets you a condo. That means we're expensive, but that's the reality of what we are. "It's still an expensive place to live, but it's not unaffordable. You'll end up smaller and further away from the core."
Is there a housing bubble in Vancouver? Bob Rennie says no. If he's not right then we can expect the market to be flooded with home sellers waiting for it to burst.
- post by Mike