June 1, 2015

Vanity, Investment and A Safe Haven – The Vancouver Housing Dilemma

Ian Robertson links to this column by Jonathan Manthorpe in Facts and Opinions.  In fact, the column is not so much about Vancouver’s self-image as the impact of the flow of Chinese money into the housing market – and our inability to deal with it. 

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Vancouver: not mind-numbingly boring, but vacuously vain

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Forget the verdict of a writer in The Economist that Vancouver is among the world’s most “mind-numbingly boring” cities. Immeasurably more important in recent years is the inability to address the seismic problem of money flooding in from China.

The most mind-numbing element of this story is the amount of money flooding out of China illegally. The numbers are obscene. Last week the major French bank, BNP Paribas, … concluded that in the first three months of 2015 over $80 billion had been spirited out of China illegally. This puts China’s wealthy on track to shuffle over $320 billion out of the country this year. …

The basic reason for the money flight is simple. After nearly 70 years in control, the Communist one-party state has almost exhausted its political legitimacy. … The flight of money from China suggests that very many people at the top of the regime have doubts about how much longer the Communist Party can hold power, and they are arranging safety nets for their assets and their families.

The flood of this money into Canada has not only contorted and distorted the Vancouver housing market beyond redemption, it has changed the sort of community Vancouver is going to be for generations to come. In a bizarre piece of absence of mind and lack of attention, it has also hitched the future of Vancouver to the fate of the Chinese Communist Party.

Vancouver’s low self-confidence and its destructive vanity have both played a part in these failures.

Lack of self-esteem has deterred Greater Vancouver from responding to warning signs about the money fleeing China. Part of this may be what a friend of mine calls “the Komagata Maru syndrome.” That is the fear of singling out any ethnically identifiable group for fear of being labelled a racist. Just look at the city’s media. It has taken it years to pluck up the courage to say that it is torrents of money from China that is distorting Vancouver’s economy.

Some people, most of them in Vancouver’s economic and political ruling class, have been unwilling to look critically at what is happening because they are doing so well out of it.  …  The municipal and British Columbia provincial government have also seen their revenues grow, making them reluctant to curb or even gather useful data on what is happening. Vancouver City Council is reported to make about $700 million a year on property transfers, and the province is making over $1 billion.

For the majority of Greater Vancouverites, shut out of the feeding frenzy, the effects are less wholesome.   … Vancouverites face not only the emigration of their children to more affordable parts of Canada, but also the prospect of people performing what used to be thought of as middle income, but essential public service jobs, such as the police and teachers, having to move elsewhere.

Politicians and officials have allowed the economy, and especially the housing market, to become so distorted that it would now be dangerous to try to impose reality. It would not take much to trigger the kind of mortgage crisis that so devastated the United States economy in 2008-2009.

Obsessive vanity has played a destructive role in all this. Many people believe the hype that Vancouver is one of the most liveable and attractive metropoli in the world, so why would wealthy Chinese not flock to it?

Well, doubtless some are attracted by the geography. But a much greater draw is that Canada and British Columbia are open doors without gatekeepers or much in the way of rules or regulations impeding wealthy Chinese anxious to find a safe haven for their assets. Other favoured destinations with the rule of law and respect for private property, such as the U.S., Australia and much of Europe, impose stringent restrictions and requirements on foreign investors or property buyers. Canada, on the other hand, has no real idea of who owns what, and the planning departments of far too many of our municipalities are so amateurish and ill prepared that anything goes. And local politicians seldom push back against the energies of the property industry, much of which is often inexorably entwined with the elected officials anyway.

But an essential part of understanding what is happening in Greater Vancouver and, indeed, Toronto, is to look at what is happening in China. …

For those who can, there is every reason to get out of China. And the perfect landing spot is somewhere where the people don’t ask too many questions and are easily manipulated through flattery.

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Comments

  1. Interesting verbiage which might allow sidestepping of any ‘place of origin-ist’ comments: http://www.newyorker.com/magazine/2014/05/26/real-estate-goes-global

    ““We’re one of the places where people seem to want to park their cash, and there aren’t that many of those places,” Yan says. “So let’s raise the parking fees.””

    The analogy seems a good one … empty condos are analogous to people parking and not plugging the meter.

    People seem to recognize that speeding tickets affect different earning capacities unequally … see Finland where fines are income dependant. And so city fees should be also dependant? Property tax geared to income? (submit a copy of your T4 with property tax check … little old ladies who are cash poor and land rich would pay less … everyone wins?)

    Also a good article where I first saw the ‘we don’t need white people defending us’ line: http://www.theglobeandmail.com/life/home-and-garden/real-estate/in-vancouver-race-undercuts-the-discussion-on-affordability/article19873510/

    “Brandon Yan, a Vancouver city planning commissioner, summed it up in a Twitter critique of Mr. Rennie’s speech: “Let’s leave it to the rich white dudes to decide what’s racist, right?”

    “Everybody has to watch when they are talking about racism, that they aren’t trying to be opportunistic, and it bends to the answer that they want, whether it is to exclude or include. So it’s a very dangerous topic.”
    On this, Tan agreed, but suggested Mr. Rennie and others in the property industry steer clear of attempting advocacy on behalf of the Chinese community. “Bob Rennie standing up for the Chinese community? What Chinese community? Real estate investors and landowners. That’s the community he’s standing up for.””

    1. One of my neighbours is in her 80s. She has clear title on a classic Vancouver special. She’ll be receiving the old age pension, but whether she has any savings left or is living on the proceeds of a home equity loan is something I don’t know. She certainly doesn’t seem to have much income.

      Another of my neighbours is in her 30s. She and her daughter live in a more recent version of the Vancouver special. She can frequently be seen in the neighbourhood conversing with other stay-at-home moms in a language other than English. She has zero income of her own. Her husband, who visits Canada once a year, provides money for the family.

      The woman with the new BMW X5 almost certainly has a greater ability to pay than the “little old lady” with the 30 year old Buick, but on paper she has the lower income and under your proposal would pay the lowest tax rate.

      Somehow I don’t think that’s what you were hoping to achieve.

  2. Manthorpe hits the nail square on the head. It’s time to confront the issue head on. I’d be curious to hear from Gordon what council feelings were when the flood first began following Expo 86. Didn’t anyone raise concerns?