There’s no shortage of talk about a Canadian housing bubble:
In Vancouver, the price of a single-family home (as of June of this year) increased 39% to C$1.6 million from the year prior. Does that constitute bubble territory?
In an effort to stop prices from running away even further, I am sure you all know that the BC government has recently imposed an additional 15% transfer tax on Metro Vancouver homes purchased by foreign buyers (people who are not Canadian citizens or permanent residents).
The data that I have seen (here and here) suggests that foreign buyers could make up somewhere around 5-10% of the market. Given that many will now get creative in terms of hiding their foreignness, I am not so sure this new tax will have a dramatic impact on affordability. But it certainly sounds nice if you’ve been grouchy about home prices and thinking “those damn foreigners.” We’ll have to see how it plays out.
Having said all of this, if Vancouver is in fact in bubble territory, would that be so bad? Are we thinking about this the right way?
Here’s an alternative viewpoint.
I recently stumbled upon an old blog post by Tom Evslin (2005) called: Why we need bubbles. I discovered it via it Fred Wilson. Tom’s argument is that we need irrational exuberance because it provides the capital that allows for dramatic overbuilding. The overbuilding of things like rail infrastructure, internet infrastructure and – I’m adding this – housing infrastructure. And once this happens, it dethrones the incumbents and paves the way for future economic progress.
Tom’s focus is on technology, but I couldn’t help but think of the parallels with city building. Is the proposed Rail Deck Park in Toronto so bold that it’s only possible during a period of irrational exuberance? Should Vancouver instead be working to dramatically expand its housing supply instead of trying to tax away a portion of demand? Is a period of irrational exuberance precisely the moment where we lay the ground work for our future successes?
I’m not saying we’re in a bubble. I don’t believe in or know how to time markets. But I am asking whether the bubble headlines are missing the greater opportunity.
There’s no shortage of talk about a Canadian housing bubble:
In Vancouver, the price of a single-family home (as of June of this year) increased 39% to C$1.6 million from the year prior. Does that constitute bubble territory?
In an effort to stop prices from running away even further, I am sure you all know that the BC government has recently imposed an additional 15% transfer tax on Metro Vancouver homes purchased by foreign buyers (people who are not Canadian citizens or permanent residents).
The data that I have seen (here and here) suggests that foreign buyers could make up somewhere around 5-10% of the market. Given that many will now get creative in terms of hiding their foreignness, I am not so sure this new tax will have a dramatic impact on affordability. But it certainly sounds nice if you’ve been grouchy about home prices and thinking “those damn foreigners.” We’ll have to see how it plays out.
Having said all of this, if Vancouver is in fact in bubble territory, would that be so bad? Are we thinking about this the right way?
Here’s an alternative viewpoint.
I recently stumbled upon an old blog post by Tom Evslin (2005) called: Why we need bubbles. I discovered it via it Fred Wilson. Tom’s argument is that we need irrational exuberance because it provides the capital that allows for dramatic overbuilding. The overbuilding of things like rail infrastructure, internet infrastructure and – I’m adding this – housing infrastructure. And once this happens, it dethrones the incumbents and paves the way for future economic progress.
Tom’s focus is on technology, but I couldn’t help but think of the parallels with city building. Is the proposed Rail Deck Park in Toronto so bold that it’s only possible during a period of irrational exuberance? Should Vancouver instead be working to dramatically expand its housing supply instead of trying to tax away a portion of demand? Is a period of irrational exuberance precisely the moment where we lay the ground work for our future successes?
I’m not saying we’re in a bubble. I don’t believe in or know how to time markets. But I am asking whether the bubble headlines are missing the greater opportunity.
When I got into the office this morning, someone asked what I thought about Rail Deck Park and whether or not I thought it would happen.
When I went for lunch this afternoon, someone asked what I thought about Rail Deck Park and whether or not I thought it would happen.
And I’m fully expecting that somebody else will ask me these same questions before the day is done.
For those of you who haven’t been following or aren’t from Toronto, it is a 21-acre park that is proposed to be built by decking over the rail corridor that runs from Bathurst Street in the west to the Rogers Centre in the east. See top image.
Of course, the reason everyone is asking me these questions is because it’s a wonderful idea and everyone wants it to happen. But we’re all thinking the same thing: will it and who is going to pay for it?
Here are my thoughts.
