“Local Speculators Are Cashing In While We Blame Foreigners” and Other Truths – Geoff Dembicki, The Tyee

You’ve heard it a million times. The reason so few of us can afford Vancouver is because there aren’t enough new homes being built. This is the version of reality that real estate industry leaders and their political allies want us to believe.
But an investigation of the industry by The Tyee has revealed reality to be much more complex. Over the past six months I spoke at length with financial analysts, economists, industry consultants, realtors and many others to learn the true causes of Vancouver’s housing crisis and who is profiting from it. They were in broad agreement that real estate is at the centre of a massive realignment between our society’s rich and poor — and one that few leaders in the industry seem willing to publicly acknowledge. Here are the key takeaways from those conversations.

1. The industry no longer sells homes — it sells investments

Real estate has historically been a local industry. The people who buy and sell a city’s homes tended to live in that city. Yet that all began to change a decade or so ago. And one of the major reasons for it is a big shift in our global financial system. It’s a complicated subject. But what you need to know is that the global capital investors use to invest in things is growing much faster than the actual economy. There is so much capital, investors don’t know what to do with it all. Desperate for quick financial returns, many investors are pouring this capital into real estate, turning local markets into global investment opportunities. One of the results, according to trackers such as Bain & Company, is “skyrocketing home prices.”

2. Wealthy people are profiting from the housing crisis

The explosion of global capital coincided with an explosion of global wealth. Worldwide, the number of people worth $30 million or more has grown 60 per cent in the last 10 years. These elites have a different relationship to real estate than regular people. High housing prices aren’t a hindrance to the ultra-rich. The pricier homes become, the more desirable they are as a marker of social status. That’s why one top investor not long ago compared Vancouver condos to contemporary art. Rich people are less likely than the rest of us to live in the homes they purchase. A poll done by the group Knight Frank suggested the most popular reason rich people acquire real estate “is as an investment to sell in the future.” Which means they profit when prices rise.

3. Rapidly rising house prices are deepening class divides

Unaffordable homes are not just a drag on people’s incomes. The housing crisis is doing lasting damage to social mobility. If you are hoping to improve your income, your best bet these days is to live in — or relocate to — a large, globally connected city. Over 90 per cent of new jobs in Canada over the past several years were created in just three such cities: Vancouver, Toronto and Montreal. And of those, Vancouver has Canada’s fastest growing economy. But housing is so pricey that those opportunities are denied to many people. One real estate economist worries that “we are driving a very large wedge between the lowest income earners and the highest income earners.”

4. Industry leaders are convinced the middle class is dying

The real estate industry is aware social mobility is declining. Its leaders know there is huge demand for cheaper homes. But they prefer to profit from income inequality rather than doing anything about it. That’s one takeaway from a major real estate industry trends report produced by PwC and the Urban Land Institute. “The middle class has been hollowing out,” it concluded. With land prices going up in big cities, the industry is increasingly focused on building luxury homes for wealthy people. Not everyone thinks it’s a wise strategy. “Time will tell if that’s going to come back to haunt us,” said one CEO. “Not everybody makes $75,000 to $100,000 a year.”

5. Your intimate data is being used to drive home sales

Even if you don’t earn much money, you can still be valuable to the real estate industry as a source of data. It’s likely not news to you that almost everything you do online — and off — is tracked and sold to advertisers. But what is new is that the real estate industry is now trying to get in on the action. Companies are creating technology that mines public records and notifies realtors when a potential client gives birth, declares bankruptcy or files for divorce. Industry forecaster Swanepoel predicts “this technology will be huge.” But at what cost to privacy? Or our right to control our identities? “I don’t think anybody has the answer,” said one observer.

6. Political leaders aren’t telling the full story about housing

What we can be certain of is that politicians aren’t telling the full story about the true causes of unaffordability. British Columbia Premier Christy Clark has argued “the only way to really solve” the housing crisis is to build more condos. And during the provincial election, her BC Liberals took any chance they could to blame the red tape and protesters they claim are standing in the way. Yet the majority of new condo units are sold to speculators. More supply isn’t helping locals. The market does what it knows best: maximizing profits. Which is why industry insiders like Richard Wozny argue the “only group at fault are politicians” — those who know what the problem is but refuse to fix it.

