Unaffordable Housing: Offshore buyers, Open Markets and their impact on Protection Planning
24/03/2016 10:56:59 PM //
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It tells us that according to “the local real estate board” the average detached home in Vancouver has increased in value by 30 percent year-on-year (February) and that sales have gone up by a massive 37 percent. Sure, some will be rubbing their hands but for average Vancouver resident this is just plain bad.
Living in Hong Kong we know this phenomenon only too well and have lived with unaffordable housing, on and off, over the last few property cycles. The pain and social angst caused by the present cycle has been especially painful for those who have not been able to afford to buy or those who have been savaged by ever rising rent.
Hong Kong is currently feeling some relief from the rocketing prices of the last half decade or so but it may be short-lived as the value of developers has bounced hard of recent lows.
Our local market is small, very open (in some regards) and very heavily manipulated. Historically our government has a less than stellar record in terms of how they have controlled the availability of land; their efforts usually resulting in excessively tight/surplus supply coinciding with wider cyclical slowdowns/booms. This time around we have also been ‘experimented on’ with various Macro Prudential efforts aimed at controlling demand.
The efforts have been on two fronts: our banking regulator has had an eye on lending and our government has applied additional temporary taxes to property transactions. The latter seems to have had more of an effect than the former. There is a fascinating IMF paper on this for the macro wonks out there.
Today’s Bloomberg piece tells us that the National Bank of Canada is looking at the issue and that the “National Bank’s analysis follows the federal government’s budget announcement Tuesday that it will spend C$500,000 to find ways of tracking foreign homebuyers.” It adds that “Somesaid the money wasn’t enough for a proper search and analysis.” We tend to agree.
All of this leaves us wondering if the powers that be in Vancouver, and in other property ‘hot spots’, will enjoy any more success than the very limited success we have seen in Hong Kong. Until such time that excessive liquidity and very accommodative monetary policy are replaced by higher rates and tighter liquidity it is hard to see any tinkering being effective.
In any event, we hope that there is some relief soon. Tragically, when people are forced to spend more than they should (>30%) on housing (buying or renting) then they have too little spend on their wider retirement provision and the all-important basic elements of financial planning such as life cover to protect their families in the event of death. We’ll talk more about life cover and protection planning in our upcoming blogs.