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Housing affordability in B.C.
Presentation to Union of B.C. Municipalities
Josh Gordon, School of Public Policy, Simon Fraser University
Main points
• 1. We are in a unique, unstable global situation
• 2. Supply issues can’t explain current high prices
• “Supply, supply, supply” is not the answer
• 3. We have seen a demand surge, catalyzed by capital flight from China
• 4. Vancouver is creating knock-on effects in BC: “secondary” bubbles
• 5. The current “debate” is skewed and often insincere
1. Where we are
0
2
4
6
8
10
12
14A
vera
ge p
rice
/med
ian
fam
ily
inco
me
rati
o
2001 Q4
2005 Q1
2016 July
1. A two-track market
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
Jan-20
06
Jan-20
08
Jan-20
10
Jan-20
12
Jan-20
14
Jan-20
16
Y/Y
per
cen
t ch
ange
in
Ter
anet
In
dex
Vancouver
Toronto
Other major markets(CAL,EDM,WIN,OTT,MTL,QUE,HAL)
1. “Assets with benefits”
• We lay out the red carpet for wealthy individuals from abroad
• Vancouver real estate is a secure asset PLUS low property taxes, generous social services for family members, social peace, high social capital
• Incentivizes free-riding: policy framework needs updating
• Combine that with exchange rate fall in 2015, weak enforcement of capital gains taxes and money laundering – a perfect storm
1. Housing bubble in China: Land price index
0
1
2
3
4
5
6
7
8N
atio
nal
Lan
d P
rice
In
dex
, 20
04
= 1
2. “Supply, supply, supply”
• Alleged to be solution to the housing crisis (developers, BC Liberals, etc.)
• e.g., UDI letter to new NDP government
• “We’re not building enough”; “There’s a supply shortage”
• Common complaints: zoning, regulations, delays
• Need to distinguish between short-run and long-run: supply is highly inelastic in short-run
• Evidence, academic and otherwise, does not support claims made by supply-siders
2. Supply and Demand: Short-run
2. Not building enough? (UDI data)
2. Not building enough? (2)
0
5
10
15
20
25
Ho
usi
ng
co
mp
leti
on
s, i
n t
ho
usa
nd
sHousing Completions, 12 month rolling average, Vancouver (CMA)
2. Not building enough? (3)
0
5
10
15
20
25
30
35
40
45
Ho
usi
ng
un
its
un
der
co
nst
ruct
ion
, in
th
ou
san
ds
Housing units under construction, Vancouver, 1990-2017
2. Supply constraints: geographic and regulatory, 2015
Atlanta
Los Angeles
San Diego
San Francisco
Seattle
0
1
2
3
4
5
6
7
8
9
10
0 0.5 1 1.5 2 2.5 3
Ho
usi
ng
Pri
ce/I
nco
me
Rat
io (
Q2
2015
)
Housing Supply Elasticity
2. Supply constraints: geographic and regulatory, 2000
LA
San Diego
San Francisco
R² = 0.4991
0
1
2
3
4
5
6
7
0 0.5 1 1.5 2 2.5 3
Pri
ce/I
nco
me
Rat
io (
Q2
200
0)
Housing Supply Elasticity
3. The role of foreign capital
• Ripple-effect: foreign money at the high end initially (Yan, Ley, Landcor)
• Pushes previously high end buyers to second tier, then second to third, etc.
• Helps mask its effects: somewhat hidden from most, except those in prime areas
• Knock-on effects: speculation, FOMO, Bank of Mom and Dad
• One purchase sets in train several others…
• Foreign MONEY, not foreign CITIZENS
• Market is not local after FB tax!
3. No data?
0
5
10
15
20
25
30
35
2011 2012 2013 2014 2015 2016
Res
iden
tial
RE
Sal
es t
o C
itiz
ens
fro
m
Ch
ina,
in
bil
lio
ns
US
D/A
US
U.S. Australia
3. But Canada? Hmm.
3. But in Canadian real estate? No, couldn’t be…
0%
5%
10%
15%
20%
25%
Oshawa Brampton Toronto Markham Newmarket Richmond Hill
Sh
are
of
pu
rch
ases
by
inve
sto
rs
2012 2013 2014 2015 2016
3. “Built supply” vs. Inventory (REBGV)
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1
2
3
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5
6
6
8
10
12
14
16
18
20
Dec
-05
Dec
-06
Dec
-07
Dec
-08
Dec
-09
Dec
-10
Dec
-11
Dec
-12
Dec
-13
Dec
-14
Dec
-15
Dec
-16
Mo
nth
ly s
ales
/new
lis
tin
gs,
12
mo
nth
ro
llin
g a
vera
ge,
in
tho
usa
nd
s
Act
ive
Lis
tin
gs,
12
mo
nth
ro
llin
g a
vera
ge,
in t
ho
usa
nd
s
Active Listings (LHS) Monthly Sales (RHS) Monthly New Listings (RHS)
3. Changing psychology: Toronto
4. “Secondary” and “tertiary” bubbles: Demand surge in Victoria
0
1
2
3
4
5
6
7
8
9
10
2012 2013 2014 2015 2016
An
nu
al s
ales
, in
th
ou
san
ds
Annual Sales, Victoria (VREB)
Detached Condo Townhouse Manufactured
4. Victoria inventory, 2013-2015
4. Victoria inventory, 2015-2017
5. The current “debate”: repetition and deflection
• “A reliable way to make people believe in falsehoods is frequent repetition, because familiarity is not easily distinguished from truth. Authoritarian institutions and marketers have always known this fact.” - Daniel Kahneman
• “Supply is the only solution.” – Bob Rennie, May 2016 (and 2014, 2012, etc.)
• “#itssupplystupid” – Bob Ransford, circa 2007 (?) - present
• “Nobody wants to admit it, but Vancouver has become a resort town where rich foreigners live a few months of the year.” – Bob Rennie, January 2010
5. The current “debate”: repetition and deflection
• Claims about supply are an attempt to distract from demand-side measures
• Existing demand-measures are modest, and have been undermined
• UDI letter to new govt
• Realtor regulation, 1 percent increase PTT on homes above 2 million, EHT, and FB tax
• But: simultaneous DEMAND STIMULUS (on < $750k PTT and FTHB), loopholes in FB tax
• An excellent policy tool is available: progressive property surtax, offset by income tax paid, with exemptions for seniors
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