Vancouver’s housing affordability crisis is caused by an influx of foreign money and poor political oversight, according to a report out of SFU.
Assistant professor from the School of Public Policy, Josh Gordon, said the BC and federal governments have done little to stop money, primarily from mainland China, that pushes domestic buyers out of the market and raises prices for properties. Gordon addressed the issue of racism, and assured readers that “the problem is that the money is foreign,” not that the money is from China.
Other contributing components were also included in the report. Historically low interest rates in Canada, coupled with Vancouver’s natural and artificial geographical boundaries are two key factors playing into the equation.
Gordon dismissed other common justifications for government inaction as “distractions,” like the supposed lack of social housing, bad zoning, and high “desirability” of living in Vancouver.
“Too often people [simply assert] this or that claim” and don’t back it up, especially “influential people connected to real estate and government,” Gordon said in an email to The Peak. He further stressed his intention to “confront the evidence in a careful way,” engage the interested public, and challenge conventional approaches.
Canada’s Business Immigration Program, specifically the investor stream, is a primary cause of the housing crisis, according to Gordon. This “cash for citizenship” program has allowed wealthy individuals (net worth $1.6 million or higher) to come to Canada.
Gordon cited a 2014 report by Citizenship and Immigration Canada, and one by UBC professor David Ley. He summarized the reports, saying that the program was an “unmitigated failure,” and the migration to Vancouver was “substantial, and consisted almost entirely of investors from Greater China.”
Roughly 48 percent of these immigrants’ business operations were “real estate and rental,” and only 10 percent of them had any self-employment income. Gordon also reported that the average annual income tax paid was only $1,400, compared to $7,500 for Canadians.
Between 1980 and 2012, an estimated 200,000 investor stream migrants came to Vancouver, representing 8 to 9 percent of the regional population. The program ended in 2014, but thanks to a “loophole,” an estimated 1,800 investor migrants have come to BC through Quebec since then.
Gordon pointed to a study by urban planner Andy Yan. Yan looked at 172 homes sold in West Vancouver from 2014 to 2015. His research showed that 66 percent of buyers had non-anglicized Chinese names, suggesting “recent arrival.” For homes over $5 million, it rose to 88 percent.
There is a significant “‘de-coupling’ of the Vancouver real estate market from local incomes” Gordon reported, thanks to the purchasing power distorting the market. Prices are inflated “across the board” as upscale buyers move to less high-end neighbourhoods and the effects continue, claimed Gordon.
Incomes in Vancouver have not significantly increased, nor are they at a level that would suggest a correlation with the skyrocketing housing prices, which the CBC reports has increased 30 percent in the last year.
In 2015, over USD $1 trillion left China for foreign markets. Gordon included a survey showing 14 percent of elite Chinese investors said Vancouver was their preferred location for real estate investment. Gordon concluded that “a massive amount of money from China entered the Vancouver real estate market in the past year or so.”
Gordon explained that there are severe consequences for Vancouverites. Intergenerational inequality perpetuates and millennial buyers are unable to enter the housing market in Vancouver, even into apartments and condos.BC has a highly leveraged real estate economy with “unstable debt foundations.” Construction and real estate services account for over 25 percent of BC’s economy, compared to roughly 20 percent for both Ontario and Alberta.
Increased housing prices cause individuals to assume more debt than they can afford. If interest rates rise more, this problem might worsen. Gordon explained that mortgage holders could owe more than their home is worth, putting them “underwater.”
Gordon said that communities suffer too. First-time buyers are pushed into the suburbs, farther away from their families, friends, and workplaces. Young professionals leave Vancouver, and there is an exodus of young talent because of the unaffordability of starting a life there.
Gordon presented two potential solutions to the problem: a progressive property tax scheme, and better tracking of foreign investment and laundering. The tax scheme would target foreign owners of high-end ($1 million and over) homes and would reduce demand in Vancouver. The Canada Revenue Agency and the Canada Mortgage and Housing Corporation also need to keep better records to allow for real tracking of foreign money pouring into Vancouver.
Gordon’s report is not peer-reviewed, and was “aimed squarely at the public debate.” He wishes to see “sensible policy action” from the government through public pressure.