Bubble Trouble—the need for thoughtful regulation and role of government

I was cautiously optimistic to hear the Premier’s May 30th announcement that the BC Liberal government have begun researching the options for taking action on the issue of unaffordable housing prices.

Housing affordabilty in Vancouver isn't really news, of course. Since the federal government stopped funding new social housing in 1993, we've seen increasing pressure on low income Vancouverites. Today, after fifteen years of low interest rates and steadily increasing housing prices in Vancouver, what was once a social justice issue for this city's most vulnerable and their allies, is increasingly taking its toll on middle-income owners — and the politicians and pundits are taking notice.

In the days leading up to May 24's #DontHave1Million rally, both Vancouver Mayor Gregor Robertson and condo marketer Bob Rennie called on the province to introduce a speculator tax. A petition calling for restrictions on foreign investment has reached almost 25,000 signatures.

The business and financial community are warning that housing affordability in Vancouver is quickly cascading into a crisis with long term negative repercussions. Last year, the BC Chamber of Commerce clearly identified the region's attraction for global and speculative investment necessitated property tax reform. Just two weeks ago VanCity Credit Union offered a warning that housing affordability risks cascading into a labour crisis putting public services and the region's future economic development at risk. A recent New Yorker article explored the phenomenon of "high rent blight" where increasing rents and decreasing affordable housing are creating high priced districts devoid of local retail — and it's not hard to imagine a similar fate befalling Vancouver.

These are the canaries in the coal mine — the indicators are all around us, this crisis shows absolutely no sign of abating, and while calls for speculation tax are helpful, as uncomfortable as it may be, we need to have the conversation about the influence of non-local capital.

Critics warn that the foreign investment discussion is inherently racist, as much of that capital — some of it illegally transferred "hot money" — is from China. It's important to be resolute against xenophobia and racism, but it would be irresponsible of us not to take an honest and realistic look at foreign investment, regardless of where it is coming from.

As I argued in my campaign for city council last year, and most recently in my May 20 Georgia Straight commentary; foreign investment alone is not the source of our affordability crisis, but it certainly is a factor. While there is a lack of comprehensive data, there is compelling enough information — from Canada Mortgage and Housing Corp.'s assertion that 5.8 per cent of downtown housing units are foreign owned, to revelations that over 35 per cent of the "hotly anticipated" Vancouver House development has been sold to foreign buyers.

In his 2014 annual Vancouver developer industry luncheon speech, Bob Rennie famously mused of Vancouver real estate that "the top 20 per cent that have nothing to do with local incomes. They are for rich guys and foreign money". 

By that notion, those top 20 per cent have everything to do with local housing affordability. West-side prices are driving higher income earners to East Vancouver, who are in turn driving up housing values. It's a concept that UBC Geography professor David Ley describes as the "trickle-down effect" — where the introduction of external capital is driving a market that has disconnected from local incomes.

Prime property investment cities like ours — the kind global real estate consultants Knight Frank describe as safe havens for wealth preservation in real estate — are increasingly seeking government intervention to preserve housing for local residents. Hong Kong, Singapore, China, Australia, and (as of May 17) New Zealand have all enacted measures to control speculation, foreign investment, and reign in runaway housing prices.

Here in BC, Finance Minister Mike DeJong warned that regulating or depressing prices could backfire and mean a reduction in equity for BC homeowners.

I checked with Matt Toner, a former economist for the Bank of Canada and BC Green Party Critic for Finance and New Economy. Matt emphasized that responsible regulation is very much the role of government: "It is crucial to distinguish between popping a speculative bubble (which can and eventually will happen strictly due to market forces) and slowing / flattening the rate of growth — we want to avoid a rapid deflation of the real estate bubble"

"Heaven help us all if government does nothing and this real estate bubble pops because of off-shore factors... that would be a real made-in-BC recession, the effects of which we would be feeling for years."

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