Chinese Ownership Helps Drive Vancouver's Dysfunctional Housing Market
Globalization. An idea etched in acronyms (EU, NAFTA, WTO) and reliant on transparent borders and common markets.
In Vancouver, globalization blooms on streets of overpriced bungalows and million-dollar split entries. It began in the 1980s, when waves of Hong Kong residents including members of the business elite, wary of communist China’s pending takeover, poured across the Pacific, gobbling up property with converted HKDs.
And they’re still coming and buying, from all over the world. In British Columbia, there are no restrictions on foreign ownership of real estate. Anyone from anywhere can buy on your street and a) live in the house b) rent the house or c) mothball the house for future sale. Option “c” decreases supply, increases demand and ups prices.
According to the Real Estate Board of Greater Vancouver, last year the average price of a detached home in Metro Vancouver rose 11.2 per cent to $887,000. On the West Side, the average home price rose 20.7 per cent to $1.99 million. And according to a recent Re/Max report, the sale of Vancouver homes worth more than $2 million rose by 118 per cent in the first four months of 2011.
How much of it is tied to foreign buyers from China?
Nobody knows for sure. Because foreigners often use local addresses (their lawyer’s office, for example) when registering with the provincial land title office, the scope of the problem remains unknown. But whatever the scope, buyers mostly from China have upset the balance. Of course, capitalism requires competition, and free market principles should drive our housing market. But we no longer control that market. And despite growing evidence of market dysfunction, Premier Christy Clark, who could stiffen provincial regulation, and Mayor Gregor Robertson, who could increase taxes on foreign property owners, cede our land to foreign buyers.
Not so in Australia.
In recent years, Australian cities have experienced Vancouver-style real estate booms, with housing prices soaring from Sydney to Melbourne. Like here, buyers from China help drive Australia’s speculative real estate market. Faced with mounting public pressure, in 2010 the Kevin Rudd government introduced strict regulation aimed at foreign ownership. Under the new rules, the Foreign Investment Review Board (FIRB) screens foreigners (including temporary residents and students) to determine their land purchase eligibility. Foreigners can’t buy existing properties and must build on vacant land within two years of purchase or face government-ordered sale. Scofflaws face capital gains confiscation. Finally, before foreign homeowners leave Australia, they must sell. No more overseas landlords Down Under.
According to FIRB documents, the new policy will “reduce the possibility of excess demand building up in the existing housing market” and “maintain greater stability of house prices and the affordability of housing for the benefit of Australian residents.”
Wow, what a concept. In Australia, they’re looking out for Australians. Of course, among Vancouver’s real estate set, which includes brokers, land developers and their friends at city hall, such regulation would be tantamount to heresy. During last November’s civic election campaign, while Robertson and his rivals dodged the issue, independent council candidate Sandy Garossino talked about the “extreme situation” in Vancouver neighbourhoods dogged by foreign ownership, prompting outrage from Cam Good, president of The Key, a Vancouver-based real estate firm that caters to Asian buyers. “I find it small-minded and frustrating,” said Good, during an interview with the Province. “The challenges I have are with people who just whine and complain.”
Nobody likes whiners. But what’s good for Good and his clients in Beijing may not be good for you and your neighbourhood. Local ownership spawns healthy communities. If you own, you care. And through property taxes, invest in parks, schools and other amenities. Conversely, for foreign owners, property taxes represent investment fees while circumventing Vancouver’s tax code, which taxes residencies (4.2 per cent) and businesses (18 per cent) at separate rates. Isn’t speculative foreign investment a form of business?
Like the European Union, Vancouver is crumbling, not along ethnic lines, but among the owns and owns-not. Globalization, in the form of foreign investment, may help chase an entire generation of native-born residents from the city and deny other immigrants a chance at home ownership. Remedies are scarce. But returning property to people who live, work and raise families here seems like a good start.