If You Want To Get Things Going, The Core Of What’s Wrong Is The Housing Market Is Going Down, Not Up

A weekend topic starting with Miami Today in Florida. “With investors being about 90% of buyers, the Brickell condo market demand is comprised of mostly Latin Americans seeking local long-time renters or short-term renters for visitors, luxury condominium developers say. Developers in Brickell are actively adapting to the growing trend of short-term rentals by designing and building new buildings specifically intended for short-term rental use. Approximately 50% of the current rental supply in Brickell is now dedicated to short-term rentals, according to Santiago Vanegas, CEO of Habitat Group. ‘As buildings rise, so does market interest; it’s a natural progression. There’s a lot of older condo inventory sitting on the market as well, but new buildings are the ones getting the attention,’ said Michael Patrizio, the managing director of Mast Capital.”

The Post Independent. “Home prices in Colorado’s mountain resort communities have skyrocketed over the past 13 years. A study by the Colorado-based think tank Common Sense Institute shows home prices in seven Western Slope counties — Eagle, Garfield, Grand, Pitkin, Routt, San Miguel and Summit — have more than doubled or, in some cases, tripled since 2012. While on paper, resort communities may appear to have a healthy housing stock relative to their population size, a large chunk of those units sit empty throughout the year because they are either used as vacation homes or short-term rentals. The Colorado Association of Ski Towns estimates that in some mountain communities, more than 40% of homes are vacant.”

From AZ Big Media. “For years, Arizona’s low cost of living and housing in Arizona made it a draw for people from all over the country. But Arizona is no longer the state it once was. According to a new Arizona State University study, the cost of living has increased and now surpasses the national average. And although new home construction hit a record high in 2023, the cost of housing outpaced increases in earnings, causing home purchases to decline 22% compared with 2022. From 2010 to 2014, the typical home value in Arizona nearly doubled — a 91% increase after adjusting for inflation. By March 2024, the typical home price reached $427,272, while the median rent was $1,600. Mobile and manufactured homes, which were typically one of the most affordable housing options in Arizona, also became a more expensive and inaccessible option. While manufactured homes increased in price by 35% nationally (to about $61,000 since 2016), the cost of a new mobile home in Arizona rose by 80% from 2017 to 2022, to more than $160,000. Mobile home rentals increased from $400 a month in 2019 to more than $1,000 in some areas.”

From Bisnow. “For developers trying to finance an affordable housing project, the process is like putting together a jigsaw puzzle — but every piece comes with a fee to take it out of the box and requires attorneys and consultants to advise on how to place it. The biggest piece of that puzzle for the vast majority of new construction affordable housing is the Low-Income Housing Tax Credit, which costs the U.S. government more than $14B each year — a number set to rise in the coming years. But the way the LIHTC is administered dramatically increases the cost of building affordable homes. In markets from Massachusetts to California to Chicago to D.C., projects using the tax credits routinely cost more than $800K per unit to build, and in some cases more than $1M. Market-rate apartments, by contrast, typically cost less than $500K per unit.”

“The tax credits developers receive are often sold to banks, insurance firms and other large companies looking to minimize their tax liability, and developers use the money as equity in their projects along with other state, local and private sector funding sources. ‘The word ‘affordable housing’ is an oxymoron,’ said John Cruz III, CEO of Boston-based affordable housing development firm Cruz Cos.. ‘Because it’s expensive as shit to provide.’ When a partnership between The Michaels Organization and the Housing Authority of the City of Los Angeles gained approval last year to replace a piece of the Jordan Downs public housing complex with a new, 75-unit building, the developers had to piece together six funding sources to cover the project’s total cost of $66M, or $880K per unit. Building LIHTC-funded affordable housing in California costs 1.5 times as much as building market-rate housing, according to an April study by the RAND School of Public Policy in Santa Monica. “

The Globe and Mail. “There was a time when the development industry and some policy makers insisted that foreign buying in B.C. was either non-existent or irrelevant. Responding to growing public pressure and mounting evidence, nine years ago the Liberal government slapped a 15-per-cent foreign buyer tax on foreign property purchases. That was increased to 20 per cent when the NDP took over. And then, in January, 2023, the federal government put a temporary ban on foreign property purchases, extending the ban in January, 2024, for another three years. Ron Usher, former general counsel for the Society of Notaries Public of B.C., and presenter at the Cullen inquiry into money laundering, said that before opening the Canadian market up to foreign property investment again, governments need to ensure that existing laws are being enforced. For example, the province’s Land Owner Transparency Act was created to prevent hidden ownership behind a corporation or a trust, and potential money laundering and tax evasion. Beneficial owners are supposed to file a declaration. But Mr. Usher said he doesn’t know of any public record of a single enforcement of the law. ‘They will not release the information, and there are apparently tens of thousands of non-compliant properties,’ he said.”

