Mike Taylor: Who to trust in the Vancouver housing debate?
When it comes to understanding Vancouver’s real estate market, balanced studies and opinions are difficult to come by. On an almost weekly basis, a news article or report is published, discussing the implications of Vancouver’s red-hot housing sector.
The answer to the question “Is Vancouver’s housing market in crisis?” seems to depend on whom you ask, and what camp they fall into.
A report released in June by the B.C. Real Estate Association, which aimed to cool public tensions, said it understands people are “gobsmacked” by rising house prices, but argued that constrained geography, population growth, and densification policies are to blame, not foreign buyers.
Cameron Muir, an economist from the B.C. Real Estate Association, recently expressed frustration about the current Vancouver housing debate, arguing that there is no crisis. As he said, “Why are we trying to devise a solution to a problem we don’t know exists?” The association also regularly suggests there is no evidence to indicate a housing bubble.
The Bank of Canada’s governor, Stephen Poloz, has similarly refuted the idea of a housing bubble despite the Bank of Canada’s own estimates that Canadian real estate is overvalued by as much as 30 percent. “We don’t believe we’re in a bubble,” Poloz said.
However, the Wall Street investors who made billions off the U.S. housing market collapse in 2008 appear to disagree with this sentiment. According to financial insiders, American hedge funds are betting against the housing market in Vancouver and other Canadian cities. As a Canadian real estate analyst that advises U.S. clients explained, “All of the big global macro funds that were involved in betting against the U.S. in 2007 and 2008 and 2009, they’ve all studied Canadian housing for a few years.…I know a number of them are shorting Canadian housing. It looks like an accident waiting to happen.”
Just this March, the International Monetary Fund (IMF) issued another warning over Canada’s “overheated housing market.” This time, pointing to the combination of large household debt, and rising house prices, as risk factors that the IMF suggests, “we need to keep an eye on.”
The province has dismissed the sounds of alarm bells, and calls for a government response. Instead, Premier Christy Clark and the B.C. Ministry of Finance have suggested the opposite—that government intervention would harm the economy. A 10 percent reduction in house prices, they explain, would result in the loss of $60 billion in home equity, or roughly $85,000 for a Metro Vancouver homeowner.
For those currently priced out of the market, seeing homeowners lose 10 percent of their equity is not likely to draw much sympathy, particularly, toward those who bought property in Metro Vancouver before 2011, and have seen their equity rise by 10 percent or much greater.
The governments hands-off approach has been further bolstered by fears that a cooling of the housing market would negatively impact sectors of the economy linked to real estate, such as residential construction, which according to Statistics Canada data made up 2.7 percent of the national gross domestic product in 2011.
A recent analysis by the B.C. Ministry of Finance suggested that if the province reduced foreign investment to 1 percent, this would result in the loss of $1 billion in residential real estate sales, 3,800 jobs in the construction and real estate sectors, and a $350-million drop in GDP.
These numbers, used to support Clark’s stance, should draw some red flags. It is unlikely that any tabled government intervention would bring foreign investment down to 1 percent. And without clear data on foreign investment to start from, it is impossible to accurately predict its affects on the B.C. economy and jobs numbers.
To date, the province has made no effort to collect data on foreign investment. At one time, property buyers were required to check a ‘statement of citizenship’ box. But with this step removed, objective findings about the percentage of foreign ownership, and its level of impact on the market remain a question mark. In the absence of data, Clark has relied on “industry experts” and the B.C. Real Estate Association to defend her status quo approach.
If the Ministry of Finance’s concerns about the construction sector bear some truth, then a policy implemented in Australia could provide an option. Penny Gurstein, director of the University of British Columbia's School of Community and Regional Planning, points to Australia’s policy of restricting foreign investors to only the purchase of new buildings, as an effective measure. If employed in B.C., where the construction sector comprises 7.9 percent of the GDP, she states, “It would mean a greater emphasis on building new units, rather than flipping existing units,”
What about the risks to the construction and real estate sector, and the broader economic consequences if a housing crash did occur in Vancouver? At this point, many have grown immune to the repeated tales of a looming crash, told over the past few years. But if American hedge funds and others do get it right, and the housing bubble bursts, then job losses of 3,800 would seem trivial by comparison. The economic fallout would be substantial, and as one study has estimated, Vancouver residents could lose on average $200,000 in equity in the event of a crash.
