Michal Rozworski: Forget global superstar, Vancouver’s housing troubles start at home

Vancouver was the star of a recent  New Yorker article that shone a light on the city’s lack of housing affordability and linked this lack to an inflow of foreign buyers.

Unfortunately, this link is extremely tenuous, as most of the support is anecdotal or based on very limited data.

At the same time, there are good reasons to look for the sources of the lack of affordability much closer to home.

Articles like that in the New Yorker allow for far-flung conclusions that end up bolstering a fatalist political narrative about the potential for meaningful change.

First, the data.

The New Yorker author, James Surowiecki, offers two major sources to back his claims. The first is a Sotheby’s report stating that 40 percent of buyers of Vancouver luxury homes (luxury homes had an average low cut-off price of $2.8 million or three times the overall average price) in the first half of 2013 were foreign.

At the end of his article, Surowiecki also cites Andy Yan’s interesting energy usage studies, the most recent of which showed that somewhere between five and 10 percent of the city’s condos may be sitting empty at any given time. Of course Surowiecki cited the sensational statistic that almost a quarter of homes in one Coal Harbour census tract were likely vacant at census time.

There is no way of knowing how many of these ghost homes actually belong to locals, other Canadians, or foreign investors.

More importantly, this should not matter—what matters is how many homes are being used as empty investment vehicles.

Neither the city nor the province nor any private organization collects reliable data on real estate ownership and transactions, so it is nearly impossible to get a gauge on the true extent of foreign ownership of Vancouver housing and new foreign-based buyers. Anecdotes, of course, abound.

However, many of the attempts to gauge foreign ownership in Vancouver over the number of years have come to similar conclusions and similar estimates. Foreign ownership appears to be staying put below five percent at most. (See thisthisthisthis and this.)

The most popular economics book at the moment is a tract about the rapid growth of inequality and the rise of a truly global class of the super-rich. Some of Vancouver’s priciest properties are surely being snapped up by a runaway global elite, but most purchases are simply the result of local inequality. 

It is not the “foreign” but the “investment” that is much closer to the source of our affordability woes.

The growth of inequality, attacks on pensions, increases in lifespans, aggressive tax cuts—all of these factors have moved wealthier Canadian households to look for new investment opportunities. Investment in real estate has been helped by low mortgage rates, a supply of new housing skewed towards small, high-end condominiums as well as existing equity available to those who lucked out and grew rich on the initial housing boom that started in Vancouver in the 1980s.

Indeed the only academic paper cited in the New Yorker article gives reason to believe that a (virtuous or vicious, depending on whether you have housing or you don’t) cycle of local price and investment dynamics can help explain the rapid increase in housing prices.

From San Francisco to Sydney, from New York to London and in many smaller centres, the same arguments about increasing foreign investment can be heard.

At the same time, housing advocates from all of these same cities are making similar arguments: underneath the fears of foreign speculation are a host of local issues that are contributing far more to affordability crises. These centre not on an surplus of foreign demand but on a dearth of local supply.

Each city is different with differences in amounts and models of public housing, in zoning regulations, in rent control regimes, and much else. This means that the roots of unaffordability can differ wildly, as can strategies for tackling them.

What brings these strategies together, however, is the fact that local, political choices can be used to counteract broader trends. Housing advocates are not so much calling for limits on foreign investment as increased investment in public housing. They are seeking to maintain and expand regimes of rent control. They are questioning development models.

Housing is looked at through the dual lens of shelter and investment vehicle. The natural supply constraint of the mountains and the ocean as well as a phantom spectre of foreign demand make it easy to hide what are the much more important forces at play—forces partly localized and thus more open to change.

Zoning, municipal tax policy, and direct subsidies to buyers or renters can all have an impact on private development and supply. Even more so, the city can directly impact housing supply by investing in housing itself, putting the focus back on housing as shelter rather than private nest egg.

As it stands the city is pushing a location- and quantity-constrained private development model that only abets rising prices and empty investment.

As renters or owners, Vancouverites do not have to accept the fatalism of “getting used to [it]” or a false logic of impossibility imposed by an overhyped foreign demand. Housing reform is difficult the world over, but attempts at reform continue to be made all over the globe.

Vancouver may be safe, green and beautiful—but it might not be all that super or special.

