It's difficult to tell what part of the $89 billion in real estate market equity losses in Metro Vancouver are due to government policies rather than changing market forces.
The downturn in the Metro Vancouver real estate market has resulted in an estimated paper loss of $89.2 billion for property owners in the past year, according to a new analysis.
The study used assessed values reported in January to estimate the total value of residential properties after the decline in median home prices for all housing types in Metro Vancouver between April 2018 and April 2019.
From this, it estimated the average loss in total equity value and the estimated average equity loss per household in each area.
• Vancouver, which has the highest number of dwellings at 283,915 dwellings, had a 13 per cent drop in total equity value, a loss of $43.6 billion or $153,873 per household.
• West Vancouver has fewer homes at 16,930, but it had the highest percentage decrease in median value at 14.7 per cent. This is a drop of $7.6 billion in total equity value, or $451,485 per household.
• In Port Coquitlam, where there are 21,755 homes, there was a 10.2 per cent decrease, a drop of $1.5 billion in total equity value or $71,634 per household.
Paul Sullivan, senior partner at Burgess, Cawley Sullivan & Associates, a Vancouver-based commercial real estate and property tax appraisal firm, presents the findings today.
He mainly pins blame on B.C.’s demand-side taxes, including the speculation and vacancy tax, the additional school tax on luxury properties and increase in the foreign-buyers tax, arguing, in an opinion piece published by Postmedia, that “something has to give” as homeowners are faced with rising taxes and falling equity.
The period examined by Sullivan captures the implementing of federal mortgage stress testing rules in January 2018 and the announcing of the provincial housing taxes in February 2018. These ushered in a more significant slowdown in the number of home sales and then in prices.
At the same time, other markets such as Hong Kong, Singapore, Sydney, London and New York, which had double-digit percentage gains in recent years that were comparable to the Vancouver area, also started to soften in 2018 as overseas investment from China retreated because of stricter capital controls from Beijing and because financing became harder and more expensive to obtain.
In B.C., there has also been growing scrutiny of the nature of funds flowing into the once hot real estate market.
Sullivan said in an email it would difficult to calculate what part of the equity losses are caused by various government policies and how much by other changing market forces.
He wrote in the opinion piece that the losses are not necessarily only paper ones.
“Equity can be pulled out of your home to pay for things like unexpected emergency expenses, home renovations, post-secondary education and senior care costs.”
He added that this kind of equity loss can affect other parts of the economy as homeowners tighten their budgets.
The Bank of Canada recently said in its 2019 Financial System review that households in B.C. are more indebted, as measured by having a debt-to-income ratio greater than 350 per cent, and more of their net worth is concentrated in housing than in other provinces, with Ontario being at about 42 per cent of households and B.C. at about 52 per cent.
It went back to 2015 in describing how “when house prices grow at a faster pace than can be explained by economic fundamentals, a price correction that leads to financial stress becomes more likely. This can be serious when buyers are highly indebted,.”
The numbers in the report presented by Sullivan take into consideration the number of all dwellings in a municipality, including ones that are rental households.
Other distortions come from using an average of the percentage change in average sale prices for all housing types in a municipality. In Burnaby, for example, detached homes dropped in price by 13 per cent compared to attached homes dropping only one per cent and apartments by 4.42 per cent. The average percentage drop of all these housing types, 6.14 per cent, was used to estimate the equity loss of $5.25 billion for the municipality and $56,998 per household.
The NDP government has said its various taxes and measures are part of a wide plan intended to temper home prices and stabilize an overheated housing market that had become unaffordable for too many who make local incomes. It openly aims to charge speculators and those who pay income taxes in other jurisdictions a premium for buying homes.
Provided by: JOANNE LEE-YOUNG for the Vancouver Sun