How Vancouver’s runaway real estate became a national problem

Even localized housing bubbles can have national consequences, but Canada has no regulatory body capable of addressing them

Vancouver skyline

Vancouver’s skyline. (CC-BY-ND/PoYang)

Vancouver’s flirtation with irrational housing exuberance has become one of the bigger stories of 2016. In February The New Yorker profiled the super-rich kids of the Chinese billionaires and millionaires who are either partially, mostly or wholly responsible for driving the price of an average home in Canada’s third-biggest metropolitan area to more than $1 million. A month later, The Walrus published an article that focused on the perverse effects of surging home prices and stagnant median incomes. Maclean’s this month delivered perhaps the most definitive account of the situation to date, taking the time to explain that Vancouver real-estate prices are subject to forces that go beyond supply, demand and gorgeous views.

Last week, Benjamin Tal, an oft-cited economist at Canadian Imperial Bank of Commerce, kept things going with a note on what could be done to restrain international demand. Tal has put more effort into studying Canada’s housing market than many of his counterparts on Bay Street. In recent years he has explained thoughtfully why Canada’s real-estate boom is different than what occurred in the United States in the years ahead of the financial crisis. Anyone who took his advice and ignored the boomlet in bets on a Great North housing bust is better off for listening. Canadian real-estate prices are being driven by local conditions, making a national calamity of the type that afflicted the U.S. highly unlikely.

So now Tal is digging into those local conditions. His note last week was a reminder that plenty of cities have become a diversification play for extraordinarily rich Asians. (The New Yorker could just as easily have profiled the super-rich Chinese kids of Sydney or London or Los Angeles.) What is unique about Vancouver’s real-estate bubble is the unwillingness of the authorities to do anything about it. Governments in Australia, New Zealand and the United Kingdom all are trying to slow the rush of international capital into local housing markets. Since last year, the only way a non-Australian can own a home in Australia is to redevelop an existing property or build a new one; the individual must also promise the home will be for personal use. New Zealand and the U.K. have both introduced new taxes on capital gains from property.

Tal wrote that at the very least Vancouver (and possibly Toronto) could tax “flipping” by international buyers. “We don’t know how big it is, but we know it’s not constructive,” Tal said of what amounts to speculation. “Applying a flipping tax on foreign investors might be a step in the right direction. It won’t solve the problem, but it might be an effective way to remove the most problematic element of foreign investment in Canadian real estate.”

The remarkable thing about all the reporting and analysis of the Vancouver housing market this year is its consistency. Everyone comments on how authorities such as Canada Mortgage and Housing Corp. only now are starting to gather data on the extent to which international buyers are responsible for the price escalatio—an inexcusable example of bureaucratic inertia and old-fashioned Canadian complacency. Writers and commentators present entirely logical arguments for why a tax or a regulation aimed at levelling the playing field between regular homebuyers and the world’s ultra-rich would be an entirely reasonable response to what clearly is an unusual situation. The reports also dutifully present the self-serving counterpoints of real-estate agents and contractors, who say restrictions would cause the market to buckle, unfairly hurting seniors who are counting on the value of their homes to finance their retirements. Advocates for excessive home prices also point out that construction has become a bigger part of the British Columbia economy, equating any effort to deflate Vancouver’s housing bubble to act of economic sabotage.

Missing from the analysis is any mention of the fundamental flaw in Canada’s regulatory system that allows the debate about Vancouver’s housing market to persist without resolution. In 2013, the International Monetary Fund called on Canada to create a federal entity with a clear mandate to monitor threats to the financial system. The IMF earlier this month scolded Ottawa for so far ignoring its advice.

The Vancouver house-price surge is exactly the sort of thing the independent agency should handle. It is a national issue: everyone knows who will be called on to clean up the mess if it bursts. The banks would feel it and likely would curb lending. CMHC would feel it because it has insured most of the mortgages Vancouverites have used to buy their inflated assets. The only ones who wouldn’t feel it would be the rich Chinese whose goal simply was to collect assets outside the reach of their government.

