By: Natalia Rohraff
All it takes is a stroll through Shaughnessy, Vancouver’s most expensive neighbourhood, to notice the overwhelming number of empty mansions belonging to rich Chinese investors (“The Huffington Post” 2013). Nearly two years ago, Vancouver urban planner Andy Yan labeled Vancouver as a “hedge city” – a place where “rich people around the world can park some of their cash and feel safe about it” (Dorfmann 2015). With almost half of the condos in downtown Vancouver standing vacant, many have decided to blame foreign investment for the city’s unaffordable housing market (“The Huffington Post” 2013).
On August 2nd, 2016, in an effort to make homes more affordable for the middle-class, BC introduced a 15% foreign buyers tax on real estate. Shortly after, the Globe and Mail reported a decline in housing prices (Jang 2016).
Before we crown Premier Christy Clark victorious in cooling the red hot west coast market, it’s important to look at other factors that may have contributed to these results, and more importantly, whether these kinds of results are what the government should be aiming for.
Statistics from BC’s finance ministry show that homes bought by foreign buyers cost nearly three times more than those bought by permanent residents (Jang 2016). Thus, Moody’s Analytics economist Adam Goldin concludes that offshore money is not what is causing middle-class home buyers to be priced out. Goldin argues that the real reason behind rising house prices in BC is “inadequate supply” (Garry 2016). Plastering a tax on homes that are almost half a million dollars over budget for Vancouver’s residents is not likely to have any significant effect on house prices within their budget (Hager 2016). In fact, domestic homeowners may experience negative outcomes from the tax.
Long-time local homeowners who sold their property for a more expensive one before the tax was implemented are now facing a previously unforeseen problem: the possibility of their new home being worth less than it was when they first bought it. Vancouverites who recently took advantage of low-interest rates by investing in second properties are also facing potential losses (Hager 2016).
Vancouver’s Mayor, Gregor Robertson, seems internally divided on the idea of a tax. In a recent press conference, he said “middle-class Canadians being able to buy a house in Vancouver, … those days have probably passed because the interventions didn’t come” (McMahon 2016). However, his statements to CBC in 2013 show he has not always been a proponent of the tax: “We don’t want to take any rash actions that might impact investment in the city… We’re not Hong Kong. They saw real estate prices rise twenty-six percent last year… they had to take rash decisions to deal with that” (Williams 2013).
In fairness to Mr. Robertson, CBC reported that in May of last year the benchmark house price in Vancouver went up thirty percent from May 2015, beating the price inflation seen in Hong Kong (“CBC News” 2016).
We can’t forget, however, that in a city with a shortage of land, significant domestic and foreign migration, and a low-interest rate on homes, price change is inevitable (Williams 2013). And while Vancouver’s housing prices have been down in recent months, they are still higher than pricing during the same time last year, before the tax was implemented (Jang 2016). In one sense, Mr. Robertson was right. When it comes to affordability in Vancouver, government intervention in 2016 really is too little, too late.
Foreign buyers have been the scapegoat for sky-high prices in Vancouver for a long time. In the 1990s, investors fleeing Hong Kong prior to the handover were blamed. Since 2000, heavy investment by Mainland Chinese has put some Vancouverites under the impression that foreigners are, yet again, taking control of their housing market. Most economists would agree with Senior Economist at BMO, Benjamin Reitzes, that this assumption is inaccurate and rash as it lacks any concrete or “historical data” (Hager 2016).
Concord Pacific, a Hong-Kong developer, is responsible for completing large housing projects that have revamped Vancouver’s skylines (Starr 2012). Business in Vancouver praised Concord Pacific for turning its city’s waterfront industrial land into a high-density residential community (Starr 2012; Korstrom 2016).
Business in Vancouver also noted that Hong Kong Billionaire Li Ka-Shing initially purchased the land from the BC’s provincial government. At that time, the provincial government chose the foreign investor, rejecting a proposal that would have seen the Expo 86 grounds sold in smaller parcels to domestic developers (Starr 2012).
While there is no doubt that the vacancies in Vancouver’s mansions are largely due to foreign investments, it’s shortsighted for the BC government to introduce new measures this late in the game, especially when they only affect one aspect of the market. After all, the BC government made its stance on foreign investment in Vancouver back in 1998 when they sold the Expo lands to Concord Pacific and helped create many of the homes that now sit empty.
