It’s The Locals! – “All my friends and everyone I work with has bought a house. None of them are Chinese.”

Posted on 16 December 2011 | 28 Comments

“All my friends and everyone I work with has bought a house. None of them are Chinese. You people have to get out more.”
- WhatProblem at vancouvercondo.info 12 Dec 2011 3:45pm

This entry was posted in 01. He Said, She Said, 05. Where do Buyers get the money?, 08. Overextended Buyers, 18. Spot The Speculator and tagged , , , , , , , , , , . Bookmark the permalink.

28 Responses to It’s The Locals! – “All my friends and everyone I work with has bought a house. None of them are Chinese.”

  1. M--- | 16 December 2011 at 7:42 am | Reply

    I know tons of examples of Canadian-born people (white or of Chinese descent) who have bought houses in the region. Whether it’s my friends, family, or neighbours, examples abound.

    I’m sure “rich Chinese” play some part, but I think their part is the story that justifies bidding up properties in the minds of locals.

  2. Vesta | 16 December 2011 at 9:19 am | Reply

    Yes, scapegoating has to be strongly discouraged, as the VREAA host has pointed out. But who on earth is arguing that there aren’t local buyers? It should be totally obvious to anyone with eyeballs and/or contact with other human beings in Vancouver that both local and overseas buyers are playing a role in the speculative mania.

  3. Makaya | 16 December 2011 at 9:28 am | Reply

    Being the devil’s advocate here (one more time), if foreign ownership had no effect on real estate, why is it that countries like Australia and Singapore have put in place foreign ownership restrictions? If it didn’t matter, why would they care?

    If foreign ownership had no effect on Vancouver’s market, can somebody explain me the driving factor behind Vancouver’s market compared to other Canadian market? Why is it that Vancouver is so out of whack (see picture attached)?
    http://img855.imageshack.us/img855/8412/suadercdnreal.gif

    I’m not in a witch hunt, I’m looking for answers. I’m waiting for people that deny the effect of foreign money on the Vancouver RE market to give me a valid reason to justify the ridiculous prices here. I don’t buy the argument that the RE cartel has been more effective here than elsewhere or that Vancouverites are more speculators that other Canadians.

    • Woz | 16 December 2011 at 10:49 am | Reply

      In terms of the rate of increase I’m not too sure Vancouver is that out of whack compared to other Canadian markets. Using the same Sauder data source as your graph (http://cuer.sauder.ubc.ca/cma/data/ResidentialRealEstate/HousingPrices/housing-pri-real.xls), if you normalize to2001 values (a low in the Vancouver market) you can see the rate of increase hasn’t been that different. Regina, Winnipeg, Edmonton, and Calgary have all had higher growth, and Victoria wasn’t too far behind. It’s funny because of those markets with higher growth, I don’t think any of them are considered disireable for foreign immigrants, and Toronto which is considered desireable for immigrants is near the bottom of the list.

      I do think Asian culture has had an impact on Vancouver real estate though, but that’s not the same thing as foreign money. There’s no doubt Asian’s value real estate very highly in their culture, but for the most part the Asians that are buying immigrated to Canada 10+ years ago and their primary source of income is from Canadian employment. They’re purchasing with local money leveraged to the hilt just like everyone else in Vancouver.

      • jesse | 16 December 2011 at 11:04 am |

        Waaagggee growth….

      • Royce McCutcheon | 16 December 2011 at 11:43 am |

        @jesse: would you please spell out your wage growth point a bit (apologies if you’ve done so before)? Is it that, despite Vancouver prices showing fold-increases on par with the rest of the country over the past decade, local wages don’t show anywhere near the same fold-difference when compared to the rest of the country (i.e. median household earnings for Vancouver are actually quite similar to many other parts of the country)?

      • Makaya | 16 December 2011 at 11:51 am |

        “if you normalize to2001 values (a low in the Vancouver market) you can see the rate of increase hasn’t been that different. Regina, Winnipeg, Edmonton, and Calgary have all had higher growth, and Victoria wasn’t too far behind.”

        The problem I have with this logic is that it doesn’t take into account affordability.

