The marble and fridges have been ordered

Photo credit Tris Hussey

“We would expect while demand is certainly much lower today than it was a year ago, over time those units will sell and most of that money should be recouped.” –Cameron Muir, Chief Economist, B.C. Real Estate Association

“Regrettably, the marble and the German fridges and all that kind of stuff has already been ordered.” –Councillor David Cadman, COPE

As I write, CTV News is on the tube.  Something tells me this is gonna be good. Here’s my transcript, written in real time:

Bill Good opens.  Gregor Robertson is asking for authority to borrow $458-million for the Olympic Village.  Gordon Campbell confirms he’s talking with the city.  Stephen Harper wants none of it, drops an f-bomb with his eyes.  Reporter Shannon Paterson is knocking on Peter Ladner’s door.  Then Sam Sullivan’s door.  Historical footage of Bob Rennie pitching Millennium Water.  Tsur Somerville grins, has no hope for a return to the market peak in the near term.  Ex-mayor Philip Owen is sure prices “will be back” in three years.  An industry flak admits prices are down 15 per cent from the peak.

Is this not one of the most dizzying condo/ real estate/ boondoggle news days Vancouver has ever seen?!

The hard news of today — that is, the stuff we didn’t learn on Friday — is that City Hall is asking the province for the authority to borrow the money needed to complete the Olympic Village.  By law, the city can’t borrow huge sums without permission of the electorate.  Unless the province gives the city the power to assume the debt, the city is stuck with the ability to do nothing.  Meanwhile, the city is bound to their completion guarantee with Fortress.

Some are saying City Hall should walk away.  More than 60 per cent of respondents to a Vancouver Sun online poll support this thinking.  Though it’s a lovely measure of voter outrage, it sidesteps the reality that the city must complete Millennium Water.  This is the deal the city made when it signed the completion guarantee.  It sucks but we’re stuck.  Whatever we do, we owe the money.  Better to the build the buildings than do nothing.

Time to hit the video feed of today’s special city council meeting.  I’m prepared for torture.  Wish me luck.

Photo credit: Tris Hussey

18 Responses to “The marble and fridges have been ordered”

  1. RossK Says:

    But MUST the city complete it with marble countertops?

    Oh, ya, and btw UBC is closed for the duration of the five ring circus which means…..Bingo….Dorm rooms….Lots of ’em.

    .

  2. The Urban Dweller Says:

    Good luck! I was watching it on global and it was the same thing. I find it funny when I hear people saying lets just walk away from it. Obviously the majority of Vancouverites don’t have the cranium capacity to understand the concept of a completion guarantee. Egregious.

    Lets build this damn thing and get on with our lives of slavery to “The Juice” aka Gregor.

    Prices will not come up as fast as people think, there is a global crisis going on and that will exacerbate the real estate slide. More like 5 to 10 years for price recovery. Anyways, thanks for the excellent coverage Condohype!

  3. patriotz Says:

    Prices are not going to come up, period. Not in real terms. And in nominal terms, without wage inflation there can be no price recovery, and I sure don’t see wage inflation lurking around the corner.

    People are still not getting it. The fall in RE prices is not due to the global crisis. Inflated RE prices were the cause of the global crisis. The fall in prices is a return to normality, not a problem.

  4. VanCityGuy Says:

    patriotz

    The inflated real-estate prices were a result of Greenspan’s interest rate policy following the dot-com crash.

    While real-estate prices were disgustingly over-inflated, you’ve got to combine that with the amounts of NINJA loans, easy credit, ABCP and lax regulation if you want to really play the blame game.

    But I’m in complete agreement with you. There will be no ‘price recovery’, at least not like some might hope and expect, even long term.

    I’m not sure about wage inflation, but I think inflation is on our horizon despite the deflationary mantra. You don’t just print that much money, stick it in the system, and expect the value of currencies to rise on a global scale. But any rate of inflation will not recoup the hit real-estate prices are, and will continue, to take.

    We still have more than 40 billion in 40-year mortgages that were sold in 2008 floating out there. These haven’t yet hit the market in regards to a negative equity situation these 40 year deal may, and likely will face.

    The real estate slide ain’t done by a long shot.