7. Local speculators are cashing in while we blame foreigners

The most substantial step the BC Liberals took towards fixing Vancouver’s housing crisis was the 15 per cent Foreign Buyers Tax. At first the tax seemed to work: home sales and prices fell. But prices are once again rising. And this time transactions involving overseas buyers are at relative lows. “Everything we see suggests that there is a whole lot more domestic investment activity in the real estate sector than foreign investment,” said the head of Canada Mortgage and Housing Corp. Foreign money is a big cause of crazy home prices. But so are Canada’s historically low interest rates, which make it “almost stupid to not buy property,” argued the site Better Dwelling.

8. Income inequality is causing a boom in luxury retail

Real estate has become a zero-sum game in Vancouver. Those at the top are doing better than ever, while everyone else struggles. It’s a fair assessment of our wider economy. Recent data from Stats Canada showed that average Canadian incomes have stopped increasing. Yet the ranks of the ultra-rich in Canada are growing faster than in the U.S. — between 2006 and 2016, the number of people worth over $30 million rose 50 per cent in this country. These elites want to flaunt their wealth. And the boom of luxury retailers across the country is happy to oblige them. “High-end retail will prosper as the high-end population does well,” noted one real estate analyst.

9. People within the industry want serious solutions

What the May provincial election showed is that people across the province, but particularly in urban regions, want serious change. They are sick of being priced out of their cities. They’re fed up with an economy that privileges the wealthy. And they’re tired of being lied to. The NDP-Green coalition now has an opportunity to make things better. Leaders of the two parties promised housing policies that “will have an impact,” local realtor Steve Saretsky told The Tyee. He is one of many people within the real estate industry who supports solutions to our current housing crisis. “A lot of realtors I’ve spoken with want some sanity to the market,” he noted. “They know it isn’t sustainable.”

– text and image from ‘Nine Things the Real Estate Industry Doesn’t Want You to Know’, Geoff Dembicki, 19 Jun 2017 [an article important enough that we are archiving it here in its entirety] (hat-tip to Keith)

Longtime readers of this blog will be familiar with many of these factors.
A very good article and hats off to Geoff Dembicki for pursuing.
The potential future for our city is that it will either increasingly look more and more like a gated airport/casino, or it will suffer a massive RE price crash.
– vreaa

20 responses to ““Local Speculators Are Cashing In While We Blame Foreigners” and Other Truths – Geoff Dembicki, The Tyee

  1. So which point is about local speculators cashing in while we blame foreigners?

  2. The world is awash with trillions in capital under management by billionaire parasites. I recall one of these turds saying we shouldn’t envy them, but emulate them. Better to castrate, or behead them. It’s vile how even in their seventies and eighties they want to suck every drop from people just trying to live. And they make the gullible think they’re darlings because they own major media. Brainwashed and sucked dry.

  3. Pretty sad commentary on the way we have let our society de-volve. Have no problem agreeing with the comment that the middle class is getting “hollowed out” No real wage gains in years, yet continued price increases in nearly everything that is needed to live.

  4. Every Remembrance Day I make it clear to my kids that red poppies are a red herring. Some brave souls wear white poppies to symbolize pacifism – the death of innocents; destruction of property. There should also be green poppies to symbolize the profits to the banksters and war mongers who, of course, don’t send their spawn to be mutilated or killed. Like General Smedley said: War is a racket. There should also be some indication that this is a guy thing. Sure there have been a small number of aberrant murderous women, but it’s a guy thing. Maybe the poppy should be changed to a dollar sign with the male symbol on the stroke.
    There’s so much to go around, but the greedy billionaires won’t give a nickel unless they’re going to lose it in taxes anyway. They’d rather spend billions on security than millions on a sharing society. They’d rather bail out their buddy banksters than help those who were foreclosed upon. It’s ugly.
    Last I heard Sam Zell owned over 18,000 apartments – along with many other assets. And he’s a pipsqueak compared to some of the other grotesquely obscenely murderously rich. You want to emulate him? He’ll crush you like a cockroach. Can’t afford a home? Don’t just point your finger at the Chinese.

