Cooling the housing market
- Subtitle: Law Law Land
Whether you're buying or renting, the price of Vancouver real estate has gone where no city has gone before — other than places such as London, New York, Paris, Sydney, Hong Kong or Singapore (I think Geneva and Melbourne fit in there as well).
I remember driving through the streets of Vancouver in the mid-80s with a friend from university days who lived in Ontario. He asked what the houses were selling for around Dunbar on the west side. I figured about $300,000. He thought I was out of my mind. It's 2016 and everyone is out of their minds, because those same houses have been selling for more than $3 million. Depending upon where you live in Metropolitan Vancouver, your property increased anywhere between 10 per cent and 25 per cent in the last 12 months alone! My wife and I might've entertained an offer of $1.3 million for our home in suburban New Westminster a couple of years ago. An offer of $2 million in 2016 is too low. But even if we took such an offer, where would we go? We like it here.
There's no denying that we have been in a bubble, but everybody said that we were in a bubble in 1988 (shortly after Expo showcased Vancouver to the world); 1990 (shortly after Tiananmen Square); and 2011 (shortly after the Olympics). CBC host Stephen Quinn wrote a hilarious piece for the The Globe and Mail a few weeks ago called "It's 2040 and Vancouver's houses are worth $80 million.” It’s tongue-in-cheek, obviously. His best line? “There are still those who say the bubble is going to pop — they’ve been saying that for nearly 30 years. Fortunately, the Criminal Code has been amended to reclassify any such talk as hate speech targeting an identifiable group, namely realtors.”
One of the dynamics in Vancouver is the issue of supply. Real estate developer Bob Rennie says that there is no more land in the city of Vancouver on which to build a single-family house. And he’s right. We have the North Shore mountains to the north, the U.S. border to the south and the Pacific Ocean to the west, leaving only Surrey, Langley, Mission, Maple Ridge and other places "in the valley" on which to build new single-family housing, and that's a long way from Vancouver. And much of that land is reserved for farmland. Developers blame Vancouver City Hall where there are something like 70,000 building permits tied up in bureaucracy that could add to supply.
The other issue about Metro Vancouver is that everyone seems to want to live here. There aren't many places in Canada where you can golf pretty well all year long (if you're into golf), sail and ski in the same day (I've done it, more or less for the bragging rights) and grow palm trees in your backyard (I have three of them). When everyone wants to live here, it creates demand. If there is no supply, prices go up.
There's Adam Smith and that invisible hand for you.
No discussion of real estate in Vancouver is a real discussion without talking about foreign buyers. Many have come here to live and work and become Canadians. They've bought residential real estate to live in and raise their kids, adding to the Canadian mosaic.
But there are others who have no intention of becoming Canadians — or even living in the houses or condos they've bought. There was an article a few years ago in The New Yorker called "Real Estate Goes Global” by James Surowiecki. Vancouver is a hedge city. It may be dangerous or risky in other cities, but you can hedge your bets here. It's worth repeating a quote from that piece: “If there are enough rich people in China who want property in Vancouver, prices can float out of reach of the people who actually live and work there. So just because prices look out of whack doesn’t necessarily mean there’s a bubble. Instead, wealthy foreigners are rationally overpaying, in order to protect themselves against risk at home. And the possibility of losing a little money if prices subside won’t deter them. . . . If the choice is between losing ten to twenty per cent in Vancouver versus potentially losing a hundred per cent in Beijing or Tehran, then people are still going to be buying in Vancouver.”
So to some, residential real estate in Vancouver has become an investment, like one might invest in stocks, shares, mutual funds, pork bellies, oil futures or gold bullion. A house or condo is purchased, then left vacant, then flipped. The subsequent buyer may do the same thing. Thus, many houses and condos sit vacant because their offshore owners don't want to bother with renters.
Like Singapore, Hong Kong and Sydney, the B.C. government has instituted a tax on the sale price of residential real estate for non-Canadians or those without permanent residency status because there was evidence overseas investors were driving up prices. There wasn't much notice given about the tax, and apparently more than 400 deals collapsed because a foreign buyer was involved and walked away from their deposits because of the tax (with a cascading effect down the line of purchasers). People are threatening to sue the government based on (of all things) NAFTA. Others are suggesting it targets buyers from China and there is some element of racism involved (something I think is ludicrous . . . If all the overseas investment was coming from Russia, Germany or the U.S. instead of China, a tax like this would still have been on the table).
I don't have a problem with the tax if it helps to cool down the market. My neighbourhood isn’t a mutual fund, a pork belly or a stock. It’s not on the Dow or the FTSE. Houses are homes for most of us, and we’d really like our kids to be able to afford to live in the neighbourhoods in which they grew up one day.
Besides, some of Canada’s leading economists were saying that something like this had to be done to slow down the frenzy.
But time will tell what the effect of the tax will be. Whether it was the tax, or just the market reaching its peak, sales have gone down since Aug. 1, and prices as well. Maybe those houses on the west side that were selling for $3 million in July will only go for $2.7 million in the last half of 2016.
But it's still out of this world for most people. Except perhaps William Shatner.
Tony Wilson is a franchise, licensing, and intellectual property lawyer at Boughton in Vancouver and an adjunct professor at Simon Fraser University. He is a regular business law columnist with The Globe and Mail and other publications. He is also the author of Manage Your Online Reputation, a book written to guide individuals and businesses on how to monitor and protect their personal and corporate reputations on social media. The views expressed are strictly those of Tony Wilson and do not reflect the opinions of the Law Society of British Columbia, CBABC, or their respective members.
Column: Letter from Law Law Land