Vancouver's real estate gold rush is totally out of control

Chinese buyers and other uber-rich investors have priced average citizens out of the Vancouver housing market, and there seems little chance of turning this around. Vancouver is now the third most unaffordable city in the world.

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Arbutus Walk, an eco-density project in Vancouver, B.C.

Chinese buyers and other uber-rich investors have priced average citizens out of the Vancouver housing market, and there seems little chance of turning this around. Vancouver is now the third most unaffordable city in the world.

Of the many real estate flyers that arrive in my mailbox every week, this one really spelled it out (in English and Chinese): “Peter Saito can help make you a lot of money!! From 1993-2011, the average sales price of a detached home in Vancouver has gone from $373,000 to $1.14 million, 3.05 times. Peter Saito’s clients’ average net equity holdings have gone up in the same period 30 times, from $150,000 to $4.5 million…We work with wealthy buyers waiting to invest in your neighbourhood!”

A friend who lives in Kerrisdale, one of Vancouver’s wealthier west-side enclaves, said it feels like a real estate gold rush in his neighborhood. “I’ve had four real estate agents knock on my door in the last month and plead with me to sell my house,” he said. “They claim to have buyers lined up.”

In 2000, only 10 properties in Metro Vancouver sold for more than $3 million. Last year, that number jumped to 375 properties, including 49 condominiums. Today, $3 million is not an unusual price for a new 2,500-3,000-square foot nice home on a smaller west-side lot in Shaughnessy, Kerrisdale, or Point Grey. The most expensive house in Vancouver last year (in Shaughnessy) went for $17.5 million.

The result of this frenzy is that Vancouver’s housing has priced its average citizens well out of the market. Vancouver recently ranked — after Hong Kong and Sydney — as the third most unaffordable city in the world, with the average home costing 9.5 times the $63,100 median household income. A city is considered “unaffordable” if housing prices are more than three times median incomes. Kelowna (5.9x), Abbotsford (6.5x) and Victoria (7.1x) are also being swept up in Vancouver’s real estate investment slipstream.

When housing prices are so far out of line with average incomes, it’s clear that new buyers are not dependent on paying mortgages from their monthly paychecks. The best explanations for our out-of-whack market have traditionally been that real estate buyers skew the market with inherited wealth, underground economy profits (think B.C. bud), or overseas wealth. Sure, land constraints, restrictive land use regulations, and a growing population are also powerful fuels for price jumps, but those occur in lots of other cities that are still affordable.

Today, most observers attribute the recent big surge to overseas investors, especially uber-rich mainland Chinese. One real estate executive describes the market for luxury homes from mainland Chinese buyers as “insanely hot.” A real estate sales person for one of Vancouver’s biggest condo sellers told me 95 percent of her sales are to Chinese buyers. Some come here to live; some just want to park their money where it’s safe and growing. For the ridiculously wealthy, Vancouver is still a bargain compared to London or Hong Kong. Apartment sales in Shanghai are up to $2,300 a square foot, higher than Vancouver’s priciest offerings.

Metro Vancouver is already home to 400,000 people of Chinese origin, three quarters of them born outside Canada, so it’s easy for Chinese newcomers to feel at home here. Mainland Chinese immigrants are moving to Metro Vancouver at the rate of 10,000 a year, four times the number coming from Hong Kong and Taiwan. A startling one out of four have PhDs.

These immigrants are in some sense political and economic refugees, securing citizenship in Canada as a backup plan for their children’s futures. Getting work here is often difficult, so a common pattern is for one spouse to stay here with the kids, and the other to work back in China. Eventually the spouses reunite in China and the children stay here. One third of young-to-middle-aged Chinese immigrants leave Canada and never come back.

Chinese people also come here as environmental refugees. One recent immigrant told the Vancouver Sun, “The air is very fresh here and it’s very green. You feel like you’re in a garden.” In a recent study by a local Asian studies professor, one new immigrant mother pointed out the impact of the beauty of the Pacific Northwest: “I like the blue sky and white clouds of Vancouver,” she said. “In my home city in China the sky is always grey. Once when my eight-year-old son saw a large piece of white cloud flying over his head, he was startled.”

For frustrated middle-income Vancouver renters equally startled by disappearing real estate affordability, the prospects for municipal political action to somehow cap runaway prices are as grey as the skies over Beijing. The prevailing political, media, financial, and real estate muscle is still solidly behind keeping prices rising. Vancouver was founded on real estate speculation and once you’re on board, it’s a giddy ride to a comfortable retirement, second homes, and kids without college tuition debts.

Property owners are the city’s most enthusiastic voting bloc, and property developers are by far the biggest contributors to municipal election campaigns. Besides, salvaging the city’s investment in the overly-luxurious Village at False Creek, otherwise known as the Olympic Athletes’ Village, Southeast False Creek or Millennium Water, depends on those inflated prices staying high for at least a year or two.

I can only think of two factors outside of rising political pressure from renters that could threaten to close the door on rampant overseas investment. One is the erosion of business opportunity when employees at all levels can’t afford to live here. A representative of the mining industry told me about a Vancouver mining company — in an industry that’s redefining the word “boom” — that recently had a newly-recruited CFO turn down a job offer in Vancouver because he couldn’t afford to trade his house in an eastern city for a decent family house in Vancouver. A mining CFO!

The other factor is that Vancouver might learn a lesson from China. In February, Beijing announced that local residents will be limited to two homes, and non-locals will only be allowed to buy one property. Shanghai, Qingdao, and Jinan are also imposing restrictions on outside buyers. Investors are worried that these restrictions will hurt property demand.



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