  5. milo Says:

    I can appreciate Ex-Mayor Larry Campbell’s pov re MW, as even if he got discounts for his 2 units, they’re still a substantial personal investment.
    However, why is Ex-mayor Philip Owen sticking out his neck to predict that prices “will be back” in three years.

  6. patriotz Says:

    I’m not sure about wage inflation, but I think inflation is on our horizon despite the deflationary mantra.

    Consumer price inflation without matching wage inflation is negative for RE prices for two reasons:

    1. Potential buyers have less money to spend on housing after paying for other expenses.

    2. Interest rates will rise, also reducing housing affordability.

    Asset price deflation at the same time as consumer price inflation is not a contradiction, it is entirely logical and has happened before. For example the RE bust of the early 80’s, when CPI inflation was still fairly high, and the stock and bond bear markets of the 70’s.

    RE prices kept rising during the 70’s only because household incomes were rising faster than CPI.

  7. The Urban Dweller Says:

    patriotz,

    You make some really good points. You too Vancity Guy as usual. However, both of you are forgetting that a) Vancouver is heavy in the drug trade, the criminals gotta put that money to work somewhere and b) There is a lot of international investment in this town that goes unaccounted for. You can not ignore the wages of wealthy individuals outside of the city.

    Sucks for Vancouverites, but remember we don’t live in Windsor, thank god 😉

  8. crs Says:

    I really hope the province does not grant him the power to do what the taxpayers do not want. If it does go through, they better be selling off the social housing as well, they are clearly way too costly to be used for such a purpose. If they don’t sell all the units and have to raise property taxes, you can also expect that to put more downward pressure on the value of real estate. That gives me an idea though, perhaps they could encourage sales of the units by offering property tax cuts for a fixed period. It beats paying the interest and having them sit there unoccupied. Oh and speaking of alternative dorm rooms, the Woodwards project will be finished for 2010, give the social housing units to the Olympics first?

    Otherwise I guess we’ll have it all paid off by 2040.

  9. jesse Says:

    “Consumer price inflation without matching wage inflation is negative for RE prices”

    Even with matching wage inflation, rising inflation is still bad for RE prices. The uncertainty that higher inflation brings requires a larger discount on capital assets such as real estate.

  10. jesse Says:

    “There is a lot of international investment in this town that goes unaccounted for”

    With a global recession I wonder how much the shadow side will be able to prop up prices. Criminals were here in 2003 yet prices were significantly lower then. Unless the underworld buys all properties for sale from now until eternity, prices are coming back down.

  11. patriotz Says:

    Urban Dweller, you are making the same argument that people were making a year ago in support of the claim that prices couldn’t go down.

    Also your arguments apply equally well to Miami or Las Vegas. Why don’t you check out how their RE markets are doing?

    The fact is that capital cannot continue to pour into an asset with low yield indefinitely, regardless of its source. Eventually the asset would absorb all the capital in the world. Long before this capital moves to assets with better yield, and the pyramid collapses.

  12. doug r Says:

    I think the US plan is to inflate out of their depression. Ben Bernake is nicknamed “Helicopter Ben” for a reason:
    http://en.wikipedia.org/wiki/Ben_Bernanke
    http://www.federalreserve.gov/boardDocs/speeches/2002/20021121/default.htm
    Then when everything else is inflated, housing values won’t seem to drop. They’ll drop in real terms, of course….

  13. Tiktaalik Says:

    I’d say that someone needs to be fired, except those responsible were during the last election.

    The MW concept was real nice and I can see how back in 2004 when people were exploring the idea why they would have gone down this path, but to expose public dollars to this much amount of risk is absolutely inexcusable and completely reckless. The city really should have gone with something smaller in scale, but I suppose the “last waterfront opportunity in Vancouver” convinced people that everything needed to be super high end.

    The only real way out of this mess is to just hope that prices go back up, which they probably won’t. You can see where that Cadman quote is getting at, where he was clearly hoping that the project could make cuts in some way so that they could sell units at lower prices. The only other thing that pops into my head is that the city could rent some units out instead, except that unless one of the buildings hasn’t had units sold yet I’m not sure that’s not doable. I think there would be zoning issues with that concept?

    I feel like the city will likely end up holding onto unsold units for a long time and then put them on the market much, much later.