        Vancouver prices were already much higher than in any other Canadian city in 1991. If you normalize the price starting in 1975, then Vancouver beat them all by far. The average household income in Vancouver is similar to the other cities, or lower if you compare it to Edmonton and Calgary

        Now, if you compare the RE price growth in terms of dollars, here is what you get (not taking into account inflation here, which is assumed to be similar across Canada):

        Since 1978 (from the chart I provided, rough estimates):
        Vancouver: +$450K (from $250K to $700K)
        Edmonton: +$90K (from $250K to $340)
        Toronto: +$240K (from $160K to $400K)

        Since 1991:
        Vancouver: +$350K (from $350K to $700K)
        Edmonton: +$150K (from $190K to $340)
        Toronto: +$150K (from $250K to $400K)

        There is no way, in my opinion, that the price increases in Vancouver have been supported solely by local wages. The best chart that could illustrate that would be a chart comparing Price/Income per year. If I can find the data, I’ll be happy to plot that chart. I have a fairly good idea of what it’s going to look like.

      • formula1 | 16 December 2011 at 12:52 pm |

        wage growth stagnant, rents stagnant. And last I checked the wage growth stat is just an average – meaning those with no wage growth don’t buy, those whose wage goes up do. Your attempt to paint an entire society (market) with one paint brush is a bit feeble jesse

      • jesse | 16 December 2011 at 2:00 pm |

        When you use Calgary, Edmonton, and Winnipeg as measures of price growth, part of that can be explained by above-average wage growth. Vancouver… well let’s just say it must rely on other factors to justify high prices. That’s all.

      • keeperofthederp | 17 December 2011 at 6:42 am |

        jesse you are so feeble

        not like potent rusty

    • chubster | 16 December 2011 at 10:58 am | Reply

      not saying they don’t exist. i just don’t believe the evidence shows them as being the root cause – not even close. so restrictions there won’t solve the problem. why should people bringing money into a community be a problem? that capital is potential. doesn’t make sense.

      there is the property rights issue. someone paid up fair and square for a property. they pay the fees and taxes. they’re not violating any laws (no prejudgements pls). why should they be judged differently?

      agree there is more foreign buying in vancouver than toronto. but this region was also the beneficiary of very significant stimulus from olympics $s spent here – all the infrastructure, not just the tourism. that’s a lot of money funneled into local pockets to get levered up into mortgages, if they chose to. can anyone say this was not more significant than foreign buying? this is at least as plausible a reason for bubblier van prices – or the two together.

      if boc rates were north of 5% and cmhc did not exist, how high could prices have gone? citizens’ capital, present and future, is being spent here to keep rates low and credit issuance high. any activist solution that does not address this is no more than sticking a finger in the dyke.

      understand the frustration and people want to be able to do something, anything. but even when the diagnosis is entirely evident, the 1st rule of medicine: primum non nocere.

      outsiders are being targeted mostly because it is the easy thing to do, imo. solving the real pb otoh is quite a humdinger.

      • jesse | 16 December 2011 at 11:15 am |

        Hey if you want to see some real foreign buying, go to London UK.

        http://www.bbc.co.uk/news/world-middle-east-15966092

        Foreign ownership has been front and centre there for decades. Yet they carry on, stiff upper lips and all.

      • chubster | 16 December 2011 at 11:43 am |

        well it pretty much sucks to be a visible muslim guy at airports nowadays. it’s hilarious – in a sad and depressing sense – last trip the 19 yr old tsa agent thought my dhs issue nexus card was foreign. yay, tax dollars at work – better this than ordnance for drones at least.

      • Makaya | 16 December 2011 at 12:44 pm |

        “not saying they don’t exist. i just don’t believe the evidence shows them as being the root cause – not even close. so restrictions there won’t solve the problem.”
        I agree that foreign ownership is not the root cause of the problem (which has been well identified on this blog (low interest rate, CMHC, etc) it just, in my opinion, makes the matter worse, just like adding fuel to a fire. Restrictions won’t solve the problem, but they might just help calm down the most visible and excessive speculation we have witnessed in the market.

        “why should people bringing money into a community be a problem? that capital is potential. doesn’t make sense.”
        Bringing capital to invest in businesses and create jobs is a good thing, nobody would argue against it. Bringing money to park it into real estate creates more problem than helps the economy. Evidence of this has been shown on this blog time and again (from priced-out people leaving the province to “dying” neighborhood, etc.)

        “there is the property rights issue. someone paid up fair and square for a property. they pay the fees and taxes. they’re not violating any laws (no prejudgements pls). why should they be judged differently?”
        They shouldn’t be judged differently, they are just taking an opportunity that has been made available to them. One of the things that bug people is some of the “hot” money has likely been acquired through illegal means (again, lost of links to articles pointing to that issue has been provided here) and that Vancouver RE market has somehow acted as a money laundering machine. Nothing against the law from the Canadian perspective, but there is still a moral issue here.

