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The Wild West in BC housing is mostly over but the devastation goes on

Opinion: Foreign capital pours into the housing markets of ‘gateway’ cities like Vancouver. Local wage earners are left behind, explains a penetrating new book.

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The New York Times told the world about B.C.’s unusually grim housing crisis last decade when it ran articles with headlines such as the “Housing Frenzy that Even Owners Want to End” and “The Wild West of Canadian Political Cash,” which looked at developers’ outsized influence on governments.

Those years of out-of-control, largely unregulated property investments, which caused drastic unaffordability in Metro Vancouver, are captured in bold, and sometimes painful, detail in a new book by David Ley, a University of B.C. geography professor emeritus.

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His immaculately researched book, Housing Booms in Gateway Cities, looks into how the unparalleled movement of transnational capital and people into cosmopolitan Vancouver, Sydney, Hong Kong, Singapore and London led to skyrocketing housing prices and rents.

Ley’s extensive sections on the Vancouver region add up to a cautionary tale. He outlines the dark consequences of the blind faith that Canadian and B.C. governments put in libertarian, growth-at-any-cost ideology.

The book comes with three propositions: That financial deregulation has made housing a bigger investment than ever, that “gateway” cities are especially attractive to foreign capital and exaggerated prices, and that local wage earners are being left behind.

“Conventional housing market explanations are no longer adequate in gateway cities where ‘fundamentals’ must be rescaled to include immigration, offshore investors and the role of the global real estate industry,” Ley says

While the geographer looks at how times have changed in recent years, with housing becoming more regulated, at least in B.C., it’s crucial to follow Ley’s analysis of the political decisions that contributed to Metro Vancouver (and Victoria) ending up in this sorry mess. A recent Angus Reid poll found “three quarters of Vancouver tenants could not afford to buy, or never expected to be able to buy, a home.”

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A significant part of the problem goes back at least a decade, to when the federal and B.C. governments were desperate to attract foreign capital. Politicians of all stripes were jetting off on Asia-Pacific trade missions, while Ottawa ramped up an immigration scheme that eagerly welcomed rich people — in a way that especially affected Metro Vancouver.

The business immigration program, by which the wealthiest could gain entry by “investing” in Canada, brought 200,000 people to Vancouver alone, says Ley. They had tens of billions of dollars to pump into the economy, with the heftiest portion channelled into the “asset” of housing.

David Ley
“Conventional housing market explanations are no longer adequate in gateway cities, where ‘fundamentals’ must be rescaled to include immigration, offshore investors and the role of the global real estate industry,” says UBC emeritus professor David Ley. Photo by Jason Payne /PNG

Large Vancouver property developers, along with those in London and Sydney, opened scores of sales offices in East Asia to serve business-class immigrants and other affluent transnationals. The director of marketing at Vancouver-based Westbank said, “China is now a big part of this business … right now I have a rule when we talk about projects, if the Chinese market doesn’t want it, I have no interest in it.”

Royal Pacific Realty, specializing in China and Asia-Pacific investors, grew to 1,200 staff, notes Ley. And Macdonald Realty acknowledged 21 per cent of sales of Vancouver properties worth $1 to $3 million went to purchasers from mainland China. In 2016, the B.C. dwellings of investor-immigrants from China were valued on average at $3.3 million, over twice the value of Canadian-born residents.

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While the federal Conservatives shut down the investor-class immigration program in 2014, the doggedly free-market B.C. Liberals, especially the minister responsible for housing, Rich Coleman, remained gung-ho on funnelling more offshore cash to the housing industry.

Coleman, Ley writes, went so far as to make “the remarkable claim” that Vancouver prices were “pretty reasonable,” even though they were far more unaffordable than even pricey London and Singapore. Coleman also refused to publish figures on foreign investment, adding he had no control over it.

Meanwhile, the B.C. Liberals chose condo marketer Bob Rennie as their chief fundraiser, welcoming tens of millions of dollars in donations from the development industry, far more than from any other sector.

According to Ley, when the NDP defeated the economically libertarian B.C. Liberals in 2017, it was largely because of housing.

The trouble is, the damage from that era carries on to this day.

As Ron Butler, the Vancouver-raised president of one of Canada’s largest mortgage companies, says: “The most important thing to understand about foreign capital is it never goes back.” No matter if the money comes from China, Iran or the Middle East, Butler says, once here “it just sloshes around,” mostly in real estate.

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Six years ago the NDP began bringing in regulations, such as the speculation and vacancy tax, to restrict housing demand, foreign and domestic. The NDP also drastically reduced the ability of developers, including from offshore, to donate to political parties.

For a few years after 2017, the NDP’s regulations helped to cool prices, says Ley, whose earlier book was titled Millionaire Migrants.

But then, in 2020, with almost bizarre effect, COVID-19 hit. With interest rates hitting rock bottom and Ottawa printing new stimulus money, Ley says house prices again heated up. The NDP’s relatively mild tax interventions to reduce investor demand weren’t strong enough. Prices are again stratospheric.

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For a few years, up until the pandemic hit in 2020, the NDP’s new regulations and taxes, designed to restrict housing speculation, helped to cool Vancouver prices. Alas, household median incomes remain flat. (Source: Prof. David Ley.)

Still, in recent years, federal, provincial and municipal governments are at least starting to share some common ideas, Ley says.

They’re recognizing investors are overwhelming wage earners in the housing market. They are recognizing that “in major cities, real-estate investment has become global” and that a “freewheeling” market is vulnerable to tax fraud and money laundering. They also recognize that new housing and rental “supply” must be affordable, and that “taxation is one appropriate vehicle to manage speculative demand.”

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As a result, in some ways, the libertarian Wild West housing days are over, at least in B.C., which has been more proactive in regulating housing than the Liberals in Ottawa.

Even though higher interest rates are slowing down the market, Demographia continues to rank Vancouver the most unaffordable city in North America. And with all that transnational cash still sloshing around, investors have come to own almost half of the condos in Vancouver.

Metro Vancouver’s housing market is so abnormal, so unequal, that a recent Angus Reid poll found two-thirds of regional respondents defying conventional consumer thinking and not wanting house prices to rise.

Those respondents included many homeowners who actually want prices to fall, even though it goes against their own financial self-interest. Such homeowners don’t want to see a younger generation unfairly locked out of decent shelter.

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