Fiscal reality continues to elude Vancouver real estate market
While sphincters are tightening in some parts of town over a softening in the real estate market, a lot of people are praying for prices to come down.
They are not impressed that we consistently place in the top three in the world’s unaffordable housing race. They include young wannabe homeowners, of course, but also private and public employers desperate to attract out-of-town skilled workers and senior executives or to retain valuable workers who insist on owning their own homes. Because our housing prices are around 10 times median income (with five times being “severely unaffordable”), the potential newcomers stay away and the valuable workers move away.
Businesses suffer. Families suffer. The city suffers. Homeowner debt piles up to ridiculous heights. The Bank of Canada has the jitters.
Our standard response is to increase supply, which, given a fixed demand, should push prices down. We’ve been doing that for decades. Every housing initiative in the city’s history is about increasing supply in some form or other: smaller units, subsidized units, denser neighbourhoods. We keep doing it. Maybe this time will be different. But prices are still in the stratosphere. The average cost of a single-family detached home in Vancouver is now over $1 million. Median incomes have barely budged in decades.
“Housing affordability in B.C. remained poor and worsening,” reported RBC senior economist Robert Hogue late last year.
The Economist looked at housing markets around the world and found that “overvaluation” – the ratio of price to rents – is the highest in Canada, and Vancouver is in the lead in Canada.
“[Vancouver’s unaffordable housing prices] depend on a constant flow of imported money. If the flow stops, the locals just can’t pay those prices,” says RBC’s Hogue.
In Vancouver’s case, as in the other contenders for the “most unaffordable city” crown (Hong Kong, Singapore, Sydney), much of that imported money is coming from China.
The January 20, 2013, Bloom berg “chart of the day” showed an uncanny match between China’s GDP growth and Vancouver’s housing prices. “Vancouver’s housing market may depend on the strength of China’s economy as much as anything that happens in Canada,” said the report. This means we can expect housing prices to start going up again because China’s fourth-quarter GDP was up.
Other “most unaffordable” cities have taken steps to dampen investor demand. Hong Kong just introduced a 15% stamp duty on homebuyers without a permanent resident’s card. Sydney doesn’t allow foreign purchases of existing housing stock.
In Vancouver, we aren’t even sure we have a problem. The Mayor’s Academic Working Group on foreign investment in real estate found “the empirical conclusions of the impact of foreign investors on affordability is (sic) weak at best. …There is no reason to expect that foreign investment has a good or bad impact on affordability at the city level once one considers both potential positive and negative factors.”
They did recommend that “the City learn more about nature, scale and impact of foreign buyers on the local housing market … prior to taking any particular actions.”
Absolutely sound advice. But who’s doing that research? No one I’ve been able to find. Until those on the losing end make some noise, our politicians and builders will focus exclusively on building more condos and imagining that one day, somehow, prices will magically align with local incomes.
And those new units will keep catering to investors (who own 51% of the condos surveyed in one study), not to owners who want to live in them and make the city work. •