Bloomberg Businessweek has written about Vancouver being one of the first cities to receive “one of the largest financial flows of the 21st century: The money being frenetically shuffled by millions of wealthy Chinese into safe assets abroad, in defiance of their country’s capital controls. Since mid-2014, capital flight from China may have totaled as much as $800 billion, according to estimates from the Institute of International Finance.”
Despite protestations from local politicians that this money influx was not influencing the housing market and it was in fact domestic demand that was fuelling prices, the price increase in housing in Vancouver clearly showed that it was well beyond the means of local buyers to enter the market. Bloomberg calls much of the money coming in as “gray-market” in that could be legitimately earned, but could also be associated with “proceeds of corruption or crime.”
Vancouver and the response of the Provincial NDP government has been a “global laboratory for policies meant to restrain the arrival of Chinese money.” That has included “hiking taxes, toughening transparency rules, and tightening oversight of casinos and financial institutions.”
The policies are having some effect, with residential housing sales dropping 44 per cent last month from a year earlier, houses staying on the market longer, and a slight decline in prices. But with building construction and house sales representing almost 40 per cent of the province’s estimated gross domestic product, it is a major driver for employment. There is little diversification in the economy and as Duke of Data Andy Yan of Simon Fraser University’s City Program observes “Vancouver’s median household income of about $61,000 ranks 50th among North American metropolitan areas, below Omaha.”
While Microsoft and Amazon have thousands of employees slated for Vancouver, well compensated technology jobs will not ” make Vancouver more livable for the teachers, nurses, small-business owners, and artists now struggling to survive there. For them, the vicious cycle only spins on.”
And change is not helped by comments from Chip Wilson who founded Lululemon. He states “the global capital flowing out of China across the world, you’d have to be an idiot not to acknowledge it. You know, we could just be at the cusp of that.” He acknowledges snapping up real estate throughout Vancouver with the expectation that the money from China’s boom will still find a way into Vancouver real estate. While the Province might try to curb foreign real estate investment, real estate is still “Vancouver’s eternal sure bet.”
“…building construction and house sales representing almost 40 per cent of the province’s economy” is not accurate. Described in detail here: https://doodles.mountainmath.ca/blog/2018/02/01/real-estate-industry/ “building construction and house sales” specifically are more like 5% of GDP.
Median household income of $61,000 is also not accurate. The article linked to from the Bloomberg piece accurately reports it at $65k, though that may still mislead as Vancouver’s median household income is lower than other (Canadian) cities as much due to household composition as actual income.
In the article it also inaccurately says “Statistics Canada didn’t release figures on foreign real estate ownership until 2017, when it reported that nonresidents of the country owned more than 7 percent of the city’s dwellings”. Statscan actually said it is ~5%, and 7.2% of condos.
None of these are critical to the point of the story, but getting easily Googled facts wrong doesn’t give me a lot of confidence in the rest of the story.
This drumbeat narrative relies on a lot of ‘post hoc ergo propter hoc’; blaming a bad crop on a passing comet. Just because median housing prices outstrip median incomes is not proof of foreign influence. There might be foreign influence to some extent, as the influx of Chinese buyers opens up a larger demand pool than would otherwise exist. But the runaway price increases seen in the last ten years are nothing special. It happens whenever a group of primates covet the same thing at the same time. The more people think something is worth, the more valuable it becomes, and the more people think its worth will increase, making it more valuable still, and so on. Housing markets can spiral out of control without loose fistfuls of yuan.
Also, without verifiable proof, the assumption that the foreign buyers fee is responsible for the slow-down in price increases and purchase rates is just wishful thinking. It could just as well be the result of a normal cyclical slowdown, or some combination of factors. The fact is, at present nobody yet knows for sure. They can rightly hypothesize, but they do not know.
Dan, I’m not sure why you seem to have some particular interest in trying to discredit every article detailing the problem with foreign buyers, no matter how reputable the source. Is Bloomberg “fake news” to you? The runaway prices are something “special” for Vancouver, go look up the stats for every other province. Only Toronto, the nation’s largest city and financial capital, comes close. If you look at global cities where the run-up has been highest, they are all metropolitan areas heavily influenced by foreign buyers (Sydney, Melbourne, Auckland, London, New York). Only tech centres have similar increases driven by actual economic activity.
There is some well-meaning but ultimately dangerous denialism out there that feels uncomfortable certain groups are being singled out. They are not, it is global capital that is the issue, not race.
Like the blob of warm water in the North Pacific that’s influencing our weather, there indeed is a blob of foreign money floating around the housing market. There is also a much bigger blob of money coming from a decade of cheap credit. And another blob of inflated value from constrained land and zoning historically throttling the residential housing supply. A few other blobs are knocking about too, such as the pockets of desirable geography with higher values and the trickle-cum-flood from the cracked floodgates holding back a massive transfer of wealth from Boomers to Gen Xers and Millennials.
The evidence contradicts the theory that only one blob of money is causing all the ruckus.
I’m not opposed to the possibility that foreign buyers contribute to Vancouver’s median housing prices. As stated above, it’s a reasonable hypothesis to test. I’m opposed to it being preached as gospel with only anecdotal evidence to back it up. Even the Bloomberg article offered no proof other than, “It’s happening because we say it is”. There is a lot of frustration around this issue and I understand the urge to assign blame for it. But without isolable proof, it’s just a lot of folks with half an idea – just enough to be dangerous.
Let’s compare Greater Sydney to Metro Vancouver.
According to easily searchable data bases, and converting Aussie dollars to Canadian dollars:
* A 3 BR house in Greater Sydney arrives at a median price of $860,000 vs a $1.3 million Metro median price for detached homes.
* Apartments in Sydney are $700,000 vs. Metro’s $675,000.
* There is a measurable and similar price differential between the city and the suburbs that does not account for transportation costs and other life cycle components of family budgets where mortgages are only one item.
Both cities have pockets with higher desirability and prices. And both cities are influenced by geographical and zoning land supply constraints, high internal demand, record low costs of credit, and yes, foreign wealth. There is a downward trend in sales and prices in both cities, and a worldwide upward trend in interest rates, which will obviously influence demand.
Why is it that after years of publishing op-eds filled with numbers like the above that not one critic has dared to put a number to their inference that foreigners have influenced prices more than any other factor? Is it 5% or 55% of the rise in prices over the last 10 years?
Still waiting.
Inherent in these types of articles and journalist’s interpretation of recent trends is the inference that development causing land and housing values in general to increase is somehow unnatural. It’s unclear what they are driving at in making that connection. That all development should be curtailed everywhere because speculation, low interest rates / high demand, external money entering the system, capping the land supply for 75 years and a number of other things cause values to rise to exorbitant levels? What exactly is fair value with so many influences swirling about?
How far back does one want to go to illustrate that the rise in urban real estate values is in fact a natural and predictable economic phenomenon? Cutting down the very first patch of old growth forest to create a farm resulted in the overnight soaring of land values by orders of magnitude. After the first farm the rest only had to follow.
Perhaps we need to kick everyone in the Metro out and return the city to forest to illustrate the ludicrous logic of many anti-development sentiments here. Let’s instead try to elucidate better, greener and more affordable ways to control and shape our public and private city form in all its manifestations, from streets to parks to housing to businesses to urban systems to culture.
Constantly harping on development and density in the negative, even in the most gentle categories like Making Room, is so yesterday and counterproductive.