“Ross McCredie, founder of Sotheby’s International Realty Canada, and chief executive officer of Sutton Group, said easing up regulations around foreign buying won’t bring jobs back or kick-start construction. ‘It’s too late,’ said Mr. McCredie. ‘I feel bad, because many of these developers were addicted to this model, and lived in this model, overpaid for a lot of pieces of land, thought they could do the presales, the government comes in and does everything [to make it] difficult for the investor.'”

The Vancouver Sun. “The slump in condo presales in the Lower Mainland has resulted in fewer projects being launched and fewer units coming to market, new numbers have confirmed. Only 35 projects were launched between January and July in Metro Vancouver and the Fraser Valley — 40 per cent below the five-year average, according to MLA Canada, a real estate sales and marketing company. Fewer than 400 units were sold during that period, an 85 per cent drop from historical figures, MLA Canada said. A glut of more than 4,000 new condo units — either complete or in projects near completion — remain unsold in the Metro Vancouver market, according to Rennie Marketing Systems. Reduced foreign investment, high interest rates and softening rental income have led not only to a slump in the presales market but also coincided with a number of court-ordered sales and projects facing receivership.”

“Recent examples of projects going through receivership processes include the luxury CURV tower in Vancouver’s West End and the chic Chloe building on the west side. Some presale buyers of units at CURV have asked for their deposits back. The receiver for the Chloe project, a low-rise residential and retail building, is also trying to recoup over $90 million owed to lenders. It is preparing to sell 24 condo units with asking prices that are between 25 per cent and 30 per cent lower than what some presale buyers paid for them. One-bedroom units that had been priced at $1.1 million will be offered for under $749,000, according to real estate agent Suraj Rai, who is looking at initial price sheets. ‘Land prices went crazy, but that’s the free market where there’s demand for land. A lot of developers will admit that they probably paid too much for some sites,’ said Michael Ferreira, senior vice-president at Anthem Properties.”

From The Post in New Zealand. “Like many Auckland residents during the pandemic, I have outstanding questions about the then-Labour-led government’s response, which may never be answered with ex-ministers declining to appear at the second stage of the Crown’s inquiry. In particular, one question. At the mid-point of the mammoth 15-week lockdown of Auckland, when the government allowed ‘outdoor gatherings,’ were guests gathered in someone’s back yard allowed inside the house to use the bathroom? The prime minister wouldn’t really say. Not a big deal in the scheme of things, sure. Yet the refusal to give a clear answer to such a clear question spoke to the feeling that the Covid response, for so long world leading, had started to become untethered from its earlier clarity, and in some cases reality.”

“The fact it still plays on my mind, in turn, speaks to the feeling that lockdown made us all a little crazy in ways we are still discovering. Significantly, we are yet to emerge from the hangover of the 2020 and 2021 economic response, where near-zero interest rates from the Reserve Bank and a torrent of new government spending from the enormous $80 billion Covid Response Relief Fund created a mini-boom in concert with skyrocketing asset price inflation, especially house prices, and then spiking painful consumer price rises. Tellingly, a large part of the Covid high-and-crash was an old familiar story about New Zealand’s politics and economy, turbo-charged: juicing up house prices to make homeowners and investors feel wealthy, so they borrow and spend, safe in the implicit knowledge the bill will ultimately be paid by future home-buyers.”

“Treasury concluded the government and the Reserve Bank should have pulled back before they did. But who could blame them for wanting to continue the sugar hit? Not Ardern’s almost-predecessor Sir John Key, apparently. At an event to launch a report on the state of Auckland in July, Key diagnosed the country’s problem, as he saw it, in unusually bald terms. ‘If you want to get things going, the core of what’s wrong is the housing market,’ he was reported as saying. ‘The guts of what’s wrong is that the housing market is going down, not up.’ His prescription was a big interest rate cut, primarily to fuel house price inflation. Key explained another form of cognitive dissonance on housing to his Auckland audience. When well-off boomers enjoying rising property values would tell pollsters they felt bad their children may struggle to afford homes, he said, ‘the technical term for that is bullshit.'”

“The timing was somewhat incredible. Merely two days before, Housing and RMA Minister Chris Bishop had reiterated his position that trading houses could not be the engine of the economy any more. ‘We’ve got to decouple the idea that the economy is linked to house price growth,’ he told media. ‘It’s not.’ Key’s approach is more politically orthodox. But its application over decades, by parties of the left and right, has locked in intergenerational inequality, and a sense of despair among younger people, who are leaving in droves to Australia, as well as sucking investment out of the productive economy. Bishop’s explicit view, that average house prices should continue to fall, is bravery to the point of heresy for a senior government minister wanting to appease median voters. And he is pursuing it with zeal across his portfolios with reform of the RMA, housing policy and infrastructure, to increase the supply of land and different housing options, reduce costs and improve access to infrastructure to enable growth. The former PM might think Bishop is crazy, maybe a hangover from the pandemic. But real craziness is doing the same thing over and over and expecting a different result.”