All of this begs the question: Is it not the role of government to act prudently to intervene at signs of excess, to ensure the housing market remains sustainable and the economy protected?
Certainly, there is no denying the rising housing market has spurred economic benefits, such as a robust real estate sector with little shortage in jobs, but what about some of the tradeoffs not often highlighted?
As Peter Ladner, former Vancouver city councilor and columnist for Business in Vancouver notes, there is “the impact of having housing prices so disconnected from local incomes. Think of costs to employers (both private businesses and public sector), lost business opportunities, personal and financial costs to families whose children move away, loss of opportunity for those who don't already have access to equity.”
Ladner also questions the assumption that if house prices came off their current highs, that there would be fewer sales, fewer inspections, less construction, or less renovation.
Look at the comments section of any recent online newspaper article discussing the politics of Vancouver housing and you quickly find a tone of cynicism, skepticism, and confusion—and rightfully so.
In the face of soaring prices, many young families and baby boomers concerned about affordability for their kids have grown tired of hearing real estate experts and government officials stake such strong positions on the topic, based on incomplete evidence.
Largely under-represented in the debate, has been the voices of young people in Metro Vancouver, many of whom are looking to enter the market. With the cities' high cost of living and rent, and competitive job market, saving for a down payment has become increasingly difficult for young families.
And while the economic impacts associated with having this population segment over extended or locked out of the market are not pressing in the short-term, the social impacts merit consideration. Millennials are being forced to leave the Greater Vancouver communities in which they grew up, in order to afford housing. High rent or mortgage payments are restricting the ways in which young parents are able to provide for their children. These increased stressors may perhaps be one reason why Vancouver recently ranked lowest in Statistics Canada’s life satisfaction survey.
Whether the result of foreign investment, aggressive lending by banks, low interest rates, or the combination of these and other factors, the federal and provincial government has declined to take action to reduce housing unaffordability.
Despite some public demand for answers, it is unlikely that the provincial government will take steps to collect the hard data required to accurately identify the key causes. Instead, they appear more than content to hide behind ambiguity, and present studies and opinions from those with a stake in the industry that strengthen their position. And with limited pressure on politicians, it is hard to foresee them or other key players doing anything other than the same old song and dance.
Comments
25 Comments
Frank Taylor
Jul 29, 2015 at 1:04pm
Great article...... I can still beat ya up brother!!!!!
no, it isn't difficult to understand, mike
Jul 29, 2015 at 1:10pm
We need 15,000 2 to 3 bedroom apartments built yesterday.
Gregor impotently cries out in the tyee about how the city can't do anything but yet another suggestion comes up in an article this week saying the city could pass a bylaw preventing landlords from jacking the rent hundreds of dollars when someone moves out. But Gregor is a terribly immoral person because he can't act on what he says. This is Gregor's full time job. And he does absolutely nothing.
But he's got to make time for Djing for transgenders. But, Gregor, housing is actually in your purview, so can you make sure a transgender person has a home? Gregor: Well no, I prefer to make grand public gestures but not do any actual work on the area for which I've been hired.
Every one of the politicians involved is an evil f-ck up: Christy Clark, Rich Coleman, Stephen Harper and Gregor of course. They could all do something but they are demonically selfish. The Vancouver Sun and Shelly Fralic in particular -- WHO SHOULD BE FIRED, LIKE YESTERDAY -- insults our intelligence with advertising for real estate.
Mike, please dont bother being naive telling us to get involved. Vancouver just had an election, and Gregor again does nothing. Hence, Exodus.
And this ridiculous notion of proof that keeps getting dragged out. Hahahahahahaha. I laugh you all to scorn who help the RE industry, shills, and soul suckers bothering to say that this isn't overheated due to Chinese that bought Canadian citizenship and has given anyone holding property a bloated ego about what they can charge. If you require proof of something past 50 percent, you're a fool that can't be helped.
