Every city has its own urban legend. Vancouver’s fantasy over the last few years is that it has the world’s second most unaffordable housing.
On the back of this piece of unchallenged, unverified claim, Canadian opinion makers and media have been portraying a city pushed to a breaking point by a runaway housing crisis caused mostly by wealthy immigrants and corrupt Chinese officials fleeing to Vancouver with stolen money. A more twisted version paints Canadians of Chinese descent as Beijing’s pawns in a long-term chess game to take over Vancouver and its housing market.
Either way, the city’s rising housing cost has become an issue in this year’s federal election with Chinese buyers firmly cast as the villain in profiteering at the expense of the city and its regular working people. The political pressure has led Prime Minister Stephen Harper to announce his government is investing $500,000 to gather “comprehensive data” and study the impact of foreign investment in Canada’s real estate market. This special five-part series deconstructs the narrative to present the issue in a broader framework.
Publisher’s Note: NCM has revised this commentary to clarify several citations as recommended by the South China Morning Post, and reflects the revised references made by the SCMP to Demographia’s rankings which now describe the study’s scope.
In fanning public anger against foreigners for Vancouver’s declining affordability, the Canadian media rarely mentions that the worrying trend of housing costs rising faster than incomes is also occurring in many major cities around the world.
Around the world, housing costs in major cities are being pressured higher by the same combination of scarce land supply, income inequality, increasing urbanization, local taxes and more recently, the world’s major governments unleashing trillions of dollars into the global economy to stave off recession.
The money-printing operations, also known as quantitative easing, undertaken by the US Federal Reserve Board and other central banks since 2008 have ended up inflating prices of coveted real estate in many international cities.
A research paper published by the US Council of Foreign Relations in August 2014 described how “housing markets around the world, from Tel Aviv to Toronto, have overheated.”
A research paper published by the US Council of Foreign Relations in August 2014 described how “housing markets around the world, from Tel Aviv to Toronto, have overheated” as central banks have been lowering interest rates and “pumping trillions of dollars’ worth of new money into the financial system.”
But these major factors along with the role of investment funds and domestic buyers are seldom mentioned in the Canadian media given its overwhelming focus on Chinese buying in Vancouver’s rising real estate market.
The Demographia factor
Perhaps the biggest flaw in Vancouver’s blame-the-Chinese narrative is that commentators often start off with a reference to Demographia and its limited survey on housing affordability in nine countries.
The Illinois, U.S.-based consultancy is owned and operated by conservative public policy consultant Wendell Cox who opposes urban densification and public transit in favour of sprawl and the use of private cars.
Despite the political importance and implications of Demographia’s rating, none of Canada’s mainstream commentators, real estate experts and politicians have subjected its data, research methods and survey sample to any serious analysis or questioning.
For the fourth consecutive year, Demographia’s 2015 annual survey of 378 cities has dubiously rated Vancouver’s housing as the second least affordable after Hong Kong.
Vancouver’s 10.6 unaffordability ratio is derived from dividing its median housing price of C$704,000 by the annual household income of C$66,400 [in other words, the unaffordability ratio is a price-to-wage ratio that reflects affordability rather than absolute property value].
According to the survey, Hong Kong has the least affordable housing ratio of 17 (HK$4,892,000 / $287,000) while Ireland’s Limerick and four U.S. cities have the most affordable ratio of 2.
Despite the political importance and implications of Demographia’s rating, none of Canada’s mainstream commentators, real estate experts and politicians have subjected its data, research methods and survey sample to any serious analysis or questioning.
This act of blind faith serves a useful purpose: the catchy conclusion that Vancouver is just behind Hong Kong in housing unaffordability provides the perfect launchpad for alarmist reporting and commentaries.
The leading voices who treat the Demographia survey as gospel have turned their interrogation efforts on British Columbia’s real estate industry, the provincial government and anyone who challenges their narrative that Chinese money is largely responsible for Vancouver’s rising housing cost and problems.
Ian Young, the award-winning Vancouver-based investigative journalist with Hong Kong’s South China Morning Post (SCMP), recently tore into the British Columbia Real Estate Association’s analysis that said foreigners accounted for less than five per cent of Greater Vancouver’s home ownership and sales.
[S]ome cities in parts of Asia, the Middle East, Europe and possibly even Africa not covered by Demographia have arguably higher housing unaffordability than Vancouver.
While calling the BCREA finding “bogus”, Young, an influential voice in emphasizing the Chinese impact on Vancouver’s housing market, reported the Demographia survey as covering “the world” in his comment on February 28 for B.C. Business and amended in his June 3 and September 10 Hongcouver blogs for the SCMP.
This is wrong as Demographia clearly states it covers only the U.S., Canada, UK, Australia, New Zealand, Japan, Hong Kong, Singapore and Ireland, leaving out the other 184 countries on the United Nations’ list.
A recent Gallup survey found that U.S. home ownership has fallen to its lowest level in 15 years with the young less willing or able to take on a mortgage.
“For a younger generation that is struggling with student debt, renting a home may be an increasingly safe option. Non-homeowners’ expectations for buying a home in the near future appear to be waning, and the percentage who say they own their own home is the lowest in nearly 15 years,” said Gallup.
Citing an Urban Institute study, a CityLab report found that “every single county in America is facing an affordable housing crisis. From Portland, Oregon, to Portland, Maine. From Jacksonville to Juneau. No matter where you look, there isn’t enough affordable housing.”
According to the Daily Mail, a generation of young Britons have given up hope of buying their own homes “amid high house prices and poor pay rises”. Only 20 per cent of those now under the age of 35 are expected to become property owners by 2020 while “first time buyers are struggling to find a house as the gap between the supply and demand for two-bedroom properties widens.”
“Less than 20 per cent of young adults will own homes in 2020 if housing crisis goes unchecked,” says a Huffington Post story, which predicts that the number of people in U.K.’s 25-to-34-year-old cohort owning property will plunge by half.
Asia’s housing affordability crisis is looking a lot like the U.S. bubble in the run-up to the 2008 crash, said The Washington Post.
“That’s because money poured into those countries in search of better returns right after the crisis and … found its way into the property market,” it said referring to China, India, South Korea, Taiwan, Singapore and Malaysia where housing prices have outpaced wage growth.
Despite operating one of the world’s most successful public housing programs the last few decades, Singapore is increasingly confronting a housing affordability challenge caused by rising home prices and slow wage growth.
“For millennials, the homeownership dream is dying,” said financial news site Zerohedge. “New graduates are having a difficult time finding jobs that are commensurate with their education.”
This huge omission is crucial as some cities in parts of Asia, the Middle East, Europe and possibly even Africa not covered by Demographia have arguably higher housing unaffordability than Vancouver.
Inexplicably, Canada’s mainstream media – Vancouver Sun, Globe and Mail, The Province, Business In Vancouver, CTV, GlobalNews, Huffington Post, Ottawa Citizen – have all misrepresented Demographia’s nine countries as “the world”. None of the media told of their mistake has published corrections.
Read Vancouver and Unaffordable Housing Part 2: A Tale of Many Cities
Read Vancouver and Unaffordable Housing Part 3: Solutions or Scapegoats?
Read Vancouver and Unaffordable Housing Part 4: Lots of Statistics, and a Few Lies
Read Vancouver and Unaffordable Housing Part 5: The China Factor