        “but this region was also the beneficiary of very significant stimulus from olympics $s spent here – all the infrastructure, not just the tourism. that’s a lot of money funneled into local pockets to get levered up into mortgages, if they chose to. can anyone say this was not more significant than foreign buying? this is at least as plausible a reason for bubblier van prices – or the two together.”
        Vancouver economy has definitely benefited from the Olympics, but the vast majority of the investments ended in mid-2009. Since then, the RE market hasn’t cooled down. It’s fair to ask whether the Olympics had any real effect on the RE market.

        The market will crash by itself, I think everybody would agree with it here. Then will come the time to put in place sensible policies to prevent other RE bubbles. In a perfect world, we would get rid of CMHC and let the banks take on the risks of lending. Just that measure would be enough to solve a big part of a problem. I would also add to that some form of foreign restrictions to avoid the local RE market to be considered as a “wealth storage” bank by foreigners, which doesn’t bring any value to our economy.

      • formula1 | 16 December 2011 at 12:59 pm |

        foreign ownership and immigration is the problem. Not so much the policy to attract people from other countries to live here – but the kind of immigrants we now have. We’re not talking about the struggling, working class, community contributing immigrants this country was built from.
        Their effect on the market? Not so much if their buying at the bottom 5% – but if they’re taking the top 5%…big problem with the trickle down incomes to lower property classes.
        Things need to change

      • jesse | 16 December 2011 at 2:01 pm |

        I agree that ownership is the problem.

      • chubster | 16 December 2011 at 2:05 pm |

        @makaya. the olympics timing is close enough. doesn’t need to be exact. it introduced money into the system around that time, though the post-2008 burst could also have been foreign-driven. however, we should note that the us fed exported inflation to china via the currency peg. so, the true root of all hot money is bernanke. a lot of the party in commodities and asian markets until recently is due to money printing in response to the 2008 crash. the long-term $usd/gold chart has 3 distinct rates in it: 01-05, 05-08, 08-11. in retrospect, you can see the rate of usd debasement increases after each crisis.

        on the foreign ownership curbs and like measures, actions have unintended consequences. risk/benefit isn’t clear – don’t know, may make things worse.

    • M- | 16 December 2011 at 11:48 am | Reply

      Australia’s foreign ownership restrictions weren’t imposed because foreign buying was a real problem– the law came in because they *perceived* foreign buyers to be a problem.

      One thing that we know about politicians: they like votes. If there’s a public perception that something’s wrong (even if it’s not a problem), and it’s an easy fix (“low-hanging fruit”), then politicians would *love* to help you out.

      Case in point: people thought foreign buyers in Oz were buying up all the housing. Politicians love to help out– few Australians would oppose restricting foreign property ownership, so it’s an easy way to get some votes by giving people what they want– never mind that it wasn’t a (significant) problem in the first place.

      Another example: there’s a strong public perception that half of people are cheating out of paying their fares on the transit system, particularly on SkyTrain (no faregates!) and the B-Line buses (people boarding through back doors). So the politicians have forced TransLink to install a faregate system on SkyTrain. Politicians love to help, after all!

      The only problem, though, is that the best figures that TransLink has show ~5% fare evasion on B-Line and SkyTrain. It’s ~2% in the rest of the system. The public will never recover the cost of installing and maintaining the new faregates, based on reduced fare evasion, so it’s a highly-popular waste of public tax dollars.

      • Makaya | 16 December 2011 at 12:10 pm |

        “Australia’s foreign ownership restrictions weren’t imposed because foreign buying was a real problem– the law came in because they *perceived* foreign buyers to be a problem.”

        I posted a recent article on this blog saying that 100% of new RE in Sidney and Melbourne were bought by foreign investors, mostly from Mainland China. Is that a perceived or a real problem?

        From what I understand, most of RE sales in Australia happen through auction. I don’t know if this is the case for new condos as well. The effect of foreign investors constantly outbidding the locals might have been much more visible that here… And local priced out people might indeed have pressured their politicians to do something about it.

        In Vancouver, it’s impossible to have data regarding foreign ownership so we won’t have a definitive answer. I’m just cautioning people here, repeating that foreign ownership has had marginal effect on the prices, that it might not be the case.

      • M- | 16 December 2011 at 12:26 pm |

        “I’m just cautioning people here, repeating that foreign ownership has had marginal effect on the prices, that it might not be the case.”