Section 42 of the Ontario Planning Act stipulates that cities may ask developers for either land or cash in order to create new parkland.
To give you an example of how significant this can be, Spacing reported that 1 Bloor East alone – which is a single tower under construction right now – contributed $10 million into the city’s parkland reserves.
Zooming out, between 2011 and 2014 alone, developers paid almost $300 million in park levies across the city. It’s worth noting that most of the funds collected were from development projects in the core of the city. During this same time period, wards 20, 27, and 28 alone produced over $140 million.
Here is a chart from a Spacing investigation published last year that corresponds to the above stats:
The problem with all of this is that it’s becoming increasingly difficult to actually deploy this capital. I mean, think about how difficult it is to buy a single family home or find a development site in this city. Now go out and try and find a piece of land in which to build a park. And do it as a cash-starved public entity that can’t engage in a bidding war.
As of September 30, 2013, the city’s uncommitted parkland reserve fund balance was $234,995,348. This includes Parkland Acquisition, Parkland Development, Alternative Parkland Dedication, and Other Reserve Funds. If anyone has a more recent figure, please share it in the comments below.
Also, the irony of this situation is that the neighborhoods producing all of the parkland funds (i.e. downtown) are precisely the areas where it’s exceptionally difficult to actually create new parks. So what I think is happening is that Mayor Tory and the rest of the city see Rail Deck Park as a perfect opportunity to turn this reserve fund money into a meaningful urban park in the core of the city.
We don’t yet know how much this park will cost and I don’t know what’s sitting in the reserve funds today. But this is my read on the situation. I doubt the reserve funds will be able to pay for it all, but that shouldn’t be a deal breaker. It’s worth getting creative and fighting for something as significant as Rail Deck Park.
This is an opportunity to reinforce Toronto’s status as one of the most liveable global cities in the world. This is an opportunity I believe we are going to take.
When I got into the office this morning, someone asked what I thought about Rail Deck Park and whether or not I thought it would happen.
When I went for lunch this afternoon, someone asked what I thought about Rail Deck Park and whether or not I thought it would happen.
And I’m fully expecting that somebody else will ask me these same questions before the day is done.
For those of you who haven’t been following or aren’t from Toronto, it is a 21-acre park that is proposed to be built by decking over the rail corridor that runs from Bathurst Street in the west to the Rogers Centre in the east. See top image.
Of course, the reason everyone is asking me these questions is because it’s a wonderful idea and everyone wants it to happen. But we’re all thinking the same thing: will it and who is going to pay for it?
Here are my thoughts.
Section 42 of the Ontario Planning Act stipulates that cities may ask developers for either land or cash in order to create new parkland.
To give you an example of how significant this can be, Spacing reported that 1 Bloor East alone – which is a single tower under construction right now – contributed $10 million into the city’s parkland reserves.
Zooming out, between 2011 and 2014 alone, developers paid almost $300 million in park levies across the city. It’s worth noting that most of the funds collected were from development projects in the core of the city. During this same time period, wards 20, 27, and 28 alone produced over $140 million.
Here is a chart from a Spacing investigation published last year that corresponds to the above stats:
The problem with all of this is that it’s becoming increasingly difficult to actually deploy this capital. I mean, think about how difficult it is to buy a single family home or find a development site in this city. Now go out and try and find a piece of land in which to build a park. And do it as a cash-starved public entity that can’t engage in a bidding war.
As of September 30, 2013, the city’s uncommitted parkland reserve fund balance was $234,995,348. This includes Parkland Acquisition, Parkland Development, Alternative Parkland Dedication, and Other Reserve Funds. If anyone has a more recent figure, please share it in the comments below.
Also, the irony of this situation is that the neighborhoods producing all of the parkland funds (i.e. downtown) are precisely the areas where it’s exceptionally difficult to actually create new parks. So what I think is happening is that Mayor Tory and the rest of the city see Rail Deck Park as a perfect opportunity to turn this reserve fund money into a meaningful urban park in the core of the city.
We don’t yet know how much this park will cost and I don’t know what’s sitting in the reserve funds today. But this is my read on the situation. I doubt the reserve funds will be able to pay for it all, but that shouldn’t be a deal breaker. It’s worth getting creative and fighting for something as significant as Rail Deck Park.
This is an opportunity to reinforce Toronto’s status as one of the most liveable global cities in the world. This is an opportunity I believe we are going to take.
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