Peter Ladner, former Vancouver councillor and former mayoral candidate, made the news recently by calling for some form of restrictions on ‘foreign’ ownership of local RE. The story was covered widely, at CBC [11 Apr 2011], News 1130 [11 Apr 2011], and discussed in the blogosphere.
Broadly, we are opposed to excessive government intervention in markets that affect the daily lives of citizens. We feel this way because markets are highly complicated, governments are highly limited & inefficient, and measures always have unintended consequences. Things seldom go as planned. Witness the government interference regarding the existence of the CMHC: Though mandated to make housing more affordable, the CMHC has very definitely fuelled the price bubble by artificially distorting the price of risk, and drawing many more into ownership than would be there under free-market conditions. The CMHC has paradoxically made house-ownership less affordable. If there is a significant chance of doing more harm than good with an intervention, government should stay out.
Having said that, we do live in a country where governments are very involved with many markets: transport, education, health care, gambling, car insurance, alcoholic beverages, interest rates, our currency, etc etc. So, one could argue, why should foreign RE investment remain relatively untouched by government restriction? We wouldn’t let foreign interests take control of our water, our energy, or our food supply, why let them distort our access to accommodation? And, with restrictions on property ownership in countries like Australia and China, there is the possibility that speculative money runs to the last markets that allow them access, increasing the risk of our houses becoming the play-things of international speculators.
For the record, we don’t think that having the government step in here is essential or particularly desirable. We strongly suspect that any such restrictions would be slow-coming, ham-fisted, and easily circumventable. In other words: “too late, folks; let’s let this all play out”. As often occurs with calls for restrictions, the calls come at the wrong time in the cycle. We believe that the Vancouver RE market will sort itself out regardless of any such measures; the bubble will implode without such restrictions. Once the inevitable initial price drops establish themselves (10%?, 15%?), speculative buying of all types (foreign, local, and, our personal favourite, local-speculative-buyers-disguised-as-normal-folks) will evaporate, speculators will become sellers, and prices will plummet. The issue of foreign RE ownership will very rapidly become an absolutely moot point. Any social concerns about foreign ownership will disappear (just watch). In a RE crash, the community will welcome any buyer of any description (witness the US, circa 2011).
Here follows a transcript of a CBC radio interview with Peter Ladner, in discussion with Rick Cluff and Tsur Somerville, from The Early Edition, 11 Apr 2011. [ thanks to Angela for the transcript. -ed.]
Foreign buyers are discussed, of course, but the piece is at least as interesting for mention of changing communities, Vancouver as a ‘resort’ town, local non-resident owners, and businesses & individuals avoiding Vancouver directly because of RE prices.
Note that they all dance around the elephant in the room, the massive speculative bubble that must inevitably implode. They simply don’t see any possibility of this outcome. All of the ‘problems’ that they wrestle with will eventually be resolved with RE price deflation and a return to fundamental values. – vreaa
RICK CLUFF: It’s no secret that real estate is expensive in our part of the world. The popular consensus is that the market is being driven by Chinese buyers. Is that cause for concern? How expensive is too expensive?
To debate those questions we’re joined by two guests: Peter Ladner, former NPA councillor and columnist for Business in Vancouver newspaper, and Tsur Somerville is the Director of the UBC Centre for Urban Economics and Real Estate.
TSUR SOMERVILLE: Good morning.
PETER LADNER: Good morning, Rick.
RICK CLUFF: Peter, you’ve expressed concern that the market is being driven by foreign, specifically Chinese ownership. Why does that matter?
PETER LADNER: Well, it doesn’t, actually. It doesn’t matter where the foreign ownership comes from, but if our prices are being driven up by people who are simply investing in our community and not living here, there are a whole lot of problems that result. We have difficulty — actually, I got onto this when I was at a meeting of the Business in Vancouver Editorial Advisory Board and somebody from the mining industry said that a chief financial officer from a mining company could not afford to move to Vancouver because of housing prices. And that’s just one indicator of how high housing prices, when we’re now the third most unaffordable housing city in the world, can undermine the economy, people can’t find people to — employees to work here, even managers can’t afford to live here.
So it erodes the economy, it erodes the community when people come here and buy homes they don’t live in and it makes the neighbourhoods unsafe and — and less vibrant, it splits up families. If you want to — if you’re already living here and somebody squeezes you out of your — you can’t afford to buy a home in your neighbourhood, you can’t live with — near your children, your parents, your grandparents, and it blocks social mobility for people who are — a whole generation of people who can’t afford to buy here, new immigrants who want to come here and work here and live here and pay income taxes here can’t afford to buy homes. So it — it — and it adds to the division in the community between the rich and the poor and you end up with a resort community that’s unlivable, in spite of all our great reputation for being the most liveable city in the world.
RICK CLUFF: Tsur Somerville, how do you respond to that?
TSUR SOMERVILLE: I’m really worried about the government sticking its hand on these issues which are based, to a great extent, on perception. I mean, part of it is if you want to be an international city you can’t really stop sort of international people from — from being here, even if they want to be here and investors and so I think we kind of have to decide what kind of city we want to be.
I think the other thing is, is that this is really driven by sort of what’s going on on the West Side of Vancouver, which is not the whole Lower Mainland and there’s some really unusual dynamics on the West Side and in Richmond that aren’t matched anywhere else in the entire Lower Mainland. So I think this is a little bit of navel gazing. It doesn’t mean that there aren’t some issues for concern, but it would be hard to walk around the West Side of Vancouver and say, “Gee, there’s all these empty houses and no one living here.”