The term that has been adopted for such oversight is macroprudential regulation. The U.K. takes it so seriously that it invested the Bank of England with the power to deflate any asset-price bubbles that it identifies as threats to the financial system. In Canada, macroprudential policy rests with a group of senior officials in Ottawa called the Senior Advisory Committee. It meets in private and—we’re told—advises the government on what it should do at any given time.

The government is free to ignore this advice, as former prime minister Stephen Harper apparently did ahead of last year’s election. The recent reporting about Vancouver suggests the pressure on politicians to leave housing market alone is intense. The New Yorker noted that even Prime Minister Justin Trudeau has indicated caution in doing anything that would affect the price of many households’ most valuable asset.

This is precisely why an independent macroprudential regulator is so important. Ideally, it would have the power to defuse risks without first having to seek permission from a politician, just as the Bank of Canada sets the benchmark interest rate without input from finance minister. But if that is too much power for governments to yield, then a neutral body could at least identify threats and offer neutral advice on what to do about them. The debate could then take place in Parliament in something closer to real-time, rather than in the pages of magazines after it may already be too late.


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11 comments on “How Vancouver’s runaway real estate became a national problem

  1. You guys don’t get it yet. Boomers are taking their housing equity and helping to buy property for their kids. Local Boomers have more than $200 BILLION in clear title equity. $200 BILLION ! And this in the #MostLivableCity on earth that has severe limitations on how it can add more housing stock. Keep fooling yourself that Vancouver is messing up the rest of Canada or that the market here is fundamentally flawed. But ask yourself this: how does the price per square foot of land compare in New York City to the price per sq/ft in other American cities ? Learn the local market quirks and quit writing bullshit articles.

  2. ALSO ! RS-1 zoned detached single family houses got blanket citywide pre-approval in 2009 resulting in a net gain of 0.16 FSR and AirBnb showed up, yet y’all act like a 33’x122′ lot in 2016 is the same as a 33’x122′ lot in 2006. And you keep citing articles that only show the rise in price among Single Family Detached Houses despite them turning into a luxury item b/c they are getting bulldozed by the thousands and we will never add a new unit of DSFH in the region ever again. Yet another great example of an out-of-towner failing to understand the local market and pushing hail-mary explanations to the entire country.

    • Kyle, you must already own a house in Vancouver! As for me, I don’t and now will never! I have owned before, lost due to a divorce, and while saving for a new down payment, raising four kids with my husband, we were always chasing the market! Now it has supassed us. WIth incomes to support 1.1 million, we just don’t have the equity and do not want a $5000. a month mortgage, with no room for our children to play sports. Not too mention the rising cost of food. Yes we live comfortably, but sadly our hopes of ever owning a home have now passed us.

  3. No economy succeeds when it’s greatest economic strength is selling off it’s land to foreign interests. Short term it looks peachy, but consider what will happen in the next 10-20 years if Canadians continue to allow foreign ownership to flourish unrestricted. Canada CANNOT rely on other countries ‘unverified’ wealth that has been amassed by capitalizing on some of the worst employment, environmental, and social regulations (or lack thereof) in the world. Why are many of these foreigners fleeing their home country? The major reasons (as stated directly by them) is because of their own countries crack down on Corruption and because they have already ruined their own environment. They say it’s much better in Canada, because people dont question how they attained their wealth. Um, RING RING RING, the warning bells are ringing, and our government is not doing a thing. PLEASE SIGN THE PETITION if you agree that Canada needs to place greater restrictions on foreign ownership @
    Lets ensure what made Canada great in the past will still be there for our children to be proud of into the future.

    • yes, well said !


  4. No Crisis
    Let’s get some facts straight, once and for all on this matter. First, most house dwellers in Vancouver are owners. Make no mistake, it’s no crisis in their eyes. Good luck to them for this wealth windfall.

