Equity before affordability: Justin Trudeau’s vacuous response to Vancouver’s housing crisis
There is something deeply worrying about the recent response by Canada’s new prime minister to Vancouver’s housing affordability crisis.
Vancouverites are used to the apparent lack of interest from their leaders in challenging the forces that have driven prices into the stratosphere, regardless of their political inclinations, so Justin Trudeau’s following suit shouldn’t come as any great surprise. But his justification for this failure represents a new kind of logical contortion.
Because Trudeau suggests he’d love to tackle unaffordability – just as soon as he’s sure that doing so won’t bring down prices. It is an utterly vacuous position.
Prior to the election, his Liberal Party promised to “review escalating home prices in high-priced markets, like Toronto and Vancouver, and consider all policy tools that could keep home ownership within reach”. Then in an interview that aired on Global TV on Christmas Day, Trudeau cited a lack of “concrete data” about foreign investment as a reason not to immediately impose curbs on these flows.
So far, so normal: the relative lack of data about the processes driving Vancouver’s real estate prices is a near-universal concern, since Canada (unusually) makes no attempt to track foreign money entering the market.
But this is where things get weird.
“You know you have to be cautious about decisions like that that are based on a single factor because at the same time that would potentially devalue the equity that a lot of people have in their homes right now,” Trudeau said, adding: “We have to be very, very cautious about restricting foreign investment in our country at a time where we know we need foreign investment in businesses, in resource development.”
WATCH: Justin Trudeau on housing affordability - Global TV
Eh? Citing a lack of data as a reason not to switch off the foreign money tap, because it might turn out that it doesn’t play a big role in Vancouver’s market, is a common refrain. But citing that same lack of data as a reason not to switch off the tap, because you are worried that foreign money might play TOO BIG a role, and that it might “potentially devalue equity”? It’s beginning to sound like the primary issue here isn’t a lack of data, it’s the lack of willingness to turn off the tap - regardless of what the data shows.
Sadly, you can’t have it both ways. You can’t dedicate yourself to protecting the equity of current owners as well as challenging home-price affordability in a meaningful way.
The lesser of two evils? Then just say so
The levers that control the market in Vancouver - where incomes are among the lowest in Canada, but prices are by far the highest - are likely in the hands of Trudeau, and not the provincial and city administrations (these have, however, shown no interest in pressing the case with federal authorities).
Because despite protestations to the contrary - Trudeau himself described the available information as “anecdotal stories” - there is quite a lot of rigorous data to support the contention that Vancouver’s market is being fuelled by foreign funds brought to the city via immigration. It doesn’t matter exactly where these foreign funds come from. What matters is that they are not being earned in Vancouver.
Peer-reviewed analysis has long indicated this: the historical correlation between foreign immigration to Vancouver and the city’s home prices is +0.94 (from 1977-2002), according to Oxford-educated UBC professor David Ley, perhaps the most eminent geographer in Canada. Ley concluded in his landmark 2010 book, Millionaire Migrants, that this link was “unusually decisive”. The correlation between Vancouver’s prices and other oft-cited factors? Insignificant or even negative: interest rates (-0.12), domestic migration (-0.32), joblessness (+0.16), rental vacancies (-0.03).
Now, correlation is not proof of causation. But it is evidence of causation, if accompanied by a plausible causal mechanism, which in this case is very simple: Vancouver attracts lots of rich immigrants, and rich immigrants buy real estate.
Ley’s not alone. In a separate 2010 peer-reviewed analysis (The Globalization of Urban Housing Markets:Immigration and Changing Housing Demand in Vancouver), academics Markus Moos and Andrejs Skaburskis concluded there had been “a de-coupling of local housing [prices in Vancouver] from labour markets as recent immigrants’ housing consumption became less tied to their local labour market participation”.
Anyone who doubts the scale of these money flows should note that Vancouver has historically been the world’s most popular destination for wealth-determined millionaire migrants. From 2002-2014, more than 60,000 such migrants (including family members) likely arrived in BC.
And while the previous Canadian government shut down its federal immigrant investor programme in 2014, Quebec’s equivalent programme, which operates with the co-operation of federal authorities, continues to pump thousands of millionaires into Vancouver’s real estate market. It’s also clear that millionaire migrants who arrive under these schemes declare pitifully low Canadian incomes, no matter how long they live in Canada – in other words, their home-buying behaviour is fuelled by either undeclared foreign-earned income, or pre-existing foreign-earned wealth.
That the overwhelming bulk of these flows comes from China makes no difference to their desirability or otherwise. Worrying about these money flows BECAUSE they are Chinese veers dangerously into racist territory. But the fact that they are Chinese is irrefutable, and is crucial to a raft of other (non peer-reviewed) data that points to their scale. When folk with non-Anglicised Chinese names make up 66 per cent of detached home buyers in the Westside (and 85 per cent of C$3 million-plus buyers); and when only 15 per cent of Vancouverites spoke Chinese as their mother tongue in 2006; and when ethnic Chinese in Canada actually tend to earn below average, then we are faced with an inescapable conclusion: Most of those recent, wealthy buyers are relatively new arrivals from China.
It could well be that Vancouver has already attained the critical mass of foreign-earning millionaires required to sustain the runaway reactor that is the city’s housing market. But instead of at least attempting to cool things down, all levels of government seem content to see more plutonium plunged into the core.
If Vancouverites’ political leaders have genuinely concluded that unaffordability is the lesser of two evils, compared to the pain of a major price correction, then they should respect the intelligence of the city and just say so in plain language.
If they are more concerned about protecting the equity of current homeowners and propping up the real estate industry than they are with helping non-owners who feel shut out of the market and forced out of the city, well, they should just say so.
And if they feel that current owners are somehow more entitled to hang onto the huge capital gains that many enjoy, than their fellow Vancouverites are entitled to an affordable city, then they should just say that too.
They should have the courage to be judged on these calculations.
Instead these leaders of various political stripes have hidden behind spurious “analysis” churned out by the property industry; behind dark warnings about “racist tones”; behind tricky wording about “foreign, non-resident” buyers; and now behind blatant illogic.
Vancouver deserves better.
The Hongcouver blog is devoted to the hybrid culture of its namesake cities: Hong Kong and Vancouver. All story ideas and comments are welcome. Connect with me by email [email protected] or on Twitter, @ianjamesyoung70.