David Ley in his backyard in Vancouver on Oct. 12. Vancouver is among the gateway cities covered in his new book.Jackie Dives/The Globe and Mail
For anyone interested in a crash course on the recent history of Vancouver’s housing crisis, they need to look no further than the work of professor David Ley.
In 2010, Prof. Ley wrote a seminal book, Millionaire Migrants: Trans‐Pacific Life Lines, on the impact of large amounts of cash poured into Vancouver’s property market following Expo 86. Now, he’s released a follow-up book, Housing Booms in Gateway Cities, which looks at cities that are disproportionately impacted by real estate investment.
Of course, Vancouver is among them. So too is London, Hong Kong, Sydney and Singapore – the outlier in the group that does not have a housing crisis.
A gateway city is a city through which international trade and immigrant labour is part of its economic engine, which makes it a vibrant and cosmopolitan urban centre. Gateway cities are also prone to wildly unstable housing markets and social inequality. Prof. Ley, a recent recipient of the Order of Canada, found that in the cities he travelled to and investigated – with the exception of Singapore – there has been a significant decoupling between the price of housing and incomes. In other words, many people can no longer buy a home with the amount they make.
“Of course, the old story of labour economics is that labour markets and housing markets are linked together, so house prices go up as people prosper in the labour market,” Prof. Ley said in an interview. “Well, that is clearly out the window in gateway cities. So what is it that is causing this tremendous uncoupling that we see on three different continents, Europe, North America and Asia? That’s question No. 1.
“Question No. 2 is what are the consequences of this decoupling? When we’re thinking of affordability, we think of inequality and potentially even instability – political instability – which could reflect itself in people’s behaviour at the ballot box. The argument I make with Hong Kong is lack of housing is one of the reasons students are rioting.
“An argument could be made that it causes the marginalization of the young, which we find in all of these cities. … That the housing wealth belongs to people of my generation, and for people of my kids’ generation, it’s a totally different story,” said Prof. Ley.
The third question is, what is the government doing about the problem?
His 2010 book dove into the influx of East Asian wealth that was reshaping Vancouver, the result, he said, of the provincial government’s courting of Asian money that began around the time of Expo 86, which he refers to in the new book as “a marketing venture.” That led to the purchase of the Expo 86 lands by Hong Kong billionaire Li Ka-Shing, a controversial $320-million deal that, in turn, opened the floodgates to a torrent of new money.
Shortly after the purchase, writes Prof. Ley, Hong Kong’s four largest property developers began to snap up Vancouver real estate.
The new money was not a matter of serendipity. The decision to sell off the Expo lands in its entirety, instead of piecemeal, was clearly intended to attract a foreign investor with deep pockets. And it worked.
The investment came in waves, starting with Hong Kong buyers who were looking for a safe place to land after the 1997 handover to China, followed by Taiwanese buyers, and eventually buyers from Mainland China.
In Millionaire Migrants, Prof. Ley has a line graph that shows house prices in Greater Vancouver moving upwards in lockstep with net domestic migration.
The governments of the day saw benefits in growing tax revenues and growing homeowner equity for its citizens.
As global and domestic investors fuelled the market, the relationship between the real estate industry and the government also became an especially cozy one. In the new book, he points out that development companies were the single largest group of donors to the BC Liberal Party.
But a problem emerged. By 2016, at the peak of the boom, the divergence between local incomes and home prices in Vancouver had never been wider. That same gap had grown in London, Sydney and Hong Kong as well.
Only Singapore maintained a parallel growth between incomes and home prices. Prof. Ley said that’s because that city’s real estate market is state-controlled, with 80 per cent of Singaporean residents owning leasehold properties. Foreign buying and investor buying is tightly controlled and hugely taxed. Singapore raised its foreign-buyer tax to a whopping 60 per cent and local investors get taxed 20 per cent on second properties.
He also discovered that Singaporeans (and Hong Kongers) were active investors in London, where there were few restrictions on global investment.
In Vancouver, existing homeowners reaped the benefits of sky-high real estate prices. But boomer-age parents began to see that their children were being priced out of the property market, and those who could buy in were taking on a lifetime of mortgage debt. Renters who thought they had homes discovered their landlord had other plans for their high-priced assets. Displacement through renovictions, or “no-fault evictions,” (such as when the landlord says a relative will be moving in) became rampant.
And yet, when questioned throughout the 2013 to 2016 boom, public officials said they couldn’t meddle with homeowner equity, or even acquire the data to prove that foreign money had entered the market. It was painfully ironic, in light of the fact that the government had courted the money via trade missions and, at the federal level, offered Canadian citizenship in exchange for business investment, as part of a now-defunct scheme called the Immigrant Investor Program. Tens of thousands of Asian investors came to Canada through the program, intended to create jobs. Instead, many of those new investors chose to buy properties in Vancouver, and no one could blame them. Vancouver housing was a highly lucrative investment. The city had built an economy around it: local investors too were in on the action.
However, the program was recognized as a policy failure and finally cancelled. After so many years, there was no easy way to turn the ship around.
A key Angus Reid Institute survey in 2015 identified widespread public fury at a situation that had seemingly gone out of control. All three levels of government eventually paid the price at the ballot box for failing to grasp the growing misery of its electorate, including the Conservative federal government, the BC Liberal Party and the municipal-level Vision Vancouver party.
Responding to public backlash and growing media scrutiny, housing affordability became the key election platform for all parties.
We have now entered a phase of potential “re-regulation,” writes Prof. Ley, with “attempts to re-regulate a housing market made dysfunctional by the incessant flow of unregulated investment capital and the marketization of state policy within a neo-liberal regime. Substantial golden visa immigration, in addition to offshore buyers, established a strong transnational residential sales network between Vancouver and East Asia after 1986, adding significant speculative investment to local demand. By 2016, the aspiration of home ownership as asset-based welfare had reached a dead end for many residents.”
The “growth coalition” had “decimated affordability, precariously inflated mortgage debt loads, shut out first-time buyers, and aggravated spiralling inequality.”
Is there a way to narrow the gap between incomes and home prices?
Prof. Ley said that “cooling off” measures need to be implemented in a continuous way, as in Singapore, not simply as a one-off solution.
“With current policies, I see little prospect that there will be a narrowing of the decoupling gap,” Prof. Ley said. “There has to be much more determination to control the entire property investment picture, foreign and local, and build the right kind of supply, that is truly affordable supply.”
Editor’s note: Editor's note: A previous version of this article incorrectly referred to the Angus Reid Foundation. The organization is the Angus Reid Institute. This version has been updated.