Vancouver was the star of a recent New Yorker article that shone a light on the city’s lack of housing affordability and linked this lack to an inflow of foreign buyers. Unfortunately, this link is extremely tenuous, as most of the support is anecdotal or based on very limited data. At the same time, there are good reasons to look for the sources of the lack of affordability much closer to home. Articles like that in the New Yorker allow for far-flung conclusions that end up bolstering a fatalist political narrative about the potential for meaningful change.
First, the data. The New Yorker author, James Surowiecki, offers two major sources to back his claims. The first is a Sotheby’s report stating that 40% of buyers of Vancouver luxury homes (luxury homes had an average low cut-off price of $2.8 million or three times the overall average price) in the first half of 2013 were foreign. At the end of his article, Surowiecki also cites Andy Yan’s interesting energy usage studies, the most recent of which showed that somewhere between five and ten percent of the city’s condos may be sitting empty at any given time. Of course Surowiecki cited the sensational statistic that almost a quarter of homes in one Coal Harbour census tract were likely vacant at census time.
There is no way of knowing how many of these ghost homes actually belong to local, other Canadian or foreign investors. More importantly, this should not matter – what matters is how many homes are being used as empty investment vehicles.
Neither the city nor the province nor any private organization collects reliable data on real estate ownership and transactions, so it is nearly impossible to get a gauge on the true extent of foreign ownership of Vancouver housing and new foreign-based buyers. Anecdotes, of course, abound. However, many of the attempts to gauge foreign ownership in Vancouver over the number of years have come to similar conclusions and similar estimates. Foreign ownership appears to be staying put below five percent at most. (See this, this, this, this and this.)
The most popular economics book at the moment is a tract about the rapid growth of inequality and the rise of a truly global class of the super-rich. Some of Vancouver’s priciest properties are surely being snapped up by a runaway global elite, but most purchases are simply the result of local inequality. It is not the “foreign” but the “investment” that is much closer to the source of our affordability woes.
The growth of inequality, attacks on pensions, increases in lifespans, aggressive tax cuts – all of these factors have moved wealthier Canadian households to look for new investment opportunities. Investment in real estate has been helped by low mortgage rates, a supply of new housing skewed towards small, high-end condominiums as well as existing equity available to those who lucked out and grew rich on the initial housing boom that started in Vancouver in the 1980s.
Indeed the only academic paper cited in the New Yorker article gives reason to believe that a (virtuous or vicious, depending on whether you have housing or you don’t) cycle of local price and investment dynamics can help explain the rapid increase in housing prices.
From San Francisco to Sydney, from New York to London and in many smaller centres, the same arguments about increasing foreign investment can be heard. At the same time, housing advocates from all of these same cities are making similar arguments: underneath the fears of foreign speculation are a host of local issues that are contributing far more to affordability crises. These centre not on an surplus of foreign demand but on a dearth of local supply.
Each city is different with differences in amounts and models of public housing, in zoning regulations, in rent control regimes and much else. This means that the roots of unaffordability can differ wildly, as can strategies for tackling them. What brings these strategies together, however, is the fact that local, political choices can be used to counteract broader trends. Housing advocates are not so much calling for limits on foreign investment as increased investment in public housing. They are seeking to maintain and expand regimes of rent control. They are questioning development models.
Housing is looked at through the dual lens of shelter and investment vehicle. The natural supply constraint of the mountains and the ocean as well as a phantom spectre of foreign demand make it easy to hide what are the much more important forces at play – forces partly localized and thus more open to change. Zoning, municipal tax policy and direct subsidies to buyers or renters can all have an impact on private development and supply. Even more so, the city can directly impact housing supply by investing in housing itself, putting the focus back on housing as shelter rather than private nest egg. As it stands the city is pushing a location- and quantity-constrained private development model that only abets rising prices and empty investment.
As renters or owners, Vancouverites do not have to accept the fatalism of “getting used to [it]” or a false logic of impossibility imposed by an overhyped foreign demand. Housing reform is difficult the world over, but attempts at reform continue to be made all over the globe. Vancouver may be safe, green and beautiful – but it might not be all that super or special.