  5. Let me guess – it’s all the Jews’ fault?

    It’s a sad day when former voice of reason, Vreaa, joins the lunatical Arnie in postulating bogus conspiracy theories. It turns out people have no personal responsibility; we’re all victims of the ‘system’. Pathetic.

    For years I have fought against the idiocy that appears regularly in the comments section of this blog. Not always in the most diplomatic of ways, I’ll admit. But the motivation has been genuine.

    Now Vreaa is censoring speech and I’m moving on. I’m sure most of you will be delighted. Good! It means I’ve made some enemies. And as Churchill said, if you’ve made some enemies, it means you’ve stood for something.

    Over and out.

    • conspiracy theories?
      people have no personal responsibility?
      we’re all victims of the ‘system’?
      censoring speech?
      please explain..

    • Putting all the other very debatable stuff aside, I take El Ninja’s claim that we are ‘censoring speech’ here very seriously. No such censoring has ever occurred on this blog.

      Occasional gratuitous ad hominen attacks or profound profanities have been removed (always with a note saying that that has occurred). Sometimes comments are automatically held back by spam filters (too many links, etc) but they are always let through if I get alerted. I can find no recent filter-held-back comments posted to the blog.

      So, I have no idea what may have led to talk about ‘censoring speech’. For the record, El Ninja has in the past alerted us to numerous interesting developments in Vancouver RE, and is a valued contributor to the blog.

      • I have enjoyed following this blog for several years. I applaud the effort it takes to run this or any blog in the face of people who behave badly. Your filter of the comments that you allow has been fair and reasonable, I doubt we have missed much insight in the comments that have been removed.

        El Ninja is a passionate commentor, with an interesting take on the question of buy vs. rent and invest. I disagree with his contention that it is a practical course for most people, but for someone willing to spend a lot of time educating themselves it is a legitimate route to wealth building that offers certain benefits of flexibility without the some of the hassles of home ownership.

        His contention of bubble and overvaluation remains unproven until there is a crash or correction, if it in fact comes. Until then, he is part of the Sir John Templeton maxim that markets can stay irrational longer than you can stay liquid. I hope he reconsiders his decision to leave – I disagree with some of what he says, and I could do without the occasional rudeness in his comments but his point of view does contribute to this dialogue.

    • Sorry, we all know that I have been very critical of vreaa before but censorship is not one of the things that vreaa does. If you look at the things that are posted here about him/her it is very obvious that if vreaa wanted to censor, he/she could have done it a long time ago. I will defend vreaa in this regard as I think this site does a very good job of allowing dialogue. So while your comment may be awaiting moderation like mine have been before, there is no sense crying about it because usually most of us just post a message to vreaa and it gets taken care of. I have zero issues with the way this board is run.

      We have had our battles on this board, it would be disappointing for you to leave from a personal perspective because at least some of what you post is constructive enough that we can talk about it. But if you do leave, I seriously hope that you don’t find another board and go on a personal crusade to refresh that board every five minutes just so that you can try to crush your so called “bullshit”. You live in San Fran, one of the best places on Earth, enjoy the city.

  6. vreaa, I was remiss in not thanking you for providing this forum. It’s been interesting and your efforts and poise have been admirable.

    To everyone else, a parting thought: life is short!

    • Thanks, a pleasure.
      Yeah, one has to weigh priorities.
      Anyway, all the best.. and don’t be a stranger….

      PS It occurs to me that “don’t be a stranger” is quite a funny thing to say on an anonymous forum.

  7. Seeking Knowledge

    I don’t contribute often, but I read this blog like a daily newspaper for the past 6+ years. VREAA has done an excellent job as a host/contributor/moderator/voice of reason. I hope people don’t start leaving this blog as it has been educational, enlightening and entertaining.

    • Thanks for the kind words.
      People will come and go, which is fine… I think it’s pretty much the way it’s always been here.
      All contributions to the discussion are appreciated.

  8. The BC Liberal government this, the BC Liberal government that…” The NDP-Green coalition now has an opportunity to make things better. Leaders of the two parties promised housing policies that “will have an impact,”

    What is it that the NDP-Green coalition will do to make things better? It it not true that the municipal governments benefit from higher house prices by being the beneficiary of property taxes?

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