Comments (15) Add New Comment
Thomas
Like the author states, there is no data to analyze on Vancouver housing. Before you can realistically come up with solutions, you have to understand the problem. The province and/or the city need to make an effort to collect and study reliable data before appropriate solutions can be identified and implemented.
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lance
I really wish people would shut up about Vancouver real estate and just move out somewhere like New West where it's just as nice but prices are half as much...If the planet does start to heat up where do you think will be the best place to be? Voila Vancouver.
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Forest
I find myself increasingly perplexed as to why the Canada Revenue Agency is not actively pursuing the matter of empty investment vehicles (or holding properties) , given their potential for accruing capital gains or investment income.
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Mark
It's funny how pretty much all other countries and municipalities on the planet track foreign ownership, yet Canada and Vancouver simply refuse to do so.

Australia tracks foreign ownership pretty accurately. Florida imposes extra property taxes on non-residents, which include those offshore as well as from other states.

Canada and Vancouver don't want to have this type of data made publicly because it would show that a lot of properties are owner by offshore buyers, and a lot of them sit empty and are not pushed into the rental stock.

At least tax those ones at a higher property rate, and use that money not to raise resident's property taxes. But Gregor Robertson is owned by the developers, and continually voted in by those seeking "social and environmental justice".
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b
left vancity and never coming back beauty city for sure and the author makes his case but stats aside all a local has to do is take a look around and it's clear foreign buyers are a big influence and government with pro immigration agendas to expand the population base won't be tracking the data any time soon
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glen
no one seems to mention immigration. There are tens of thousands of people immigrating to vancouver every year. How could that not have an impact on housing prices.
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Bruce
@Michal, the writer of the above article

Your article speaks of local causes for Vancouver's high housing prices. But scaled relative to 1993 prices as a starting point, many cities and regions across Canada have had very similar trends and relative increases.

http://2.bp.blogspot.com/-iMbnDG0IL5g/Up1Vzcp4sUI/AAAAAAAABAc/ToF52_yOzo...

Going by that, contrary to myth, except for a few neighbourhoods, there doesn't seem to much special or "local" about Vancouver's 2003-2013 price increases.
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400 ppm
@ Mark

Canada is not a country.

A protectorate in its inception adopted by modern international law, is an autonomous territory that is protected diplomatically or militarily against third parties by a stronger state or entity. In exchange for this, the protectorate usually accepts specified obligations, which may vary greatly, depending on the real nature of their relationship. However, it retains formal sovereignty, and remains a state under international law.
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Bruce
I notice a good number of down votes to my questioning whether the last decade's property value inflation in Vancouver is really local at all.

I'd be interested in counter arguments. Do you believe Teranet falsifies its statistics? Did you look at the plot at all?

I'm starting to think we have a local variant of global warming denialism - bubble denialism, specifically *national* real estate bubble denialism.
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Bruce
Here's another one:

http://1.bp.blogspot.com/-nWzFXSScVpM/Up1V0cJTkSI/AAAAAAAABAo/kpSLwoX9OB...

Winnipeg's still beating you, Vancouver realtors. Best place on earth, buy now or be priced out forever!

Toronto and Victoria are as well. And Calgary's neck and neck with Vancouver on the same relative increase scale. Of course, they have their own unique, special, local reasons for the runup, don't they? Just read their newspapers and they'll tell you.
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Alan Layton
@glen

Tens of thousands immigrating to Vancouver every year? That means at least 20,000 per year. That figure seems awful high, even for Metro Vancouver. Where did you get this number from?
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Kelly
Fantastic article. Thanks so much for an insightful (and unfortunately all too rare) view on Vancouver`s housing.
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glen
https://www12.statcan.gc.ca/nhs-enm/2011/as-sa/99-010-x/99-010-x2011001-...

Vancouver received just over 155,100 immigrants between 2006 and 2011. That's an average of 30,120 per year.
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Bob
How about the huge run up in debt for Canadians? Could that have anything to do with it?? Anyone notice what happened in Vancouver during the financial crisis in 2008? People were rushing to the exits until Ottawa stepped in and extended mortgages to 40 years and allowed 0 down stated income CMHC insured mortgages. Since then personal debt levels have exploded. It was pretty clear there was very little belief in the prices back then and now they're even more out of line. Now we have realtors pumping the idea of foreign investors - Cam Good and his "Asian" helicopter realtors (whoops just locals of asian decent), MAC Marketing "asian sisters" (Amanda Lee) and now Rennie - each trying to create the urgency to buy because the foreigners are coming to buy every property in the GVRD no matter the price! Are people really this dumb? (Yes they are...)
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BigDaddy
All we really need is more foreign investment and lower interests rates to keep this going forever...
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