The imminent collapse of the country’s most expensive condo development is more than a symbol of what’s to come. Everywhere.
As the Millennium Water development drifts towards bankruptcy and ruin, putting the taxpayers of Vancouver and BC on the hook for a billion dollars, there is much blame to go around. The dinks who run the delusional city should never have committed to bailing the thing out when it was just a badly-run project to furnish accommodation for athletes during that brief Olympic thingy. The idiots selling it laughably thought there was a market for units costing an average of $800,000, or 30% more per foot than in Toronto, in a town a third the size.
So now that the city’s called a $561 million defaulted loan, it symbolizes a real estate market whose reach exceeded its grasp. Worse, it embodies the role government’s played in propping up an asset that’s been begging for a bullet. It all but ensures this will not end well.
Hey, and the madness continues.
Here’s a long-standing NDP member of Parliament, for example, tabling a bill to help people get more in debt and rob their retirements just so they can buy a home and watch it decline in value. Peter Julian tabled a private member’s bill Thursday to further goose the amount of money that can be sucked out of an RRSP and used as a real estate down payment.
“This bill would help ensure that the ability of Canadians to purchase homes does not diminish with time and inflation,” he rationalized. “RRSP contributions to home ownership must reflect the increased cost of housing. This is only fair and should help make homeownership more accessible to more families.”
This nutty law would index the RSP Home Buyer’s plan to inflation, allowing the $25,000 maximum down payment withdrawal to grow larger each year. Just what we need. More property virgins thrown on the pyre.
Putting fool politicians catering to dumbass realtors aside for a moment, and as Vancouver slides into the sea, I called about a commercial building I fancied in mid-town Toronto. A business tenant there told me it’d been available for three months, but no offers. I asked the agent on the cell if it was still available. ‘Yes,’ she gushed, ‘and it’s so special that you called. We’re accepting offers on the property tomorrow afternoon.’ How much?, I growled. ‘Two million,’ she said, ‘but you can come in with less.’
You bet I can. And I’d also have the only offer in the room. Even facing career death, some people never learn.
But all this chicanery, greed, bad judgment, delusion and political debauchery is lurching towards the cliff. You can tell this when even the biggest financial players in the country are doing what they can to minimize the body count. Earlier this week the Royal Bank warned affordability is sinking as average families see half their pre-tax income sucked off by their houses.
Now CIBC cautions real estate is overpriced by 12% – strangely in the middle of my long-standing estimate of a 10-15% average price drop in the first phase of the correction. Housing is overvalued in BC (by 17%), Alberta (12.5%) and Ontario (11.6%) with the West “looking vulnerable.” Ya think?
“No part of Canada looks to be immune to further housing market weakness, with significant momentum having been more recently lost,” said economist Warren Lovely. “… But it’s in B.C. and Alberta where housing prices have overshot fair market value by the largest margin … with an ongoing correction expected to dull residential construction activity and blunt consumer enthusiasm.”
But the juiciest words come from our own Mark Carney, head of the Bank of Canada , now doing his repentance thing for having dropping mortgage rates so low that house porn swept the nation. Goaded by F, the BoC crashed the cost of money to its lowest level in history in the hope people would borrow their brains out and buy stuff. It worked.
Now he warns we have too much debt, which makes him such a funny guy.
“This cannot continue,” he said darkly in a speech in Windsor, of all places. “With Canadians working, but not as much as they would like, they have been borrowing. Real household credit expanded rapidly throughout the recession, in contrast to previous downturns, and has continued to grow through the recovery. Canadian households have now collectively run a net financial deficit for 37 consecutive quarters. That is, their investment in housing has outstripped their total savings for over nine straight years. In effect, households are demanding funds from the rest of the economy, rather than providing them, as had been the case through the 1960s, 1970s, 1980s and 1990s.”
This is central banker talk for, holy crap.
It means what just happened to the $800-square-foot condos in Vancouver is about to visit everywhere else. Carney’s crack cocaine loans and our insatiable need for a granite-&-stainless fix have produced the overarching reason real estate is sunk: debt.
It feels a lot like Vegas or Miami, circa 2005. As an incredulous Yank said to me recently, ‘Don’t you guys get CNN?’
Well, yah. But it’s different here.