A new study out of SFU has the words “foreign buyers” back on the front pages of newspapers across Vancouver.
The report, dated May 2, 2016, contains no new data. Rather, it is in an aggregate study that compiles and reviews information related to the topic of foreign money in Vancouver’s real-estate market.
Still, the 56-page paper makes a strong case for the argument that investments from mainland China are pouring into Vancouver’s real-estate market in sums large enough to price out most domestic buyers.
“The dominant explanation for the crisis in Vancouver is a large and continuous flow of foreign money into the region, especially from China, which has reached unprecedented levels in the past year,” reads a summary of the study. “This factor accounts for most of the crisis, on its own.”
The study was authored by Josh Gordon, an assistant professor at SFU’s School of Public Policy.
The paper has not been peer-reviewed and was published independently (rather than in an academic journal). In a foreword, Gordon states that he is not an expert in real estate and notes his academic work is “far removed from this area”.
Later in the paper, Gordon also concedes that the data available on foreign money in Vancouver real-estate still leaves much to be desired.
“While precise data on this front is lacking, thanks mostly to intentionally inept government oversight, we still have enough evidence to see that it is by far the most important driver of the problem,” he writes.
In determining the role of foreign money in Vancouver’s real-estate market, Gordon cites three sources of information. The first is a history of the federal Immigrant Investor Venture Capital Pilot Program, a now-defunct initiative that allowed wealthy foreign nationals to fast-track applications for permanent residency in Canada. Gordon also looked at studies by Andy Yan, an urban planner with Bing Thom Architects, and others. Gordon describes those reports as being about the “ethnic make-up of high end buyers”. His third primary source of information was the “coincidence of capital outflows from China with rising prices”.
Gordon argues these three areas of research contain enough evidence to prove that foreign money from China has driven Vancouver’s real-estate market to a point where it has detached from the local economy.
In a section on home buyers, Gordon points to a study by Yan that looked at 172 West Side properties sold between August 2014 to February 2015. Yan found that 66 percent of those homes went to buyers that had “non-anglicized Chinese names”.
Gordon also describes statistics from Macdonald Realty as supporting Yan’s findings. In 2014, for example, 70 percent of properties worth more than $3 million that Macdonald Realty sold went to buyers from Mainland China. For homes worth between $1 million and $3 million, that number was 21 percent.
“Taken together, we have the following case,” Gordon writes in summary. “Beginning in the 1980s, Canadian governments effectively began to encourage large transfers of wealth from abroad into the Vancouver real estate market. These flows of wealth increased the demand for housing in Vancouver, especially single-detached housing which was popular among wealthy migrants. This allowed prices to rise above what local incomes could justify, even in these early days.
“This dynamic intensified greatly in the last few years for three reasons,” Gordon continues. “First, China has become much wealthier as its economy has grown dramatically in recent decades, and a long build-up in the property market in Hong Kong...allowed residents there to ‘cash out’ and buy housing here. Second, people with this increased purchasing power in China have had stronger incentives to move abroad since the start of Xi Jinping’s tenure in 2012, since he has vowed to crack down on corruption (which can sometimes be aimed capriciously). Third, many elite citizens in China fear that the economic foundations of the country are unstable, and this has produced a massive rush of wealth out of the country in the past year or so. It is this surge in foreign demand that has led Vancouver housing prices to become so detached from, and unaffordable to, local incomes.”
The paper does explore other factors in some detail. For example, Gordon also looked at geography and density, more general home-buying trends, and financial elements such as mortgage and interest rates, among other factors. In determining the influence of foreign money, he investigated whether or not these other forces could account for the market’s rapid increases. Gordon concluded that they could not.
In a foreword to the paper, Gordon emphasized that race was not a factor in arriving at conclusions presented there.
“Before proceeding, the issue of ‘racism’ should be addressed,” he writes. “This report puts a lot of the blame for the housing crisis on foreign buyers, and buyers from China in particular. It does so because this is where the evidence points, not because of some anti-Chinese animus. The problem is that the money is foreign, and that it is sufficient to seriously distort the housing market, not that it is Chinese money.”
In April 2016, the benchmark price of a single-family detached home on Vancouver’s East Side was $1.35 million, according to the Real Estate Board of Metro Vancouver. Homes on the city’s West Side rose to a benchmark price of $3.2 million.