What is it with the local media and real estate myths? A little less than a year ago — actually, it was at the peak of the market — the Sun took on 15 myths in a front-page article that drew hundreds of complaints for its bullishness. Last week, The Tyee came up with five myths of its own. Like the Sun story, The Tyee is coming under heavy blogger fire.
When I first read the new article, I had to take a long bath. Progressive media gone wrong sends me right to the tub. The Tyee piece has a good heart but it doesn’t make much sense. It’s strange because outside of the local real estate blogs, The Tyee seems to have the best grasp of the real estate issue. It hurts to say but they blew it on this one. Among their head-scratcher assertions:
1.) Supply and demand doesn’t function in the B.C. housing market.
2.) Landlords will raise rents to match ownership costs so they can break even.
3.) A drop in housing prices will drive down family incomes and widen the affordability gap.
Supply-and-demand markets may not achieve desired social outcomes but it cannot be said they don’t function. By their nature, they function. If we look at the market in Metro Vancouver, prices are declining rapidly as a result of falling demand and growing supply.
Similar principles apply to the rental market. It’s not possible for landlords to raise rents to anything higher than what renters are willing to pay. A rental priced too high is a rental without a tenant. For proof, see this.
The relationship between local incomes and housing prices is relevant. But in a market driven by speculation, housing prices are divorced from incomes until the bubble bursts and settles. Just as average incomes didn’t double on the way up, they won’t divide by two on the way down.
This is my take. Am I missing something? Please read the article and post your comments. If you have to take a bath first, I’ll understand.