Vancouver debate continues…
I’m currently having an interesting discussion with a couple frequent commenters on this blog in the comment section of a previous post. It’s a discussion that has been pitting the Vancouver housing bulls against the Vancouver housing bears for years. Without a doubt, the bulls have won decisively for much of the past half decade since alarm bells started ringing about Vancouver house prices in the mid 2000s.
But where does that leave us going forward? I’ve done my best to quantify the potential impact of ‘Hot Asian Money’ on Vancouver house prices, but I’ll be the first to admit that the data is sparse. But absent any data we are forced to swap anecdotes, not something I’m keen on doing on this blog. So this post is a call for anyone with specific quantitative data on the prevalence wealthy Asian buyers in Vancouver. I have some specific questions at the end of the post, but first, a bit of the discussion to get you thinking:
Blog Dawg #1: …The crowd is Chinese. Population 1 Billion. Remember the boomers? Did they affect house prices? They were a sliver of a boom compared to China. Would all you guys be sitting around in 1964 saying the Beatles are a fad, what influence could they possibly have? And please don’t tell me about Landcor data. Open your eyes. Who lives in Metrotown now… who lived there 25 years ago?
Me: Tell us about it…. Let’s talk numbers. Dig up some demographic data on house sales to Chinese buyers for me. Dig up the actual numbers on Metrotown. You may hate the Landcor data, but it’s still data, while what you’re presenting is anecdote. You may well be right, but prove it using facts rather than hear-say.
Blog dawg #1: They just don’t keep data on race, illegally moved money and money moved between families. But maybe a prolonged visit to Vancouver is in order. In 1982, the Chinese population in Vancouver was 8%. Take a flight. Book accommodation. Go out for dinner on Robson St., in Metrotown, Kerrisdale or Richmond.
Me: I have no doubt that there are more minorities in Vancouver than there was in 1982. But the same could also be said for particular parts of Toronto and Montreal. It doesn’t tell the whole story…. What is their average wealth or income? Is it sufficient to support single family house prices at $1 million? $2 million? $5 million? What percentage of new purchases are first time purchasers from abroad? All available data suggests that it is still tiny. They may dominate a certain tranche of the market, but it is overwhelmingly likely that the wealthy Asian story does more to lure locals into the game than anything else.
The lack of data to either prove or disprove the Hot Asian Money story is indeed frustrating, but in the absence of better data, I’d be inclined to build a case around the Landcor data than “go out for dinner on Robson St.” Indeed a dinner out in Riverdale (east Toronto) might well convince you of the huge influx of Chinese wealth into that neighbourhood…..but with house prices about half of those in Vancouver.
Absent the decisive stats to end this debate, the best we can do is analyze what data we have available to us. I’m sorry to say but the available data casts serious doubt on the sustainability of house prices in Vancouver.
Blog Dawg #2: I have posted Video’s, check out the folks buying, they ain’t from Iceland!
(Note from Ben: By the way, this is the same development that was advertising job openings for people to stand in line. Thanks Global for the level of critical thinking you put into this piece…)
Ben, to go Vancouver and you will feel you have left Canada and are in some burb of China. Chinese are the only people in Vancouver!
Me: I watched them and I didn’t notice anyone holding briefcases full of cash. There’s no doubt that there is a higher proportion of Asian buyers, but the same can be said of a number of other communities in Canada. How do you know that these people are making their purchases from pre-existing wealth? What makes you convinced that they are not holding mortgages as well and are making local income just like the vast majority of other Vancouverites? This is exactly what I mean. Without the solid data, we are merely speculating that all these people in this line are wealthy foreigners with ample cash, not just more momentum chasers relying on cheap, easy financing and a greater fool to ensure them profit.
The plea for data
We all have our particular strengths and weaknesses. Lord knows I have plenty of weaknesses, but one thing I generally consider a strength is my ability to locate data on a particular topic. Whether I interpret the data correctly and draw appropriate conclusions is another matter, but at least I can generally find it.
When it comes to Vancouver and the impact of wealthy Asians, I’ll admit that I have a difficult time locating data that lends credibility to either the bull of the bear case. What I have come across seems to indicate that the Hot Asian Money story may be true in the narrow niche market of extremely expensive homes. But its impact on the average home in Vancouver is likely more related to the psychological factors that convince locals (of all nationalities) to keep piling on the housing train. I know we hear anecdotal evidence of foreigners dominating the upper end of the market. I actually believe that’s true. But the uber rich dominate the luxury tranche in any market. To believe that a handful of super rich buyers can sustain an entire housing market that is otherwise massively overpriced is to believe that a tail can in fact wag a dog.
So to my faithful readers I issue the following challenge: I’m looking for data that clearly indicates the prevalence of wealthy foreigners in the real estate market. The fact that one particular ethnic group is responsible for a large portion of overall sales is irrelevant unless we can show that they are not relying on financing similar to other locals and that the flow of this money or wealthy individuals from abroad is sustainable.
While you’re at it, consider the following questions:
1) Is there any example of a housing market globally that has seen tripling in fundamentals like price/rent and price/income multiples in the span of a decade that has led to a permanently high plateau rather than a correction? By permanent I mean stable or increasing prices for at least another decade. If so, what might have caused it and are the same factors at work in Vancouver? If not, why is Vancouver different?
2) I’ll let a noted Vancouver housing bull frame this last question (quote taken from a comment on a prior post):
“(I’m) just trying to get you to kinda understand that you are really getting nowhere with all this data and a new framework is needed.”
In other words ‘it’s a new paradigm’ or ‘this time it’s different’. The old rules no longer apply. Throw out the data! My question is simple: Has there ever been an example of a bubble where this mentality was not prevalent?
I look forward to the responses.