Vancouver has got bad karma for this. And we all get what we deserve. No ifs ands or buts about it.
Amanda
Jul 29, 2015 at 1:25pm
The data exists to prove exactly how much foreign ownership exists and also which country(s) it's coming from.
Every city has a database of it used for a multitude of purposes, it's called Tempest. It keeps track of all that information and can be brought up in a matter of 5 min. I use the program and tell you exactly how many buyers are of Chinese citizenship in my city.
Don S
Jul 29, 2015 at 2:57pm
The article is titled: "Who To Trust In the Housing Debate" and then strictly bashes one side without exploring the faults on the other.. honestly, there is absolutely a myriad of issues when it comes to housing, foreign and local. Most articles I read discuss the average home being worth $1mil and "oh, look at this Point Grey teardown"...ITS POINT GREY! I live in a great $500,000 townhome in North Vancouver, super quiet, forest for a back yard, and I can get downtown in 20-35 minutes on average.
VictorW
Jul 29, 2015 at 3:30pm
Exodus?
A net GAIN of 12550 persons from other provinces to BC: file:///C:/Users/ED/Downloads/Population%20Highlights%202015Q1%20(5).pdf.
Millennials frozen out?
64% of first time buyers in Canada are under 35 years see table 2-1
First time buyers in BC: 40,000 see table 2-2
About 1/2 homes bought in BC are condos or townhomes see table 3-2 http://www.caamp.org/meloncms/media/Spring%202015%20Survey%20Report.pdf
About 1/2 homes on www.mls.ca are priced under $600,000 with hundreds of listings of detached homes under $700,000.
Mike - you are a teacher. Have you spent any time looking for a home? Have you gone to your bank to see what you qualify for?
Anonymous
Jul 29, 2015 at 4:15pm
PREACH!!
To VictorW
Jul 29, 2015 at 8:15pm
Your numbers don't tell the whole story and frankly Victor I'm tired of seeing your pro Chinese buyers post. The charges of racism go back to the Chinese exclusion act of 1923 -- but this is not keeping Chinese out, it's letting too many exploiting Chinese in. Multiculturalism, like so many other things, is a human made thing. And if the Vancouver greedy pigs ruin the social atmosphere blame them. But please Victor stop propagandizing for the wrong side!
Local young Canadians cant live here sustainably. People are miserable and suffering. The parents are eating their children and so is the government.
Chickens are coming home to roost.
Jul 29, 2015 at 8:41pm
I am not sure why is entire conversation moved towards foreign money and almost no weight is given to the fact that money is almost free. You do not have to be "foreign investor" to buy property in Vancouver. Canadian central bank is ensuring financing for everyone and at the rock bottom price. When I say this I am not trying to dispute presence of foreign investors with foreign origins of money. However we have allowed this conversation to move away from concrete already measured and present data that is telling us that we are selling houses to each other like penny stocks because money is almost free. Again I will say I agree that we should measure and quantify amount of foreign money flowing in to Canada and Vancouver.
I am just cautioning that in my opinion we are placing all our eggs in to one basket(foreign money) and in the process becoming really antagonistic towards innocent hard working immigrants. Meanwhile already present and quantified data points towards the fact that: to borrow money in Canada is too easy and very cheap so people borrow to the gills and buy maximum house possible. Someone is skillfully obfuscating cheap money side of the story and nudging the conversation of foreign buyers in to the front row. Again I am not disputing flow of foreign money in to the real estate but because of lack of data I can not also prove it, thus in my mind it becomes a mute point. However I know for a fact that money in Canada is too cheap and given to whomever asks for it and something tells me that that is a major reason for unrealistic real estate valuations in Canada and Vancouver. In any case truth always finds its way to appropriate audience. We shell see......
Veteran
Jul 29, 2015 at 9:44pm
Good or bad, the one thing that defines Vancouver is that it's a good place to live in. People from around the world want to live here and that's not going to change.
realist
Jul 30, 2015 at 12:16am
Mike - you are 27 years old, don't blame others that you forgot to buy. locals, first timers are buying everyday. I am a local, your age and I bought in my early twenties by working hard and saving.