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Another day, another guesstimate about how much the Chinese are buying in Vancouver. Data analysis here

March 24th, 2016 · 7 Comments

Oh brother, economists doing calculations on the backs of envelopes to throw another Douglas fir on the bonfire of Vancouver real-estate hysteria. Isn’t there some kind of Hippocratic oath about doing no harm?

Anyway, for those who didn’t see it, some bank economists put a few numbers together to declare that a third of all Vancouver real estate was bought by high-net-worth Chinese investors last year. The story has quickly spread, with various levels of helpful information about how they calculated the numbers. Story 1 from Bloomberg here, story 2 from the Globe, and story 3 from the Vancouver Sun. The bar graph below also appeared in my Twitter feed, not sure from from where.

And it’s sure to attract some analysis. As alert readers will note, this comes from a sample of 77 high-net-worth Chinese investors who agreed to answer a survey saying where they had bought property. The Sun story spells out that that could mean offshore investors or residents and immigrants to the country. Since 11 per cent of them said Vancouver was their real-estate choice, that would mean nine of the 77. Nine.

Then the economist calculations pegged their purchases at $12B Canadian, I guess by dividing the total amount of presumed sales around the world to Chinese people by 77, and concluded that these nine people’s answers could be extrapolated to say that one-third of the total sales in Vancouver’s market last year were to high net worth Chinese buyers. But a quick check shows that that the $38.5 billion they’re referring to is the number for residential resales for the Real Estate Board of Greater Vancouver. So that’s not the total in sales for the Lower Mainland. About 10 to 15 per cent of sales (developers selling their own condos, etc.) happen outside the board’s MLS system. It also doesn’t include the $11 billion in sales from the Fraser Valley real-estate board, which includes Surrey, Delta and Langley, or the 10 to 15 per cent of non-MLS sales there.

But, whatever, one more factoid for the mill.

Additional note an hour later: Alert Twitter observers have noted it’s one-third of dollar value, not one-third of units. If rich folks are buying very expensive places, they could well be buying much less than a third of everything that sold. A further note: Joanne Lee-Young’s story in the Sun has the best explanation for the methodology the economists used, something about guesstimating the level of buying in Canada based on levels of buying in the States. (Just read it, I couldn’t possibly summarize the contortions.)

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  • Kirk

    I’m getting tired of it all. Even if somehow there’s a miraculous set of accurate data coming our way, there’s nothing the govt can do. Real Estate is “too big to fail”. Just like the banks. Our economy can’t take the hit. We have to keep it pumping.

    As for more anecdotal data, apparently we’re selling tons more exotic cars than we should. It’s like we have two versions of our city. There’s the sustainable, LEED, EcoDensity, bike lane, urban planning, version of Vancouver. Then there’s the luxury mansion, Lamborghini, Gucci version of Vancouver. It’s weird to have both because they’re polar opposites. I can’t tell which side is winning yet, but it sounds like luxury cars are growing faster than bicycles. Just look at all the new car dealers. They’ve got the newest, nicest buildings.

    http://www.canada.com/life/vancouver+international+auto+show+2016+comes+uniquely+ritzy+market/11802638/story.html

    Heard said: “We are a world-class city, at the end of the day, and there’s a lot of offshore money that comes in. A lot of the cars have ‘N’ stickers (for new drivers) on the back of $600,000 or $700,000 cars … You see them in any neighbourhood you’re in, but you do see a lot at the bottom of SFU hill and out at UBC, so it’s a lot of students.”

  • Everyman

    And yet there Mayor Robertson and Vision are, aiding and abetting it all. Think of the bike lanes and greenest city sloganeering as the bread and circuses to distract from the fact the city is being sold out from underneath us.

  • A Taxpayer

    I don’t know which is worse – that the economist from the National Bank would choose to release such a meaningless calculation or that the media chose to give the flawed conclusions such prominence. In fairness to both, the shortcomings were clearly identified but what was the point? There is no doubt that foreign money is buying our real estate but we really don’t know how much or how much it is impacting housing prices and this report does nothing to answer that question. Unfortunately, no doubt this item will be cited but without acknowledging it’s significant limitations by those who believe restricting/taxing foreign ownership is the answer to cooling the housing market without the evidence to support their position.

  • Look Deeper

    Kirk — if you believe real estate is too big to fail, I suggest you watch “The Big Short”. Real estate can and will fail. The current inflation in house prices is unhealthy and will cause serious distortions to our economy. We can only hope that the market self-corrects because it seems that all our leaders are going to sit on their hands.

    A Taxpayer — the Government is not as helpless as they are suggesting publicly. While perfect data may not exist, the data exists for them to have a pretty good idea of the extent of the problem. Consider this — if the government has no way of measuring the inflows of capital into various business sectors, they are completely incompetent. I do not believe they are incompetent to this extent. For various reasons (some very good), they are afraid to act. The question is — are we at a tipping point where inaction will result in serious long term harm.

  • Kirk

    The term “too big to fail” doesn’t mean it won’t fail.
    https://en.wikipedia.org/wiki/Too_big_to_fail

    The “too big to fail” theory asserts that certain corporations, and particularly financial institutions, are so large and so interconnected that their failure would be disastrous to the greater economic system, and that they therefore must be supported by government when they face potential failure.

  • A Taxpayer

    My comment wasn’t so much about the housing issue than the proliferation of bad information that only adds noise to any controversial issues. Regular contributors to this comments section have on occasion cited references purporting to support their viewpoint yet when you dig beneath the headlines they do no such thing. Advocacy (or sometimes simple self-promotion) that is prepared to grossly exaggerate or even mislead without any objective analysis of issues is a major contributor to the growing polarization we are seeing in the developed economies.

    As for the issue itself, local governments and the Province benefit from the increased prices of housing as do current home owners. Do you really think either would take steps to reduce housing prices by 20% even if they could? Not a chance as it would be political suicide as well as reducing their revenue base. In fact, there is no magic bullet and implementing additional taxes may generate more tax revenue (which may not be a bad idea) but is unlikely to have a significant impact on prices.

    The one positive thing cities can do is to increase supply through increased density which is invariably met with protests. The area of the proposed Commercial-Venables development is populated by 60’s low rise apartments (which are unlikely to ever achieve Heritage designation) and would seem to be ideal for higher density yet residents are opposed. The ability of a minority to delay projects that are in the broader public interest only adds to costs or if they are successful, a reduced supply of lower cost housing.

  • Chris K

    It’s an increasingly bizarre juxtaposition. If there was a collective sense that the luxury side of the coin was serving the sustainable, progressive face of Vancouver — say, through windfall tax revenue funding adventurous urbanism and social policy — then everyday Vancouverites might stomach it. I, for one, am getting pretty tired of seeing ordinary bicyclists interspersed between fleets of luxury vehicles. Maybe this is just the new reality of life in a hedge city? Even more curious is the silence of non-Vision politicians who advocated for a progressive civic future, e.g. Sam Sullivan and similar NPA types. They could easily capitalize on a growing frustration in the city, and transform that into momentum for election. I’m not sure why they haven’t done so.