It was initially shocking the first time I encountered someone who placed the blame of the rising real estate market squarely on the shoulders of real estate agents. After a few more such encounters I began to think about it and the more I thought about the more alarmed I became. The reason for this unwarranted blame is the general lack of financial and economic education - as well as the strong human desire to find an immediate cause for one's problem and place blame.
The basic economics of real estate are like that of any other commodity which means supply and demand control everything - not real estate agents. When supply goes down and demand goes up prices go up.
Supply: In Kelowna our supply is becoming limited by a number of factors.
1. Population growth exceeding the rate of development
2. The local geography limits the available land for development
3. Zoning restrictions such as Agricultural Reserve Land further limit the available land for development
Demand: In Kelowna our demand is rising because...
1. Population growth means more people looking to buy
2. Low interest mortgages means that people are able to pay much more for a home
3. Influx of foreign buyers has also increased the overall demand for real estate
Of course, the real concern here is that the general public is misinformed about basic finance and economics. We live in a democracy and public approval has a big influence on the economic policies of our government. If that influence is misguided and uneducated then we have a problem. It is most certainly time for our government to start implementing financial and economic courses as part of the mandatory school curriculum.
Most recently we have an example of good economic policy followed by not-so-good policy.
The new mortgage stress test that makes it more difficult to qualify for mortgages. In effect this limits the amount of available capital for purchases real estate which reduces the overall demand.
The BC Home Owner Mortgage and Equity Partnership Program which aims to help first time home buyers with their down payment. At a first glance it seems like a good idea - let's help people who are renting buy a house! However, in the long run it will actually increase the price of real estate by increasing the demand. Demand will go up from more available capital as well as more people now able to purchase. As well, the money that the government is handing out is actually ending up in the pockets of developers and sellers - the first time home buyers are simply receiving more debt. So, property prices will continue to rise and you will now have to take on more debt to afford a home.
Recommended books to improve your financial and economic literacy: