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How Vancouver got so expensive and what you can do about it

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Jenni Sheppard Jun 22, 2016 4:18 am

Affordability is such a hot topic in Vancouver right now, one that affects everyone in the city. But we’re sick of repeating the same old stories about rising house prices. We don’t just want to keep telling you that it’s happening, we want to find out why it’s happening and what can be done to tackle it.

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Vancouver Affordability Series

Part 1: How Vancouver got so expensive and what you can do about it
Part 2: Why are wages so low in Vancouver compared to other cities?
Part 3: Is Vancouver in the midst of a real estate bubble? Will it burst?
Part 4: Opinion: Why I chose to move to Vancouver
Part 5: Is geography a factor in Vancouver’s affordability crisis?
Part 6: What exactly does it take to afford to buy a home in Vancouver?
Part 7: Here’s what $448,000 can buy you in each Vancouver neighbourhood


Ever feel like no matter how much you work, you’re always chasing zero? And things are only getting worse? You’re not wrong.

We took a look at how our earnings, rent, and the cost of buying a home has changed in Vancouver over the last few decades.

Between 1983 and 2016, the cost of a typical home purchase in Vancouver rose from $101,921 to $786,500.

And between 1993 and 2015, the average monthly rent for a one bedroom home here increased from $611 to $1079.

Meanwhile, between 1983 and 2013, our average monthly income after tax only increased from $1358 to $3067.

So how did life get so expensive in Vancouver? We spoke to UBC’s Tom Davidoff to get his take on affordability in the city.

‘Great place to have money’

“You take a place that’s beautiful on the mountains and ocean, a beautiful, hard place to build – those are usually expensive places,” Davidoff says.

“Vancouver’s not a great place to make money, but it is a great place to have money.”

In Davidoff’s view, Vancouver’s problems began when the British agreed to hand back sovereignty of Hong Kong to Communist China.

Although the handover didn’t happen until 1997, the agreement was announced in 1985, giving people with money in Hong Kong plenty of notice to get out of the city.

One year later, Vancouver wowed the world with Expo 86, putting the city firmly on the map as a global destination, says Davidoff.

The main entrance to Expo 86 (B.C. Archives)

Expo 86 put Vancouver on the world stage (B.C. Archives)

In the years before and after the handover, Hong Kongers flocked to Vancouver – or Hongcouver, as some came to call it. Their mainland Chinese counterparts followed.

“If you’re looking to hide your money somewhere stable, Vancouver has a lot of very attractive features,” says Davidoff.

Recently, Davidoff says, people in mainland China have been really trying to get their money out of the country, amid concerns over the future of the yuan, the Chinese currency.

“The last couple of years have been a confluence of a surge of money coming out of China, and the weak loonie.”

Davidoff suspects Russians and people from the Middle East will be next, as they seek to move their money elsewhere. 

“Vancouver will always be attractive to international investors… I suspect we will always be a bastion for international wealthy people, particularly if we don’t change our tax regime.”

Don’t hate the player, hate the game

The handover and Expo may have put Vancouver’s property market in the spotlight, says Davidoff, but it was our tax regime which set it alight.

“We don’t act like we think the people who live and work here should be the ones who get a decent shot at the houses,” says Davidoff.

“But as Chris Rock says ‘Don’t hate the player, hate the game.’ And we do two things here that are just so stupid it’s unbelievable.”

First of all, Davidoff says, Vancouver has low property taxes but high income taxes, which rewards investors working elsewhere, but buying here.

“If I work in a country with low income tax and I don’t have to pay income tax to Canada and I get a super, duper low property tax rate… where do I want to outbid the locals?

“I’d go with Vancouver in a heartbeat.”

That tax regime may have made sense 30 years ago, but it is inexcusable now, says Davidoff.

“Surprise, surprise, combine that with a place where people really want to live anyway, and you get the world’s worst income to price ratios.”

Zoning laws are ‘insane’

Secondly, he says, Vancouver’s “insane” zoning policies prevent the construction of affordable housing – and often protect millionaires’ mansions.

“It’s a subsidy to rich people,” says Davidoff, giving the example of the neighbourhood around MacDonald and King Edward and Arbutus.

“There’s nothing there except detached, single family luxury homes,” he says. “In a free market that is some of the best land in the world…So why don’t you have 50-storey apartment towers there? What possible reason is there?”

Davidoff cites zoning laws and the need to protect the character of the neighbourhood. But, he says, that’s out the window.

“The character of the neighbourhood is now luxury mansions for rich people, who couldn’t be making those earnings in Vancouver.

“So what you’re saying is, ‘It’s very important to subsidize luxury mansions and keep out middle-class people in apartment buildings.'”

The government can announce 300 affordable houses here and there, Davidoff says, but they should be building on the West Side.

“Thousands and thousands and thousands of wonderful apartments and townhomes don’t get built on the West Side” he says. “It’s a ban on affordable housing.”

What needs to change

“Let’s not regret that people who’ve worked hard get to live here,” says Davidoff. “I think if Vancouver’s a place where people who’ve made it can come live, I think that’s great.”

“In the long run, there’s nothing to be done, there’s lots of rich people all over the world and I think they all want to live here,” says Davidoff.

“I think this is going to be a very pricey place, in 50 to 100 years.”

But, he says, for the next two or three generations, we could buy ourselves affordability – if we can get the government to make tax and zoning changes.

Property taxes for overseas owners

The first thing the City should do, says Davidoff, is increase property taxes – but only for people who don’t live or work here.

“Maybe they use it as an astronaut family, maybe they come here and ski in the winter, or maybe they leave it vacant.”

“Rent the place out to a local or come here and pay income taxes, and you’re off the hook. But if not, if you refuse to, then you’ve got to pay a higher property tax rate.”

While it’s possible this could put off some potential overseas buyers, Davidoff says it’s more likely they would simply agree to pay the extra 1.5% property tax he proposes.

“We estimated that could be between $100 million for this city. You could do a lot for the locals with that.”

Allow building on Vancouver’s West Side

Next, Davidoff says, the City needs to allow building on the West Side and turn Arbutus into apartments, or at least townhomes.

“It’s not unreasonable for a government to give preference to people who live and work in a place, rather than rich people from somewhere else. There’s nothing wrong with that.”

But he doesn’t believe zoning changes will happen at a municipal level – because the only people who appear to care are already homeowners.

“Each land use change requires a hearing – the only people that are going to go to the hearing are the angry homeowners next door who don’t want that project in their backyard.”

Instead, Davidoff proposes a provincial law regulating building bans in places impacted by housing affordability.

“[If] you want to ban a particular type of project, you have to provide proof that [the ban] is actually doing something good, not just for the neighbours but for the whole region.

What you can do

Making sure you vote, loud and proud, may be one answer.

“Homeowners are the ones who vote, especially older homeowners,” says Davidoff.

“Anything you do to shift to a property tax (rather than income tax) is going to help young working households, and hurt people who already own homes and who are older – so you’re asking to lose an election.”

Government of BC

Is BC Premier Christy Clark taking enough action on housing affordability? (Government of BC)

If you want to make your voice heard, Davidoff also suggests you:

“Policy takes time to adapt, politicians are terrified of doing anything new and different,” says Davidoff.

“More people willing to put their money into our real estate is good – if the politicians put some effort in, they could make it good for everybody.”

 

Tom Davidoff, BA (Harvard), MPA/URP (Princeton), PhD (MIT), is an Associate Professor at UBC’s Sauder School of Business; he teaches classes on Business Economics, Real Estate Finance and Real Estate Investment Analysis.


Vancouver Affordability Series

Part 1: How Vancouver got so expensive and what you can do about it
Part 2: Why are wages so low in Vancouver compared to other cities?
Part 3: Is Vancouver in the midst of a real estate bubble? Will it burst?
Part 4: Opinion: Why I chose to move to Vancouver
Part 5: Is geography a factor in Vancouver’s affordability crisis?
Part 6: What exactly does it take to afford to buy a home in Vancouver?
Part 7: Here’s what $448,000 can buy you in each Vancouver neighbourhood


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Jenni Sheppard
Jenni is a former Senior Staff Writer at Daily Hive. Happy Vancouverite. Traveller, snowboarder, foodie, film fan, feminist, geek, cheesemaker, curler.

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