CBC News. 2016. “Vancouver area benchmark house price now $1.4M, up 30% in 1 year.” CBC News British Columbia, May 3. Retrieved October 25, 2016 (http://www.cbc.ca/news/canada/british-columbia/vancouver-real-estate-house-prices-1.3564528)
Dorfmann, Jessica. 2015. “New Wealth Seeks a “Home”.” Harvard International Review, April 15. Retrieved October 31, 2016 (http://hir.harvard.edu/new-wealth-seeks-a-home-the-rise-of-the-hedge-city/)
Hager, Mike. 2016. “B.C. releases first set of data on foreign home ownership in Vancouver.” The Globe and Mail, July 7. Retrieved October 25, 2016 (http://www.theglobeandmail.com/news/bc-government-releases-preliminary-data-on-foreign-home-purchases/article30790277/)
Jang, Brent. 2016. “Sellers are Losing the Upper Hand in Vancouver Housing Market.” The Globe and Mail, October 13. Retrieved October 25, 2016 (http://www.theglobeandmail.com/real-estate/vancouver/vancouvers-housing-market-is-cooling/article32356064/)
Jang, Brent. 2016. “Foreign buyers 1.3 per cent of Vancouver-region real estate sales since tax.” The Globe and Mail, October 28. Retrieved October 31, 2016 (http://www.theglobeandmail.com/real-estate/vancouver/foreign-buyers-13-per-cent-of-vancouver-region-real-estate-sales-since-tax/article32572605/?ord=1).
Johnston, Tom and Catherine Ann Marshall. 2014. “Canadian Real Estate: Too Much of a Good Thing?” Plans and Trusts 32(5): 4-6. Retrieved October 31, 2016 (https://web-b-ebscohost- com.proxy.ubishops.ca:2443/ehost/detail/detail? vid=3&sid=dc9bcb49-4978-45ae-ba71- f1d3a3bdc028%40sessionmgr106 &hid=130&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#AN=102057412&db=a9h)
Korstrom, Glen. 2016. “The Expo Effect: How Expo 86 changed Vancouver” Business Vancouver, April 26. Retrieved October 31, 2016 (https://www.biv.com/article/2016/4/expo-effect-how-expo-86-changed-vancouver/)
Marr, Garry. 2016. “Here’s why Vancouver’s property tax on foreigners won’t work” Financial Post, August 5. Retrieved November 1, 2016 (http://business.financialpost.com/personal-finance/mortgages-real-estate/heres-why-vancouvers-property-tax-on-foreigners-wont-work)
McMahon, Tamsin. 2016. “Foreign-buyers tax too little, too late, Vancouver mayor says.” The Globe and Mail, September 29. Retrieved October 25, 2016 (http://www.theglobeandmail.com/report-on-business/foreign-buyers-tax-too-little-too-late-vancouver-mayor-says/article32159046/)
Starr, Ryan. 2012. “Concord Adex is raising a good point (tower)” The Star, June 22. Retrieved October 31, 2016 (https://www.thestar.com/life/homes/newinhomes35years/2012/06/22/concord_adex_is_raising_a_good_point_tower.html)
The Huffington Post. 2013. “Vancouver Empty Condos Underscore Investor Speculations” The Huffington Post B.C., March 22. Retrieved November 4, 2016 (http://www.huffingtonpost.ca/2013/06/07/most-expensive-neighbourhoods-in-vancouver-canadian-business_n_3405206.html)
The Huffington Post. 2013. “Most Expensive Neighbourhoods in Vancouver Top Canadian Business Rankings” The Huffington Post B.C., June 7. Retrieved October 21, 2016 (http://www.huffingtonpost.ca/2013/06/07/most-expensive-neighbourhoods-in-vancouver-canadian-business_n_3405206.html)
Williams, Kirk. 2013. “Should we tax foreign buyers of Vancouver real estate?” CBC News, December 6. Retrieved October 25, 2016 (http://www.cbc.ca/news/canada/british-columbia/should-we-tax-foreign-buyers-of-vancouver-real-estate-1.2452769)