        After they restricted foreign ownership in Oz, house prices didn’t really react much. During the first few months after the law was brought in, there (IIRC) were about 50 complaints to the snitch line about violations of the law. They investigated, but all cases were dropped– either the buyers were Australian citizens (though of asian descent), or purchases were either made in accordance with the regulations.

        All that said, I think Oz’ regulations allow foreigners to: purchase properties with brand-new residences (thus ensuring that they are funding new construction); also to purchase undeveloped properties, which they must subsequently develop (new construction jobs!) within two years. Foreigners can’t buy resale homes.

      • Makaya | 16 December 2011 at 3:03 pm |

        ” I think Oz’ regulations allow foreigners to: purchase properties with brand-new residences (thus ensuring that they are funding new construction); also to purchase undeveloped properties, which they must subsequently develop (new construction jobs!) within two years. Foreigners can’t buy resale homes.”

        It will be interesting to see how this policy affect the market in the coming years. I think the Australians have done a good job with this balanced approached of allowing foreign investments in new construction while restricting foreign speculation on existing Real Estate. If local politicians are serious about affordability here, I think it would be a great example to follow. Foreign investment into new real estate can also be a great contributor to the increase of rental stock (we need a lot more 2, 3 4+ bedrooms for rent in Vancouver).

      • M- | 16 December 2011 at 3:25 pm |

        “I think the Australians have done a good job with this balanced approached of allowing foreign investments in new construction while restricting foreign speculation on existing Real Estate.”

        I agree. Their law is balanced– if a foreigner wants to purchase, it’s going to result in a jobs/money benefit to the locals. Foreign purchases for land speculation or basic rent-collection aren’t allowed. While I’m on record for believing that HAM isn’t a big driver of our market, I’m in favour of an Australian-style law being implemented here.

        That said, there’s a potential for unintended consequences– if the Asian market is lucrative enough, local developers would market the projects in Asia, resulting in new towers with nobody (or only foreigners) living in them. Though it’s already happening to a certain extent– for example, The Promontory at UBC (re: the hospice issue).

  4. 4SlicesofCheese | 16 December 2011 at 10:54 am | Reply

    I think the summary is that the effect of foreign buyers are overblown, of course foreign buyers affect the market, cause well, they are part of the market.

    But can they prop the market indefinitely (which is the assumption and mantra of the general public)?

    2008 says no.

  5. Makaya | 16 December 2011 at 4:09 pm | Reply

    Interesting, while doing some research online, I found this research paper from BMO (not sure it has been referenced on this blog). Here is what it says:

    Vancouver: Lotus Land Valuations

    “Riding a wave of wealthy immigrants, Vancouver’s house prices have nearly tripled in the past decade, spiralling beyond the reach of most firsttime buyers or non-lottery winners. Demand from China reportedly has been strong, stoked by looser travel restrictions, stricter purchase rules and lofty house prices in China. The average priced home in Vancouver is now an
    astounding 11.2-times family income, more than double the decade-earlier ratio and the current national figure.

    Demographia’s survey ranked Vancouver the third least affordable among 325 world markets, just behind Hong Kong and Sydney, two other cities influenced by mainland Chinese demand. After running only modestly above Toronto’s prices in the early 2000s, Vancouver now stands 71% higher (Chart 2). While land-use restrictions and high quality-of-life rankings can justify elevated prices, current steep valuations could prove unsustainable if foreign investment ebbs or interest rates climb. How much could prices fall? Four corrections in the past three decades saw declines averaging 21%, and valuations are higher today (Table 3). Still, if interest rates stay low and wealthy immigrants continue to pour into the city, prices could stabilize sooner than in past downturns.”

    And here is the Price/Income table:

    Vancouver: April 2011: 11.2 – 2007: 8.6 – 2001: 5.4
    Calgary: April 2011: 4.2 – 2007: 4.7 – 2001: 2.8
    Toronto: April 2011: 6.7 – 2007: 5.7 – 2001: 4.3

    By this measure, we can see that Vancouver’s RE price have become out of whack much further than any other Canadian city.

    http://www.bmonesbittburns.com/economics/focus/20110610/feature.pdf

  6. chubster | 16 December 2011 at 4:31 pm | Reply

    hanson calls vanRE the megabubble, fwiw. the data shows that housing valuation tracks closely with total household credit measures. this isn’t what one would expect if foreign inputs were a significant component. vansters are just taking out more and/or bigger mortgages – all y’all is competin with best-in-class financial nincompootence :O

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