Kerry Gold, The Globe and Mail, June 17, 2016
Prime Minister Justin Trudeau is scheduled to meet with a round table of experts on Vancouver’s housing affordability crisis on Friday, just as new data are released showing the extreme nature of the city’s escalating housing problem.
Planner and analyst Andy Yan, who will attend the meeting, has released a comprehensive set of maps that show the rapid rise of assessed house prices over the past decade. Strikingly, his data show prices have spiked considerably within the past two years.
At least one academic at the gathering plans to make the case that Vancouver’s sudden escalation of house prices is timed perfectly with the mass exodus money from China. None of the academics interviewed was given any specifics as to what would be on the agenda, other than a general discussion of housing, so they plan to bring their wish list of recommendations to the table.
Josh Gordon, an assistant professor in public policy at Simon Fraser University, said in an interview on Thursday that he plans to make the case that the inflow of Chinese money has pushed Vancouver home prices out of range for the average person.
For example, in 2013, online real estate portal Juwai facilitated $5-billion (U.S.) worth of global real estate deals for its Chinese clients. In 2014, that number soared to $52-billion.
Prof. Gordon argued that that corresponds with a major increase in the number of houses assessed at more than $1-million (Canadian) in Vancouver.
The number of houses priced below $1-million dropped from 41 per cent in assessment year 2014 to 9 per cent by 2016, according to Mr. Yan’s data. Prior to the exodus of Chinese money, assessment figures show the market was levelling off. “Then all of a sudden it explodes,” Prof. Gordon said. “It shows so clearly what is going on is being driven by that kind of a factor. And we do have pretty good data on flows of capital out of China.”
The province announced in its February budget that it will begin gathering data on foreign investment in British Columbia’s real estate market, requiring all new purchases to list the buyer’s nationality. However, Finance Minister Mike de Jong has played down the idea that the role of foreign buyers in Vancouver’s affordability crisis is significant.
But Prof. Gordon said there is also solid data on the flow of Chinese money into Australia, where house prices have also soared. He questioned why Vancouver would be any different.
“We are a very similar target – if not a more enticing target – because we have such low property taxes, and we make such limited effort to track the nature of money and enforce money-laundering rules.”
Mr. Gordon said he also planned to make it clear to the Prime Minister that the high-end market is not operating in isolation to the rest of the market. It’s a common argument put forward by the real estate industry that foreign wealth is only driving luxury property prices.
Mr. Yan’s maps clearly illustrate the ripple effect spreading from the more affluent west side of the city to the east. The average price for a detached house that sold in the city of Vancouver is $2.96-million, according to recent figures supplied by Landcor. That’s a 19.8-per-cent increase since January. The average price of a condo is $719,434, a 7.88-per-cent increase in the same period. Throughout the region, prices have risen 20 to 35 per cent over all in the last year.
“The point I want to make in the public debate is that a lot of the other things we are seeing right now – including speculation, fear of missing out, loans from the bank of Mom and Dad, all these different things that we are talking about in terms of driving prices – these are all in a sense knock-on effects of foreign money,” Prof. Gordon said.
“They are not independent causal factors; they are occurring as a result and in reaction to the foreign money that is flowing into the city.”
Mr. Yan said he will emphasize with participants that they need to look at demand. “Clearly ,global capital is part of this,” said the acting director of Simon Fraser’s City Program. With these patterns, we have price and the supply, but we need to look at demand. And in terms of housing, we need to ask, ‘What are the kinds of demand we want to support? And what are the behaviours we want to discourage?”
University of British Columbia geography professor David Ley, who’s studied Asian global capital flows for 16 years, said he will suggest to Mr. Trudeau that Ottawa attempt to cool off the top end by taxing it, which would quell the entire market. He said he will also suggest a tax on foreign property purchases. “It would be a bolder move, and I think there’s quite an appetite for that. But that would be a bigger ask, and a complicated ask, as you can’t always easily tell what is a foreign purchase.”
He said he’ll also ask for regulation of the real estate sector, including measures against money laundering. Indebtedness tied to high mortgages is another one of Mr. Ley’s concerns he’d like to discuss with the Prime Minister.
“I’m going to raise the issue that we need to protect what we already have – the housing from the ’70s and ’80s, such as the government-subsidized rentals, whose subsidies are expiring and, not surprisingly, are in need of repair. I think it’s an easier task to conserve what you already have,” he said.
Jean-Yves Duclos, the minister responsible for housing, will follow up the Prime Minister’s round table with more in-depth meetings on June 26 and 27, according to his communications director, Mathieu Filion.
Vancouver and Toronto prices have also recently caused the Bank of Canada and major banks some concern. Bank of Canada Governor Stephen Poloz and economists have recently cautioned consumers that rising prices are unsustainable.
“It’s incredible, really,” Prof. Gordon said. “We’re numb to it now, but if you think about how much income you need to have a $1-million house, you realize how crazy things are.”
Prof. Gordon said he plans to tell Mr. Trudeau that there is no time to waste and that immediate action needs to be taken.
“They need to start cracking down on money laundering, which is within their jurisdiction, and they need to end the Quebec Immigration Investor program, and seriously look at taxation of foreign investors.”