RICK CLUFF: Peter, in your recent article you suggest that we should consider foreign ownership restrictions in Vancouver real estate. Why?
PETER LADNER: Well, just for the reasons I said, Rick, that if you have — if you have a community where so many people are priced out of the market by people who are not living here and not paying income tax here and not contributing to the community here, you have a more unliveable community. And I agree with Tsur that — that government meddling in this kind of thing is a big — it’s not easy and it’s not simple and it’s fraught with political landmines and all sorts of bureaucratic problems. It is done, however, in some countries and we do — we meddle in the housing market in other ways, by massive public spending on subsidizing people with rent supplements and social housing and so on. And so it’s a question of just where do we spent that public money? Are we content with that kind of a city?
And in spite of the recent flare-up in the West Side of Vancouver, the whole Lower Mainland is nine times more than the average income to — to live here. The whole place is unaffordable.
RICK CLUFF: Tsur, is there evidence to suggest that restricting ownership might in fact help cool prices?
TSUR SOMERVILLE: Well, I mean, there’s cooling — there’s — it’s not going to make this place, you know, affordable. So, you know, if your — if your concern is affordability, you know, this is not the issue that’s driving unaffordability and I think it’s important to separate those two out. I mean, there are places in the world that — that do treat non-residents differently. Florida has a different property tax rate on non-residents and on residents. You know, China makes it very difficult to — for foreigners to buy property. I don’t know if sort of the government model we want is the Chinese government model, though.
So I mean, I — I think that the notion about — the notion about affordability should not be mixed with the notion of the issues about what kind of neighbourhoods we want. These are actually somewhat separate and I — I do think that, you know, if you go back to the 1980s and the sort of worry about Hongcouver and all these kinds of things, I mean, Hong — Vancouver’s been through this story before about, you know, foreigners coming in and changing the character of our neighbourhoods and pushing up prices and making it unaffordable and hard for families. I mean, that was all the arguments that people used in the last 1980s and I think most people think that the city is better off now than it was in 1987.
RICK CLUFF: Peter, do you restrict ownership or do you change the taxation structure so that foreign owners have to contribute more to the community in which they own the property?
PETER LADNER: Well, I would start, Rick, with just looking at the options. I don’t hear any public discussion of these options. The only person I know — the only study I have ever heard of that’s looked into this issue is Bing Thom, the architect, on his own dime commissioned a study to find out what really is going on, what really is the impact. And is Tsur is right, is it foreign ownership that’s — do we have empty places that are just sitting idle, just somebody speculating on the property or what is going on? And if we want to look at the options, okay, if it’s not restricting foreign ownership what are the options? You can increase supply and — and we’re trying to do that, but that’s — that’s a big problem, too. So let’s look at this thing and let’s have a discussion about it.
TSUR SOMERVILLE: Rick, if I could just, you know, pop in. If we go down this road what we’re going to discover is a place that isn’t really happening, it’s not sort of, you know, Chinese capital buying houses on the West Side of Vancouver, but it’s all the downtown condos that are mostly owned, you know, all — most of the new buildings are owned by people who aren’t residents in those — in those buildings. But that’s also an important part of our supply rental housing. So, you know, it’s — it’s not a sort of simple bullet that you can sort of target, you know, what — you know, Chinese multi-millionaires who are buying houses on the West Side and not living in them. I mean, that’s not our sort of non-residency ownership issue or non-residency ownership issue, which is what [indiscernible] looked at. It’s really condos downtown, but those are also where we get a lot of rental units from. So it’s — this is not — not simple.
RICK CLUFF: I’d like you both to respond to this question. I mean, we always hear that Vancouver is the best city in — one of the best cities in the world to live in, certainly the best in Canada. So what consequences are housing prices having on the character of this city? Peter, you first.
PETER LADNER: Well, I mean, it just — it changes who can live here. People who can live here, the rental that Tsur’s talking about for sure, there’s an increased supply but it’s all at the high end. And the people who are trying to work here and — and raise families here cannot do it, so they end up having to move to another — another town or another city. If they’ve been educated here they don’t — they go away somewhere or they end up living right at the — way out in the fringes of the region and we spend billions of dollars building transportation infrastructure to move them around.
So I think there are a lot of downsides and if the biggest upside is we get some more luxury condos downtown, well, that’s — to rent, that people can rent for uncertain lengths of time because the owners might come back one day or sell them, we should look at that.
RICK CLUFF: Tsur.
TSUR SOMERVILLE: I think that it’s — it’s complex. I mean, one of the things that people do do is they trade off the amount of housing that they’re going to consume in order to live here, but that’s no different than what people do in New York City or London or San Francisco, or a whole bunch of expensive cities. I mean, you know, there is a dynamic that way. I think there is concern, there’s certainly certain types of businesses that aren’t going to locate here, which is why we have so few, you know, corporate headquarters because of the high housing prices and there is a point where housing prices can really restrict productivity and growth. You know, it’s not clear that we’re at that point yet and while housing is expensive here, you know, we’re not the only city in the world that has absurdly expensive housing prices, it does manage to thrive.
RICK CLUFF: Thank you both for your time this morning.
PETER LADNER: Thanks, Rick.
TSUR SOMERVILLE: It’s a pleasure, Rick. Thanks, Peter.
RICK CLUFF: Tsur Somerville, Director of UBC Centre for Urban Economics and Real Estate, and Peter Ladner, former NPA city councillor and columnist for Business in Vancouver.