Housing affordability in B.C.

Presentation to Union of B.C. Municipalities

Josh Gordon, School of Public Policy, Simon Fraser University

Main points

• 1. We are in a unique, unstable global situation

• 2. Supply issues can’t explain current high prices

• “Supply, supply, supply” is not the answer

• 3. We have seen a demand surge, catalyzed by capital flight from China

• 4. Vancouver is creating knock-on effects in BC: “secondary” bubbles

• 5. The current “debate” is skewed and often insincere

1. Where we are

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2001 Q4

2005 Q1

2016 July

1. A two-track market

-15%

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Jan-20

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Vancouver

Toronto

Other major markets(CAL,EDM,WIN,OTT,MTL,QUE,HAL)

1. “Assets with benefits”

• We lay out the red carpet for wealthy individuals from abroad

• Vancouver real estate is a secure asset PLUS low property taxes, generous social services for family members, social peace, high social capital

• Incentivizes free-riding: policy framework needs updating

• Combine that with exchange rate fall in 2015, weak enforcement of capital gains taxes and money laundering – a perfect storm

1. Housing bubble in China: Land price index

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2. “Supply, supply, supply”

• Alleged to be solution to the housing crisis (developers, BC Liberals, etc.)

• e.g., UDI letter to new NDP government

• “We’re not building enough”; “There’s a supply shortage”

• Common complaints: zoning, regulations, delays

• Need to distinguish between short-run and long-run: supply is highly inelastic in short-run

• Evidence, academic and otherwise, does not support claims made by supply-siders

2. Supply and Demand: Short-run

2. Not building enough? (UDI data)

2. Not building enough? (2)

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sHousing Completions, 12 month rolling average, Vancouver (CMA)

2. Not building enough? (3)

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Housing units under construction, Vancouver, 1990-2017

2. Supply constraints: geographic and regulatory, 2015

Atlanta

Los Angeles

San Diego

San Francisco

Seattle

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Housing Supply Elasticity

2. Supply constraints: geographic and regulatory, 2000

LA

San Diego

San Francisco

R² = 0.4991

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Housing Supply Elasticity

3. The role of foreign capital

• Ripple-effect: foreign money at the high end initially (Yan, Ley, Landcor)

• Pushes previously high end buyers to second tier, then second to third, etc.

• Helps mask its effects: somewhat hidden from most, except those in prime areas

• Knock-on effects: speculation, FOMO, Bank of Mom and Dad

• One purchase sets in train several others…

• Foreign MONEY, not foreign CITIZENS

• Market is not local after FB tax!

3. No data?

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2011 2012 2013 2014 2015 2016

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U.S. Australia

3. But Canada? Hmm.

3. But in Canadian real estate? No, couldn’t be…

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Oshawa Brampton Toronto Markham Newmarket Richmond Hill

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2012 2013 2014 2015 2016

3. “Built supply” vs. Inventory (REBGV)

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Active Listings (LHS) Monthly Sales (RHS) Monthly New Listings (RHS)

3. Changing psychology: Toronto

4. “Secondary” and “tertiary” bubbles: Demand surge in Victoria

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Annual Sales, Victoria (VREB)

Detached Condo Townhouse Manufactured

4. Victoria inventory, 2013-2015

4. Victoria inventory, 2015-2017

5. The current “debate”: repetition and deflection

• “A reliable way to make people believe in falsehoods is frequent repetition, because familiarity is not easily distinguished from truth. Authoritarian institutions and marketers have always known this fact.” - Daniel Kahneman

• “Supply is the only solution.” – Bob Rennie, May 2016 (and 2014, 2012, etc.)

• “#itssupplystupid” – Bob Ransford, circa 2007 (?) - present

• “Nobody wants to admit it, but Vancouver has become a resort town where rich foreigners live a few months of the year.” – Bob Rennie, January 2010

5. The current “debate”: repetition and deflection

• Claims about supply are an attempt to distract from demand-side measures

• Existing demand-measures are modest, and have been undermined

• UDI letter to new govt

• Realtor regulation, 1 percent increase PTT on homes above 2 million, EHT, and FB tax

• But: simultaneous DEMAND STIMULUS (on < $750k PTT and FTHB), loopholes in FB tax

• An excellent policy tool is available: progressive property surtax, offset by income tax paid, with exemptions for seniors