Saturday, September 10, 2016

'China Syndrome' Paralyzes Politicians in Metro Vancouver and BC Housing Affordability Crisis

China's ownership of Canadian homes is rapidly increasing
Huge impact of Chinese foreign buyers can't be ignored, and raising the issue isn't racist.

Bill Tieleman’s 24 Hours Vancouver / The Tyee column

Tuesday June 21, 2016

By Bill Tieleman

"One simple conclusion: a massive amount of money from China entered the Vancouver real estate market in the past year or so."

- Josh Gordon, Simon Fraser University public policy professor

Call it the "China Syndrome" -- an unfortunate paralysis afflicting Canadian politicians and stopping them from speaking the truth about what is happening to B.C.'s housing market.

The reality, Josh Gordon wrote last month, is that an enormous amount of Chinese capital is flooding in to buy Vancouver homes. The National Bank of Canada estimates Chinese buyers spent $12.7 billion in Vancouver alone in 2015 -- that's about one-third of all sales!

It's part of the estimated US$1 trillion that left China in the last 18 months seeking safe investments.

And there's much evidence that buyers from China are scooping up vast swaths of the available homes and driving prices sky high and out of reach of ordinary Canadians.

University of British Columbia business professor Tom Davidoff agrees.

"Look, home prices are up about 40 per cent in the last year and Vancouver didn't get 40 per cent more undersupplied than it used to be in the last year," Davidoff told CKNW on Friday.

Davidoff said there's "a flood of cash" from foreign buyers looking for a safe haven.

"This year its China, who knows next time," he said. "Rich people who want to go to a low tax, low regulation, high safety environment, great physical space, are going to want to come to Vancouver."

But federal, municipal and especially provincial politicians are all scared witless to say out loud what everyone else knows: we are letting ultra-wealthy Chinese and other investors make housing unaffordable. Not just in Metro Vancouver, but in Victoria and other regions.

Not racist to talk about foreign investment and affordability

Last week I proposed the B.C. government ban foreign purchases of residential property for a six-month cooling off period, creating time to find longer term solutions.

Some thought that was xenophobic. In fact, it is simply protecting the ability of ordinary British Columbians to afford housing in their own communities.

Gordon's detailed study looked at the causes of the radical increase in housing prices in Metro Vancouver. He's careful to note that pointing out the facts about the impact of Chinese buyers is not racism.

"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," Gordon writes.

Exactly. And then he hits the nail on the proverbial head.

"Most citizens want to be able to have a chance to buy decent real estate if they work hard and play by the rules; in Vancouver that is becoming increasingly difficult, in large part because of massive flows of money from abroad," Gordon says in the report titled Vancouver's Housing Affordability Crisis: Causes, Consequences and Solutions.

Both Davidoff and Gordon have lots of potential solutions to stop the insane housing price escalation -- something to discuss in a future column.

But they both likely know the province won't act as long as the real estate industry that profits enormously from selling homes to foreign buyers also contributes huge amounts to the BC Liberal Party. Gordon even refers to the influence of Bob Rennie, the real estate mogul who also heads Premier Christy Clark's fundraising efforts.

That would be the Rennie who recently suggested action to curb foreign real estate investment would start a trade war. "China buys $6 billion a year in British Columbia exports," he said. "Are we going to tamper with those jobs and our economy?"

Gordon calls out those who fund political parties.

"The fundraising is being dominated by prosperous developers and others closely tied to the housing boom," he writes. "This is the second lesson about housing market politics from the past decade: inside players, with large vested interests, are willing to shovel over massive amounts of money to political parties to keep the boom booming."

Gordon says the political right and left have been reluctant to confront the impact of foreign real estate investment.

But he notes that only the BC Liberals who oppose a ban on corporate and union political donations. The provincial NDP and the city's Vision Vancouver have repeatedly called for such a ban, which is already in place federally.

Gordon says the BC Liberals run the risk of being caught in a real estate crash.

"The provincial government has put itself in a tight spot: ride the bubble or tackle it and basically admit that they screwed up," he writes. "I highly doubt the latter. And so this problem will worsen, at least so long as China's own worrisome housing and credit bubble continues."

