Capital Economics has just released a new note about the Vancouver housing bubble. The report comes after the city recently implemented a 15 per cent foreign buyer property transfer tax. As a result, foreign buyers are moving transactions forward in order to avoid paying the tax. The note suggests that this may have caused a bubble in the housing market.
Vancouver housing bubble is like a plane
Vancouver is not the only bubble city in the world. It has also spread to other parts of the country, including Silicon Valley, Manhattan, and San Francisco. The downtown areas of these cities are among the most expensive in the country. Even though the bubble in Vancouver isn’t as bad as others, it’s still a problem.
The Vancouver housing bubble has reached an unsustainable level, according to the Canadian Mortgage and Housing Corporation, which is equivalent to Freddie Mac and Fannie Mae in the US. While prices are falling nationwide, many investors are still clinging to their gains. A lack of liquidity in the market is also contributing to a decline in sales.
While there are many factors contributing to the inflated prices, a prime factor is the influx of foreign buyers, particularly from China. As a result, the average price of a detached home in Vancouver has increased by 30 percent year-over-year. A recent government-appointed panel estimates that more than $5.3 billion of foreign money has passed through the real estate market in 2018.
A large share of the Vancouver housing bubble is due to immigration. The Canadian government permits 3.6 million immigrants each year. Some of these immigrants can obtain Canadian citizenship through a paid immigration program that requires them to invest $1.6 million in Canadian bonds. This program has attracted many wealthy people from China who are looking to escape the corruption that afflicts the country.
It’s breathtaking, exciting, and maybe a bit scary
Vancouver’s housing bubble is breathtaking, exciting and maybe a bit scary, but it’s not completely out of control. Last year, the city topped the UBS Global Real Estate Bubble Index, a ranking of cities with the highest risk of property bubbles. The UBS report said Vancouver’s housing market was in “overdrive,” resulting in a 39.5% decline in house prices and an 11.1% drop in residential property sales in December.
The housing bubble in Vancouver isn’t just about speculative property – it’s a history of property speculation. The city has long been an enticing destination for Chinese investors, and its proximity to the Pacific Rim makes it an ideal location. In fact, a recent report from the Conference Board of Canada shows that the Vancouver real estate market is linked to the Chinese economy.
Vancouver’s housing bubble is a tale of greed. The city was a hotspot for foreign money, and shady realtors encouraged locals to purchase speculative land. This sparked a speculative fever that spread throughout society. Tens of thousands of people made fortunes, but thousands of others were left destitute by soaring property taxes and rents. But the bubble eventually burst, as the world’s economy entered recession. As a result of the collapse, a series of banks failed, leaving Vancouver’s real estate market in a state of complete instability.
As Vancouver’s real estate prices have reached all-time highs, it’s a good idea to have a plan for selling your home. Although Vancouver’s housing bubble is exciting and breathtaking, it’s also scary and may not be a great place for most people.
It’s caused by laundered criminal money
In the Vancouver Housing Bubble, laundered criminal money has been one of the most important factors in price increases. According to the report, the Vancouver housing market has seen a five percent increase in prices over the past year. The Vancouver government commissioned an independent investigator to examine the issue. The report shows that more than seven billion Canadian dollars (CAD) was laundered last year, and that most of that money went into real estate, luxury cars, and casino gambling. Of this, about $5 billion went into real estate transactions in the city. That’s more than four percent of the total BC real estate sales in 2018.
The money that fuelled the Vancouver housing bubble was laundered in many different ways, but the largest source was the real estate market. In Vancouver alone, 5% of real estate transactions were overpriced, and 5% of purchases were overvalued. As a result, Vancouver became unaffordable for many residents.
In a landmark report, an economist said that as much as $5 billion in money from crime was flowing into the housing market, the price of a single-family home increased by five percent. The report also found that the average home in the city sells for $1.2 million, so a lot of this dirty money is actually flowing into real estate. This money is driving up prices and hurting the local economy.
