|UBS Global Real Estate Index released in September 2016 shows Vancouver with highest "bubble risk" in the world for housing prices.|
Saturday, November 12, 2016
Discussing Vancouver Housing Data Isn’t "Racist" - And It shows How Chinese Foreign Buyers Are Driving Up Home Prices
Government stats show foreign purchasers buying up real estate equal in value to all new home construction.
July 12, 2016
By Bill Tieleman
"Buy land; they're not making it any more."
Chinese and other foreign investors buying up homes are spending an amount almost equal to the value of all new housing being built in Metro Vancouver, creating skyrocketing prices that are driving local people out of the market.
That conclusion is easily drawn from last week's B.C. government release of new statistics on foreign housing purchases.
While woefully inadequate, they still show that the new supply of housing built each month effectively disappears from the market as foreign buyers -- mostly Chinese -- scoop up real estate of equivalent value.
And, as Twain says, they aren't making land anymore. It's like exporting a non-renewable resource.
UPDATE: BC Liberal Premier Christy Clark did a complete reversal in late July on her previous strong position that no action was needed to deal with skyrocketing Metro Vancouver housing prices caused by foreign buyer speculation. The BC Liberal imposition of a foreign buyer property tax of 15% in Metro Vancouver has significantly reduced non-Canadian home purchases to about 1.3% of sales from 13.2% earlier this summer.
But composite benchmark housing prices remain extraordinarily high despite the tax: they are up 28.9% since September 2015 and down only 0.1% since August – meaning Metro Vancouver is still utterly unaffordable to most citizens.
The Metro Vancouver ramifications are enormous:
• Insanely high housing prices, up 32 per cent this June over June 2015, for an average price of $917,800.
• Phenomenally low rental vacancy rates that mean rents are consequently going through the roof, with Vancity Credit Union reporting young workers are being priced out of the Vancouver rental market.
• A development and home construction industry that has become dependent on Chinese foreign sales and escalating prices to prosper, meaning any ownership restrictions could seriously hurt employment and the B.C. economy.
Government data flawed, but revealing
First, look at the government numbers released by Finance Minister Mike de Jong last week.
De Jong deliberately directed media attention to the apparently low percentage of foreign housing buyers, even though the statistics came from just three weeks of June data that suspiciously did not include the final day of the month, when most sales go through.
Nor was that information definitive. The government counts on buyers to declare their nationality voluntarily; it doesn't consider whether the real owners are using family members or others representatives to buy housing; nor does reveal whether a buyer with permanent residency actually works or pays taxes in Canada.
These flawed statistics are challenged by estimates like that of the National Bank of Canada stating that Chinese buyers may have spent up to $12 billion on Metro Vancouver real estate last year -- one-third of all sales.
Regardless, the B.C. stats show that from June 10 to 29 the value of Metro Vancouver house sales to foreign nationals was $351 million, or 6.5 per cent of the total of $5 billion in sales.
The overwhelming majority of sales -- 234 out of 284 -- are to Chinese nationals. Citizens from Korea and Taiwan were second at just five purchases each.
If that $351 million over 20 days is extrapolated to an entire year, the estimated value of foreign residential sales would be $6.4 billion, far less than the National Bank's estimate, but still huge.
Compare that to the value of new building permits per year in Metro Vancouver -- roughly $6.5 billion in 2015, Statistics Canada figures show.
That means foreign buyers' purchases are virtually equal to the value of new building permits in Metro Vancouver each year.
It's about money, not race or nationality
Pointing that out is not racist. It's a factual observation based on the B.C. government's incomplete but still indicative data collection.
As Ian Young, the South China Morning Post's Vancouver correspondent, noted, the issue is money, not race. "Why would you think that someone was better defined by the colour of their skin than the colour of their money?" asks Young, who is of Chinese origin himself, raised in Australia and Hong Kong.
If foreign investment is equal to all new construction, is it any wonder prices are going through the roof?
The important number is not the 6.5 per cent of sales to foreign buyers -- it's the ratio of foreign investment to new construction.
To be clear, foreign buyers are not snapping up all the new homes. But their purchases have a value greater than all the new construction.
And if foreign nationals don't occupy or rent their new homes, the rental market shrinks. Even those who can't possibly afford to buy their own home in Metro Vancouver are screwed.
The Vancity report "Rent Race: The Growing Unaffordability of Rent in Metro Vancouver" makes for depressing reading.
"We have made an assumption that the rental market is there for people who can't afford to get into the housing market as an owner," Vancity community investment vice-president William Azaroff says. "What we're saying is: 'Hmm. Not so fast. That's not true.'"
With average Metro Vancouver rents of $1,144 per month and vacancies at less than one per cent, younger and lower-income households are in deep trouble.
And Vancouver city is even worse, with an average rent of $1,233 late last year, and a vacancy rate of 0.6 per cent.
So forget the nationality of homebuyers and ask why anyone would let another country's citizens make homes unaffordable?
Ridiculous? That's why I repeat my call for a six-month ban on the foreign purchase of B.C. homes to find longer-term solutions and stop the insanity.