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Vancouver’s real estate paradox

Real estate helped Vancouver’s economy outperform, yet astronomical prices will make it extremely hard to lure young, skilled workers to the city


 
For sale sign in Vancouver, May 3, 2016. (Photograph by Jimmy Jeong)

For sale sign in Vancouver, May 3, 2016. (Photograph by Jimmy Jeong)

Can a city’s greatest strength also be its biggest weakness?

That contradiction lies at the heart of a new study by the Conference Board of Canada and the Greater Vancouver Board of Trade that ranks Vancouver against 19 other global cities on a number of economic and social metrics. Put simply, the same force that has enabled Vancouver’s economy to outperform the rest of the country in recent years is also a reason its future looks so shaky: Vancouver’s red-hot real estate market.

In four of the past five years Vancouver enjoyed real GDP growth of more than 3 per cent, a pace that put it well ahead of the national average. Indeed, since 2005 Vancouver’s real per capita GDP growth has topped the rest of the country. Over that time frame the two biggest contributors to growth in Vancouver have been the construction sector and what’s often referred to as the FIRE industry—finance, insurance and real estate.

Real estate has always been central to Vancouver’s identity and affordability is by no means a new concern. However, the surge in home prices in recent years has brought about an affordability crisis that poses what the report’s authors describe as a “clear and present danger” to the city’s economic future.

As the report notes Vancouver is in a class by itself when it comes to housing affordability in Canada—in the region the ratio of house prices to per capita incomes was 19.5 in 2014, compared to 13.4 in Toronto and 6.9 in Halifax. Meanwhile, internationally only Shanghai and Hong Kong had housing markets that were more out of reach for those of average means. (It’s worth noting, too, that since the end of 2014, house prices in the city have only risen further, with the Teranet-National Bank house price index for Vancouver up another 23 per cent in a year and a half.)

“Anyone contemplating a move to the region faces exorbitant housing costs,” the report states. “This limits Greater Vancouver’s attraction to younger people who could represent its future.”  Yet Vancouver needs to keep on attracting people—specifically the young and skilled—to replace retiring boomers and take full advantage of the shift to a knowledge economy. While Vancouver has a larger share of its population in the key demographic of 25 to 34 than other Canadian cities examined in the study (18.7 per cent in Vancouver, according to the report, compared to Montreal’s 17 per cent or Halifax’s 13.9 for example) it is well back from other international cities like Seattle (20.7), San Francisco (21) and Sydney (33.2).

It’s already common to hear the heads of technology companies in Vancouver complain that outrageous house prices make it difficult to lure workers to the city. Such complaints will only become more frequent in the future unless the affordability question can be addressed.

And that’s the challenge—there simply is no easy fix to Vancouver’s affordability woes. As the study notes, Vancouver is gripped by debate over the role of foreign buyers, namely from China, in driving up house prices. While echoing calls from economists for more foreign investment data, the authors of the report said there is clear evidence that a stronger Chinese economy has lead to higher prices in the city.  “[China’s] moderating growth rate may ultimately prompt an easing of Greater Vancouver’s red-hot housing price advances,” they said. “Just not this year.”

One possible solution, if foreign buyers are driving the housing market, would be to impose restrictions on the purchase of homes by non-residents, which is what governments in Australia and Denmark have attempted. Another option would be to increase the supply of homes by encouraging more density or changing land use rules to restrict construction on agricultural land to the east of the city. A third ideal solution to the problem of affordability would involve a huge jump in incomes.

All easier said than done. In order for Vancouver’s house price-to-income ratio to come in line with other Canadian cities—and thus enable it to lure the workers needed to continue transforming its economy—home prices would have to fall by half or local incomes would need to double. It’s a reminder of the daunting task facing the city as it grapples with the fallout from its housing boom and bubble.

How do Canadian cities compare to their international counterparts?


 
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Vancouver’s real estate paradox

  1. “Vancouver’s house price-to-income ratio to come in line with other Canadian cities—and thus enable it to lure the workers needed” … that’s naive parochialism: over half of Canadian workers with STEM credentials are immigrants; worse, Canada lies next to the US which does quite poorly in producing STEM graduates; it’s a global competition. Another contextual problem is looking at housing price as built: if one looks at cost-per-unit-area, Vancouver is much farther down the list i.e. cost per housing unit is in many cases an apples and oranges comparison. In any case, as long as large cities favor development of high-price real estate to increase their tax base as much as possible the average price of real-estate will escalate and as long as they favor large capitalization development the supply of units will fail to satisfy demand driving prices up; as long as politicians lust for high rise condos, housing stocks for working people will be under-supplied. One should note that neither politicians nor planners are particularly concerned for the supply of housing for ordinary workers – consider what a joyous fuss they make when industrial and/or ordinary residential space is ‘upgraded’ to luxury condos.

  2. Foreign ownership & speculation of Canadian residential real estate MUST be restricted NOW to give our next generation of Canadians any fighting chance at preserving a future ANYWHERE in the lower mainland or Fraser Valley for that matter. If you agree, please sign and share the online petition at:

    http://www.change.org/p/justin-trudeau-restrict-foreign-ownership-speculation-in-canada

    Canadians have been asking our government to collect data for the last 2 years and
    they are intentionally dragging their heels to line their own pockets and provide a false sense of economic propserity. Change needs to happen NOW. If it turns out foreign ownership isnt the issue, the most we have to lose is an ineffective law imposed to protect Canadians, but if we wait another 2 years before we implement anything we stand to lose ANY chance of ever regaining control of our land and our housing for ALL Canadians and their families who DESERVE adequate housing.

  3. Well, there have been a lot of really great articles with a lot of options and solutions to this problem Unfortunately I think everyone is wasting their breath. This problem has been building for quite some time now and the only reason it is as bad as it is now and will only get worse is because the government and the realtors do not want to do anything about it. I don’t know why the government doesn’t want to do something unless they are afraid that all the deals and relationships they have been forging internationally will collapse or they are afraid without the money coming in from real estate the economy will tank. I guess it is easier to let it go and blame the federal government for it. We all know why the realtors don’t want to do anything. Pure and simple greed. Greed that is sacrificing the province to international speculators, I don’t know, but in my opinion when you have 45 economists from top schools in Canada suggesting just to the BC finance minister what he needs to do and he chooses to ignore there suggestions and spew off some used car salesman double talk there is huge problem. BC liberals why don’t you just get is over with and just sell the province to international speculators and get it over with.

    So are the people running our provinces and Country a bunch of idiots that just happen to be able to be good at talking us into doing what they want…kind of like salespeople? Perhaps we need to push for our country to run by people who look at the long term effect of their decision on the economy and the country and just don’t look to the end of their term. They need to listen to what the citizens want from them for their tax dollars and work with qualified economists and strategists to determine how to get their. Instead we have grown men women having frigging tantrums and throwing fits because poor Justin Trudeau has the misfortune of accidently elbowing someone from another party. People this country has bigger issues to fix. Stop acting like a bunch of whiney babies and work together for crying out loud. You have really work to do and problems to fix so work together and get it done.

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