Turning Vancouver into a 'playground for elite'

The government has put itself in the "rock and a hard place' situation, Gordon says.
"They have been in power for 15 years and this crisis has been a long time in the making. At a number of crucial points they have in fact tried to silence criticism and deflect attention from the issue. Perhaps more unsettling, they've recently doubled down," Gordon writes.

Indeed, the BC Liberals' response to soaring house prices has been to tinker around the edges to make it appear they are addressing problems. Nothing substantive has yet been proposed, let along implemented.

That means the crisis is coming. And Gordon predicts taxpayers will be on the hook to come to the real estate industry's aid. "Then, when the bubble bursts, the rest of us are forced to pick up the tab, and indirectly bail these people out," he adds.

If nothing changes, argues Gordon's paper, "Vancouver is well on its way to becoming simply a pretty resort town."

"Many people who grew up in the City of Vancouver, West Vancouver, North Vancouver and to a lesser extent Burnaby and Richmond do not have a realistic chance of owning a house in these places, and even a family-friendly condo is a stretch for many."

And, as Davidoff says, "As long as money floods in, in the long run this is going to be a global playground for the elite, and not a place to live and work, a place to have money and not to make money."



Stephen Bruce said...

And the rental market is hijacked as students coming to colleges and universities will find prices outrageously beyond their ability. And some will find by coming late to term nothing is left anyway. They live out of cars, if they have one, or vouch surf for months on fellow students suites. I moved out, renoviction, of a $807 suite in 2009. The new tenants I met a few weeks later were paying $1775! 2 bedroom. I had it for 13 years. I replaced 13 broken windows because landlord would not. Replaced rotting window ledges, rebuilt the bathroom and redid the hardwood floors. I painted once every 3 years and they refused to identify what was to be renovated.

Now 11,000 condos, townhouses and detached private dwellings are sitting vacant. Unoccupied. That is criminal and cause for an immediate election. Why wait 7 months!? It forced me to move to Gibsons after moving from 9 shared situations in 20 months. I was robbed of 30% of everything I owned. Sacred gifts from holy temples given to be should not be stolen. Ever. I ended up finally living with my Mom for 3.5 years paying 90% of my pension because she refused to pay her half. I finally found a home and large yard with a great landlord whom I hope outlives me. Rents have doubled on the Sunshine Coast since 2008. Reflected by the housing crisis in Vancouver.

If I had to move, being on Disability I would only be able to live out of my car. I would lose my pension for not having a fixed address and I would then have no income, no home, only medical benefits. Fact. I am very fortunate. Poverty is anything under $20,000. Been there for over 25 years. And the first 13 years I was working 45-65 hours a week for $1100 a month. Our system is crashing. So mote it be. Perhaps we will have lower rent! Public housing accepted me. Suite in Burnaby, 380 sq ft. No direct sun. No piano. No dog. How do you dump a dog and piano to live in a schist hole in Burnaby 1 block from a proposed pipeline through Burnaby Mountain? Worse and worser.

NorthShoreScene said...

West Vancouver's Horseshoe Bay has a huge development pending: Sewell's Landing. The Public Hearing last month was abruptly delayed.
Horseshoe Bay realtors in the know have said before the project has even been approved (rezoning, et. al') it was being marketed in China for "pre-sales".
So much for the argument we need more and more of these oversized developments and spot zoning so locals can stay here.

Anonymous said...

Well hind sight is indeed 20/20. The provincial government has acted and the Vancouver market has cooled.
But I still dont get it. I dont buy the argument that people should be able to buy a home in Vancouver simply because they were born there. Fact is about 63 years ago I was born at VGH. My mom and da lived on Burnaby St in the West End. Pendrell, Nelson Barclay, Bidwell were some of my addresses growing up. I bought my first home in Maple Ridge (an AHOP) home. Then a townshouse in Coquitlam and now I live in Sardis. My wife and I both have worked all our adult lives and have always done well . Over 100 k per year for many many years. We raised 3 sons.
My dream was to live in the West End. LOL. Even if Vancouver prices had stayed static over the past 20 years I could never afford to buy a home in Vancouver. Even if todays average home price in Vancouver was cut by 50% I doubt that I could afford to buy. I understand that offshor money helped to drive the prices way way up BUT enough whining already. Vancouver was unaffordable before the Asian invasion. Its almost as ludicrous as those that complain that people that work in West Vancouver cant afford to but there. Give me a break.