I’ve been writing about the impact of foreign money a lot in my seven and a half years as a Globe and Mail real estate columnist. Only recently has the topic reached a boiling point, which is long overdue. However, it continues to mystify me how several intelligent commentators on the Vancouver scene continue to question its relevance. The impact of foreign money on Vancouver’s property market should be a given by now, and yet there are those who insist that it’s not the true culprit behind unaffordability. It’s as if they’d rather see everything except for the elephant that is standing in front of them. Maybe it’s guilt? Maybe they’d rather not admit to themselves or anyone else that they’re benefitting from an overheated market, building equity in their homes that they could have only dreamed of a decade ago. For whatever reason, they’re not willing to state the obvious, and in terms of getting clarity on a massive problem with huge economic and social implications, their denial is only setting us back.
Let’s just get quiet and listen to Prof. Ley, shall we?
UBC geography professor David Ley, who wrote Millionaire Migrants, has supplied me and several other journos with reams of research on the impact of the transient global community, mostly people from Mainland China who’ve made Vancouver a second home.
They are wealthy people with loads of money to invest, and compared to other livable cities in the world, Vancouver is a bargain. That might be hard to believe for the average Vancouver household that brings in around $65,000, but compared to London or Palm Beach, believe me, we’re a sweet deal for a millionaire.
This isn’t exactly a revelation anymore, and it’s not rocket science to figure out how the global market has impacted the city’s affordability. If someone pays above-market value for a house on a street on the west side, that single transaction raises the values of all the houses in the area. Multiply that activity by even just 5 per cent, and the values for the entire neighbourhood go sky high. If the demand continues, which it has, it pushes prices into the stratosphere, which has obviously been the case. We don’t need U.S. based Demographia to tell us that we’re one of the priciest cities in the world. We’ve living it.
For those locals who can no longer afford the neighbourhoods on the west side, they now look to the east side, or North Van, or Burnaby. As a result, those average income earners — whose incomes are attached to the local economy, not outside wealth — push prices higher in those areas. If there’s no release valve to decrease the pressure, the market for detached houses continues to grow. High house prices radiate outward.
This isn’t to appoint blame to the foreign market that is applying the pressure. It’s not to say that there aren’t other factors, such as locals who are throwing money at tiny bungalows to get into the market. Or baby boomer parents who are giving their kids down payments on over priced homes. Or low interest rates that are motivating those who would otherwise not even try to get into the market.
It’s a simple acknowledgement that interest rates, or boomer equity, or domestic buyer behaviour alone could not have the same impact on house prices. After all, the interest rate here is the same as the interest rate in Winnipeg, and you don’t see that city’s house prices making top 10 lists. And how could domestic buyers drive a market into a frenzy like this one when their relatively low salaries could never afford the average $2.23 million house? Clearly, there is an outside force at play.
To quote Prof. Ley, “you’re either misleading or you’re mislead” if you don’t acknowledge the tremendous pressure of new global money. Iain Reeve of the Squeeze Generation counted all the applicants to the immigrant investor programs that came to BC and told an Australian publication this:
“Vancouver has seen more millionaires immigrate to the city than all of America in the past 15 to 20 years.”
How could our real estate market not be directly impacted? To those who continue to resist the evidence, I say, let’s stop the wilful blindness.
Global investment is driving our market, the same way it’s driving markets in London, Melbourne, Sydney, New Zealand, New York, Singapore, Hong Kong and Los Angeles. It is the biggest driver of the market in Vancouver, and it continues unabated, with no government regulation or intervention.
To me, that is a problem. It’s also a problem to millennial housing activist Eveline Xia, who started the #donthave1million social media campaign, and to the guy who started the petition for government intervention (who doesn’t want to be named), and to Saeid Fard, who wrote the blog called the Decline of Vancouver that went viral. These are young, worldly, educated, highly employable people who are trying to carve out a life in Vancouver but are feeling the squeeze of unaffordability. They’ve got their eyes wide open. They see the situation. They’re not denying the existence of the elephant in the room.
And yet, what baffles me, is the flip flopping among politicians and reluctance among my journalism colleagues to acknowledge that foreign money is the major issue. For example, the premier admits that foreign investment is a key part of the economy — while also claiming that she can’t address it because she doesn’t have data to proves it. That’s a bit of double speak for you.
To illustrate the failure of local media to get real on the topic, I give you this, an excerpt from one of Vancouver’s long-time local columnists:
“First, there’s little evidence of speculation-driven price increases in the market for condos and townhouses, which constitute the main options for entry-level buyers. Second, foreign ownership is not great enough to be driving up prices except in the market for homes and properties at the highest end. Third, prices for detached single-family homes are being driven upward by two factors that have little to do with real estate speculation and/or foreign ownership. Rather, it is because they aren’t building them any more in Vancouver and the existing stock is shrinking, owing to the trend toward densification, when detached homes are torn down and replaced with multiple dwellings. The supply is shrinking and everyone wants one? Of course prices are soaring.”
Evidently the culprit is a shortage of detached houses. It’s supply, not demand. Who knew? Does it matter that the houses are being paid for with foreign money? And the buyers are insanely rich? Apparently not.
Is this a case of someone who is mislead, or is misleading? I can only assume they are mislead, which is hugely disappointing. Because until we acknowledge the problem — with or without data — we’re just going to keep going in circles until there’s nobody left living in the city who’ll actually care anymore.