  14. patriotz Says:

    The only other thing that pops into my head is that the city could rent some units out instead,

    That would make no sense, even given a bust in sales price the yield would be far too low, and it could jeopardize the city’s credit rating. Best to just unload them for whatever the market will bear and keep the debt load down as much as possible.

    And yes that’s yet another reason not to buy a condo now. This is just the first of many distress sales we will see in 2009. Coming up, W. The two bookends of this idiotic saga.

  15. Muskie Says:

    Two quick points:

    1) Just because UBC is closed doesn’t mean the dorms are empty. Those students pay for those rooms, they have their stuff in them, and many especially international students spend the whole calendar year in them or at least the whole scholastic year. UBC was short dorms not too long ago and had to spring for hotel rooms for people they had guaranteed a spot to. UBC of course has had its own mega construction boom, just look at the cranes from the ferry as you come into Horseshoe Bay.

    2) Selling the social housing isn’t the solution. Social housing advocates aren’t always the most reasonable people and if you think construction was behind schedule now, wait until they start picketing the construction site. Mixed use sites are difficult to sell, even with seperate entrances. Most social housing advocates were disappointed with the final splint on Woodwards and probably here too. Taking away their “win” would be political suicide, especially when Gregor has already promised to end homelessness.

    They have to finish the buildings pretty much as designed and they (the City and Millenium) have to take their lumps. I don’t have a lot of sympathy for either of them, anyone who had lived in Vancouver for more than a few years new that real estate prices were inflated they’ve come down fast in the past, so counting on ever increasing demand is not historically or economically likely. Secondly getting in bed with a Hedge Fund, they have some sharp pencils and some questionable morals, they aren’t getting any sympathy from that side and no sympathy from me for getting in bed with that ilk.

    Maybe we’ll have an all new City Hall again real soon, but first we’ll have a provincial election which is no wonder why El Gordo has to do something, Harper… Ottawa never cares about us, the election is over before we cast or count our votes.

  16. David Cottle Says:

    UrbanDweller said “There is a lot of international investment in this town that goes unaccounted for. You can not ignore the wages of wealthy individuals outside of the city”

    I don’t understand the obsession that Vancouver dwellers seem to have with wealthy foreign buyers. This demographic is going the same way as inflated Vancouver house prices. Look at every stock market around the world – they are all at around -40%. Then look at the property markets – all at -20% to -40%. Wealthy foreign buyers have been wiped out. If anything, these foreign investors will help drive the Vancouver market down because they will be the quickest to get out when Vancouver house prices continue to drop.

  17. RossK Says:

    (snark on)
    ___

    Ohhhhhh Big Ed.

    I mean Muskie.

    You may not know it, but…..

    UBC student housing is NOT subject to the RTA.

    Regardless, they could always shrink wrap the student’s stuff (just like they’re supposed to do with the German Fridges anyway) and then send the kids to Cabo for the duration.

    I don’t think there would be much complainin’

    _____
    (snark-off)

  18. VanCityGuy Says:

    Patriotz

    I think we’re both on the same page.

    “Asset price deflation at the same time as consumer price inflation is not a contradiction” – I’m in complete agreement, and I feel that this will be the theme of 2009 and onward.

    I’m not a huge fan of the CPI as a true indicator of inflation as it omits fuel and food, it’s misleading and often understates the true rates of inflation which could be substantial given the reactionary fiscal policy being followed.

    This is not a real-estate correction. It is a swift and major readjustment to normality as the credit bubble (and attached RE bubble) deflates.

    UrbanDweller

    The argument about the drug trade never held much water with me. Criminals may be crooked, but they’re not dumb. They hire Chartered Accountants like any business and they will not support real estate prices by sinking their hard-earned (?) money into an asset that, like patriotz says, will absorb all capital. They, like any investor, will move their capital to higher yielding investments.

    And besides, laundering money through real-estate is not the ideal practice for these types, and a grossly over-simplified explanation that was part of the Vancouver condo mantra. Parking lots, money changers and rural real-estate are still the most efficient cash-friendly
    processes for dirty money, and also have the least down-side risk for this type of capital.

    The drug money/condo wash just doesn’t make (and never made) financial sense for the levels of capital that industry produces and needs to wash.

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