It’s spreading to smaller cities and towns
The housing bubble that started in Vancouver is now spreading to other Canadian cities, including smaller towns and cities. The bubble began as a response to a prior calamity: years of recession in the early 1980s, fueled by the collapse of western Canada’s timber-based economy. The housing market had plummeted by 40 percent and many businesses had closed. Then, Vancouver’s NDP mayor proposed a tax on real estate speculation – a request the ruling Liberals rejected.
While the Vancouver housing bubble is now spreading, it is still very fragile. Some smaller cities and towns in Canada are experiencing even higher home prices than the big cities. This is largely because of weak rent control, exclusionary zoning and preferential tax treatment of capital gains. In many cases, this means that local labor is priced out of the market by home prices.
Despite Vancouver’s diverse population, the city is struggling to integrate new immigrants. Many upper-end neighbourhoods have little or no English signage, and some residents have even tried to ban it. Most newcomers are Chinese, and fall into the “astronaut family” pattern. In other words, the husbands of these Chinese residents are living in China, while the wife is in Canada.
The Canadian housing market has cooled off in recent months but it is still hot. With low interest rates and a booming economy, prices have outpaced incomes. As a result, the city has become a financialized market. Its fastest-growing sectors are mortgage lending, home construction, and speculation. Moreover, the housing market has become a magnet for Chinese buyers. This bubble has even affected small cities like Simcoe and Peterborough.
It’s not sustainable
A recent survey by the Rennie and Mustel Group found that 54 percent of Metro Vancouver consumers believe that the housing bubble has reached an unsustainable level and is likely to burst at some point. Despite this concern, buyers are still eager to buy, with 31 percent indicating that they plan to begin searching for a home within the next six months. A quarter of those respondents are purchasing for their own living purposes, while 16 percent are buying for investment purposes. Nine percent are buying both for their own use and as a rental.
According to Matthew Barasch, an analyst with RBC Capital Markets, the Vancouver housing market is experiencing a housing bubble that is unsustainable. He notes that the rise in prices in the city is being driven by foreign capital, similar to the pressure foreign money has on US Treasurys. However, this does not necessarily indicate that the bubble has hit its peak.
Another factor contributing to high rents is the fact that many foreign investors are buying homes for investments. Many of them aren’t living in them, and many of them are not renting or occupying them, which in turn lowers the supply of available rental units in the city. This would further push up the price of rent in Vancouver. To remedy this, the government has proposed to tax vacant properties at 2%.
It’s a recession
If Vancouver’s housing bubble is a recession, then a major part of the problem will be the rising mortgage rates. While this will reduce demand, it will also reduce prices. Meanwhile, many developers have backed out of large projects, and the profit margins will be squeezed. Ultimately, this will lead to fewer housing options.
A Canadian housing bubble is a serious situation, and it has already reached extremes. While Vancouver is still considered to be relatively stable, many housing market watchers fear that a sudden crash will cause a recession. While the real estate market is in better condition than in previous years, many institutions have warned that Canada’s housing market could be headed for a cooling down and bubble pop.
A housing bubble is a spiral in a property market’s price. The basic economic principles of a bubble start with high demand and low supply. Low interest rates have contributed to the rising prices. People see the increasing prices and think that the prices will continue indefinitely. So they pour money into the market and hope for a profit.
The escalating home prices have been detrimental to young families in BC. Many millennials have delayed having children, or are going deeper into debt to make ends meet. Others are choosing to move elsewhere.
Among many other things, David A. Grantham is a contributing author to UmassExtension West Vancouver Blo. He is a renowned expert on real estate in BC.
Born in North Vancouver, Louisiana, Dr. Grantham grew up in Lower Lonsdale. He then went on to complete his business degree at the University British Columbia. As of this writing, Grantham has completed over 100 projects, including the development of a high rise building in Vancouver.
He is a husband, father, son, brother, and friend. He was a dedicated outdoorsman and enjoyed sports such as hunting, fishing, scuba diving, and snow skiing. His wife, Alison Grantham, and their two daughters survived him. He is survived by his wife Alison Martin Grantham and two daughters.