    Prime Minister John Howard (Australia) summed it up beautifully a dozen years back. He listened patiently while a current affairs television journalist berated him about house prices. “Listen,” he said, when the bore finally finished. “Over the past three decades I’ve been harangued from one end of Australia to the other on every imaginable subject, with one exception. No one yet has complained to me about their home’s rising value.”

    Secondly, Vancouver is today and has been for the last decade or so, Canada’s fastest-growing economy. In a nutshell, that’s the market, otherwise known as the public, voting with their feet – a huge compliment to the city. With that rapid population growth comes unavoidable baggage, namely transport congestion and housing shortages. Nothing is free but what’s undebatable from the continuing inflow, not just from abroad but also from within Canada, is that those problems are a price people are willing to pay. That’s not opinion but logic; otherwise they wouldn’t keep coming.

    Land re-zoning, house, road and rail construction to resolve these demand pressures can’t be achieved with a wave of a wand. They not only take time but lots of it. More important, they’re all happening in Vancouver right now. No one is sitting on their hands, despite the newspapers’ tiresome handwringing.

    This situation is a global one with other cities experiencing similar inflow booms. London, Auckland, Hong Kong, Sydney, New York, San Francisco and many more, are all having the same growth problems, without the accompanying tedious journalistic infantilism we are enduring.

    Just like Sydney
    In the last months publications on the topic have reached the pits, when the bleeding hearts trotted out their platitudes on the matter, they made it clear that it was everyone’s right to own a home. God help me; I haven’t heard that “rights” nonsense since the early 1970s.

    Perhaps Mark Lee could entertain us and explain the difference between a right to a home and a right to an annual three months world cruise.

    And before readers jump on me for overlooking this, naturally I exclude First Nations, accepting that both those house and cruise rights are clearly prescribed in the Royal Proclamation of 1763, as doubtless many Vancouver academics would assert and the Supreme Court would confirm.

    Vancouver’s house price boom is precisely what’s been happening in Sydney for the last 25 years. Throughout that quarter century two things have occurred. First; the periodic doomsday prophets of imminent house price collapse have popped up about every five years (they’re at it again right now, even though it’s never eventuated with their previous alarmist cries) and second, there has been massive transportation infrastructure and home-building construction undertaken to meet the new requirements. As a result, it’s easier to get around and across Sydney than ever before.

    Move away
    What about low income people and young married couples you may ask? In the case of the first category they can shift to dozens of alternative cheap housing towns and cities (anywhere else in Canada!), as many are doing. If that means a shortage of labourers, waiters and what have you in Vancouver then the market will sort it. Demand will drive their wages up until it reaches a level matching house rental costs.

    The newly-wed cry particular annoys me. If a young fellow and his girlfriend, or, to show I’m up to speed, two young fellows, or two girls, decide to sign a piece of paper and live together, why on those grounds does society suddenly owe them a discounted home? Make no mistake; that is the essence of their claim.

    So why does this idiotic outcry continue? That’s easy and gets back to market forces again. Market forces deliver what you deserve and in the case of journalists, that means low incomes. Thus they extrapolate their personal situations to the wider public. It’s that simple.

    • You are an ass, Dan.

      On what grounds does Canadian society owe corrupt Chinese millionaires safe haven from prosecution? You don’t think they are corrupt? No kidding? Just the fact that they transfer millions of dollars out of China ignoring a law prohibiting transfers of $50,000 automatically qualifies them. And you can add the Canadian banks to that club, since they are knowingly complicit. But fraud is OK, right? It is just market forces at work.


    • the only thing you got right is the fact that its everyone’s right to own a home in there own country .you are full of B.S.


  5. Hello Everyone I’m looking to arrange some kind of decks for my backyard it might be an IPe deck or a hardwood deck. But the thing that I want to know is that do I need to pay any kind of tax if I build a deck in my houses backyard that measures 16″ * 12″?
    And I’ve found one dealer yet please let me whether if there is anyone else that can support much better.