In the past six years, the value of single-family homes in Vancouver has risen 75 per cent—to an average of $1.9 million.
The housing price has jumped 37 per cent since May 2015, alone. Yet, the median household income during that period has hardly changed.
Meanwhile, the personal debt level of Canadians is at record levels. On average, a Canadian household owes $1.64 for every dollar of disposable income. Oil prices below $50/bbl have tanked the Canadian dollar, and that has put downward pressure on housing markets in places like Fort McMurray.
All these signs suggest Vancouver’s housing market is in a bubble which could soon burst. The Bank of Canada, for example, recently warned that the elevated housing market is a major risk, and the strong price growth in Vancouver is unsustainable.
One of the greatest trends driving up house prices is foreign investment.
In a case study of 172 single family home sale transactions in Vancouver neighbourhoods from August 2014 to February 2015, 38 per cent of all registered owners identified their occupation as “other,” and 66 per cent of the buyers had a non-anglicized Chinese name. According to the study, this suggested buyers arrived recently. In the market for homes above $5 million, these buyers constituted 88 per cent of the total.
Macdonald Realty, a luxury real estate firm (which provides a Chinese language option for its website), reported that buyers from mainland China constituted 70 per cent of their sales of units priced higher than $3 million in 2014.
More than half – 58 per cent – of people who live in the Greater Vancouver area were not born in B.C. With its proximity to the Pacific Rim, this province has long depended on Asian investment and immigration. Forty-three per cent of Metro Vancouver residents have an Asian heritage, a higher proportion than any other major city outside of Asia.
A massive amount of money from China has entered the Vancouver real estate market. Vancouver ranks third after Los Angeles and San Francisco as the preferred destination for real estate purchases of the Chinese elite in 2013, and the National Bank of Canada estimated that around $12.7 billion was spent by Chinese investors in Vancouver in 2015 alone.
Decisions over the past three decades have fed housing price inflation in Vancouver.
In the 1980s, Canadian governments effectively began to encourage large transfers of wealth from abroad into Vancouver real estate. These flows of wealth increased the demand for housing, and that led to price increases above what local incomes could justify. This program ended in 2013, and housing prices and incomes became “un-coupled”—generating high price-to-income ratios. Essentially, wealthy migrants bring extra purchasing power to a given area and inflate real estate prices across the board while not working locally.
In response to this rapid escalation in prices, Vancouver Mayor Gregor Robertson has called for a house flipping tax as a measure to reduce speculation and a luxury sales tax. In February, the provincial government included measures that re-introduced a requirement for people buying homes to disclose their citizenship.
Foreign investment in the Canadian housing market cannot be assumed to be positive. Yet, there is little agreement on how to regulate foreign ownership in the housing market and little information available on how much money in the housing market comes from foreign investors.
Federal Finance Minister Bill Morneau has promised to delve into the factors behind Canada’s housing sector, but there have been no predictions as to when the findings would be released. Neither Morneau nor Robertson have provided details as to when action will be taken, but have suggested that Canada’s housing market has perhaps been unregulated and decentralized for too long.
Canada has yet to create a comprehensive policy that protects its own citizens. Countries like Australia and Singapore have created policies that help their domestic citizens in the event of foreign investment. Western Canada should start taking those steps as well.
– Catherine Gao is a research intern at the Canada West Foundation