Thoughts on who’s to blame for Vancouver’s high and rising house prices.
Douglas Todd in Postmedia’s Vancouver Sun discusses a recent study by Professor David Ley of UBC, published in the International Journal of Housing Policy.
The journal is paywalled, and I don’t have $41 to spare to get the PDF. But here’s the abstract.
Abstract: Global China and the making of Vancouver’s residential property market
This paper examines the role of international investment in the construction of a local housing market in Vancouver, Canada.
The background political economy included the attempt by Canadian governments to reboot a troubled regional economy through an infusion of activity from the growth region of Asia Pacific. An important investment tool was a Business Immigration Programme (BIP), which welcomed capital and invited capitalists to transfer their entrepreneurial skills to Canada. The BIP was very popular in Greater China, attracting wealth migration to Vancouver from Hong Kong and Taiwan in the 1980s and 1990s, and from Mainland China since 2000.
An intricate trans-Pacific real estate market developed, with off-plan sales and offshore marketing of Vancouver property in Asia Pacific, and sales to wealthy BIP migrants at or before their arrival in Canada. House prices have risen rapidly and the detached housing market is now unaffordable to most Vancouver residents. Despite public discontent about the likely role of investors in boosting prices, provincial and local governments, who value the revenues of high property prices and BIP fees, have shown little desire to intervene.
The study goes on to explain, according to Mr. Todd of Postmedia:
Largely as a result of governments’ efforts to attract wealthy immigrants and investment from East Asia, “house prices have risen rapidly and the detached housing market is now unaffordable to most Vancouver residents,” writes Ley.
Given that federal, provincial and municipal governments have shown a “minimal response” to Metro residents’ housing difficulties, Ley concludes most politicians have accepted that astronomical prices and mortgage debt are just the “collateral damage” from expanding the B.C. economy. . . . .
. . . . .The city is undergoing massive change, Ley maintains, because Canada’s federal, provincial and municipal governments increasingly embrace the principles of globalized, free-market capitalism to welcome wealth from the Asia Pacific region.
“Their objectives were aided by neo-liberal tools that included open borders, deregulation, a place-boosting world’s fair, liberalized immigration policies and a development-ready province pushing back the gains of labour and the welfare state.”
Given their policies, Ley’s paper questions how politicians, particularly B.C. Housing Minister Rich Coleman, found it possible to argue in 2015 that Vancouver housing prices were “pretty reasonable” and that foreign ownership of property had nothing to do with government.
Facts are critical. The author is just stating a fact: If you take in 200,000+ very wealthy immigrants into a city with perhaps 500,000 single family houses then it is OBVIOUS what the result is: far higher prices. As such, those that make the rules (politicians) are to blame.
The solution is not discussed in this article. Let me suggest a few:
Unmentioned in the article is the fact that many affluent immigrants or certainly non-resident investors pay no or almost no income taxes here, yet many of them, or their parents or offspring avails themselves to free services: healthcare, ESL, education services, policing services.
As I have written elsewhere we ought to assess if our current tax system adequately reflects “fairness”. I suggested that our taxes on incomes ought to be lowered and taxes on real estate and consumption to be increased.
Housing is consumption, beyond mere shelter, and consumption is untaxed in AB and only at 7% in BC, but in the case of housing it is actually free, beyond the new head tax, the land transfer tax (1% to $200,000 in BC, then 2%, then 3% over $2M). As such, Ontario and BC did the right thing to tax housing (but of course did not lower income taxes in lieu).
I also think the NDP suggestion of a quintuple increase in property taxes from roughly 0.4% to 2% in Vancouver for non-residents or non-income paying residents (aka UBC university students, spouses of wealthy “immigrants” aka passport seekers) is worth considering.
Texas, for example, has no state income taxes, but far higher consumption taxes (8%) and very high property taxes compared to other US jurisdictions. That is also a model worth studying.
London in 2013 introduced a 15% stamp duty on luxury homes above £1M for non-UK folks and it caused the high end of the market (mainly Saudi’s and Russians but of course many others too) to come down about 10%. See here: http://www.dailymail.co.uk/property/article-3469747/London-s-luxury-home-market-hit-demand-slides-million-pound-flats.html
BC should also introduce a far higher, say triple to quintuple land transfer tax for non-residents.
More rules to follow in the UK .. with intended and un-intended consequences: http://www.barrons.com/articles/blimey-what-foreigner-will-buy-uk-homes-now-1437708357
Thomas, according to Yazmin Hernandez, an Urban Futures planner, the entire Metro had a little more than 300,000 detached single family homes in 2011, down from almost 328,000 in 2001. The CoV had 47,530 detached homes ion 2011, down from 66,460 in 2001.
Hernandez noted that “expectations have in fact changed and will need to change because there is no more land”.
“We have so many limitations in our ability to add single detached units, so attached ground-oriented type of format and apartments are the future of the city [and the region] as it stands,” Hernandez said.
According to Hernandez, “There is a lot of pressure on demand, like people want to live here and the only way that we can make room for the residents that we’re expecting to see going forward is by becoming more efficient in the way in which we use the land.”
http://www.straight.com/news/446946/no-more-land-single-family-houses-vancouver-urban-futures-planner-says
This still means that there are over 20 km2 of land collectively locked up in front yard setbacks alone if averaged over 300,000 detached homes in the Metro, or around 3 km2 in the city itself. That’s approaching the area of Stanley Park.
That is to say, supply and demand are likely playing a larger role than the single-issue Ban the Foreigners critics care to admit in the absence of accurate data.
I wish to compliment Prof. Ley for his much-needed forensics on this issue.
All this insisting on “blame” is childish and embarrassing. Klutzy attempts to tax or limit foreign ownership are just going to produce even murkier purchasing behaviour through Canadian 3rd party brokers.
There are a few options. You can choose to openly discriminate against Chinese buyers, force an arbitrary and ‘appropriate’ cap on the value of home purchases, or be an adult who realizes that no single decision is going to appease your sense of propriety. Increase housing supply and force affordable units to be a large part of the price of doing business here. It won’t return Vancouver to the scrappy, working class fantasyland it apparently was before all “those people” showed up, but nothing will.
Or just get angry at Victoria and Ottawa because you don’t feel comfortable with change. That works too.
A little naive ?
OF COURSE you can limit foreign investment, or you can tax it. Many countries do it: UK, Hongkong, Australia, Singapore, .. Of course there are (intended or unintended) consequences.
An increased land transfer tax, an increased property tax and/or increased capital gain taxes are all good options to consider for non-residents, and possibly for non-income tax payers in Canada as suggested by the NDP – certainly for single family houses, and maybe reduced for new condos or non at all for existing condos.
If the Liberals will not act within a year on this issue this will be a major election topic in 2017.
You can technically do whatever you want. My being naive was assuming you’d want to do something that actually works to achieve your goals, which in this case additional targeted taxation would not.
That’s BS Dan. Australia does it even when the Chinese use a shell company to purchase:
http://www.bloomberg.com/news/articles/2015-03-11/australia-crackdown-sets-clock-ticking-on-sale-of-sydney-mansion
Maybe you’re right. Maybe this single example of one property’s transfer being marginally delayed disproves everything I said.
Single example because they (Australian Govt) set a precedent and cracked down. Tired of the complacency and excuses here in BC/Canada.
No one has yet produced any conclusive data on how much housing values have specifically dropped or how far the real estate market has slowed in any jurisdiction where discriminatory legislation targeting foreign buyers has been enacted.
Supply and demand will likely prove, in my view, to be the largest reason why our housing prices are so high. Foreign ownership may well be second, but who really can say that without an actual calculation? Dr. Ley didn’t.