It's hard to know what to make of B.C. Premier Christy Clark's response to Mayor Gregor Robertson's better-late-than-never request for government action around Vancouver's affordability trap. But if you peel back the layers and actually take the time to read through both the B.C. Finance Ministry's briefing note on the topic, and then the research submitted by the B.C. Real Estate Association, things become a little more clear. This is a decision born more from ideology than from any evidence-based analysis.
And while the provincial government might want to wish this crisis away, the facts have a way of hanging around.
The Bank of Canada, hardly a collection of anarcho-leftists, considers the Canadian housing market to be as much as 30 per cent overvalued -- which is an estimate alarmingly close to those that came just before the massive U.S. correction of 2008.
The Demographia Institute study of housing affordability continues to place Vancouver as the second worst city in the world, just behind Hong Kong, and just ahead of San Francisco. And credit union Vancity reports that while wages in Vancouver grew by 36 per cent between 2001 and 2014, house values soared by a whopping 211 per cent. The list of warnings goes on and on.
So with a runaway real estate market that shows few signs of slowing -- one which, if left unchecked, will fundamentally re-write the makeup of Vancouver for a generation -- the provincial government is taking a pass. That's a pretty bold decision and one that you would expect to have backed up by some compelling research.
But as far as I can tell, it all rests on one single piece of near guesswork: an "estimate" by uncited "industry experts" that the degree of foreign speculation in Vancouver hovers at a negligible five per cent. Therefore, doing nothing is the right move.
(To be clear, the "foreign" origin of such investment is a bit of straw man: it is the speculative nature that is worrisome, whether that money comes from Shanghai or Sarnia.)
So let's explore the origins of this five per cent estimate on which so much rests. It originates from the B.C. Real Estate Association, and you must admit that asking the BC REA for their opinion on housing affordability is a little like asking the fox how to build the best henhouse.
What can be extracted from the documents is not entirely reassuring:
- First, the BC REA cites residential measurements based on the 2011 census, which is of limited usefulness in understanding a bubble that, judging from MLS price data, has largely manifested since the 2010 Olympics. Next.
- They then talk about a CMHC rental market survey of property managers, which seems promising, but they do little to explain the methodology. Next.
- The report then mentions a 2010 study by Urban Futures (outdated, next) and an informal poll of 200 realtors (methodology, next).
- As a finale, the BC REA cites housing market studies from the US and Australia that measure non-resident investment... which are, at best, extremely crude proxies for whatever is happening in Vancouver.
None of this gives much credibility to the five per cent number, unless you squint your eyes just right and really want to believe.
But because of this vanishingly small number -- unverified by any hard research -- no policy action is required. We can just sit back and let the invisible hands of the market give us all a refreshing neck rub.
Indeed, Clark's letter goes on to assert that any move by the government to cool a housing market renowned worldwide for its heat would instead bring up disastrous economic repercussions: negative homeowner equity, depleted investor returns, somehow higher rental rates, cats and dogs sleeping together, etc.
This meltdown scenario is also a straw man argument. No one sensible is talking about policies to bring down the overall price level: this would wreak exactly the same havoc as an uncontrolled collapse of the housing bubble. But any reasonable analysis of the situation suggests a clear role for policy to slow or halt the rate of increase in housing prices so that income levels can catch up. The combination of the two would let us all squeeze out of the affordability trap.
Oddly enough, the B.C. Ministry of Finance references what seems to be an excellent example of how this can be accomplished in their own briefing note on the issue. They point to Singapore, which used a basket of policy measures to bring their housing price increases under control. As a result of their actions between 2009 and 2013, housing prices in that market slowed and then began a slow decline.
But the finance department states that this is not a success story, as housing is still unaffordable for many who live in Singapore -- missing the point of the exercise entirely. If the Singaporean government can continue to maintain housing price stability, these policies will give local incomes a chance to catch up to those admittedly levels. Their economy will grow out of its housing crisis without triggering a sudden market correction.
That's exactly the kind of outcome we need to engineer here in Vancouver, and we need to get to work now. The Vancity study raised the alarm that affordability issues are poised to trigger an exodus of millennials from Vancouver, in search of the higher incomes and satisfactory homes that they have been told won't be possible here.
This is a terrible prospect for a city that wants to build its future around the jobs of tomorrow, filled by our brightest and best. Instead we risk turning into a resort city, where few who grew up here can aspire to actually live here.
But, as with seemingly any non-LNG related economic challenge, the government's policy non-response seems to be the sort of frantic shooing gesture a BMW driver makes when faced with a squeegee kid. Unfortunately for those of us living in Vancouver, this one isn't going to go away. It's a real problem with real consequences that are directly opposed to building a sustainable society.
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