It’s no secret Vancouver is the second-most expensive city in the world. But with such news, we are facing a much more grim situation that will manifest itself in the long-term. Our high-priced real estate will soon doom Vancouver economically.
There is a serious economic price associated with expensive real estate, and it comes in two flavours. First, difficulty for workers to find housing locally will increase the cost of labour and increase the cost of running a business. Businesses will become discouraged and seek shelter elsewhere. Economic productivity will decline and city revenues will become dependent on the remainder of homeowner’s savings accounts. This isn’t doomsday, but we’re seeing some of this already.
The second flavour is just as bad: the ratio of house prices to income will be very inflated. Why does that matter? We’re risking a real estate bubble. But you argue, “everyone says there is a bubble, and it’s obviously not going to happen.” You’re right at this point in time. That’s because we have an inbound stream of buyers from abroad. The rest of the world is getting wealthier, China included. This global wealth equation was forecasted by economists at the beginning of the financial crisis who predicted that the Western World would suffer while developing countries get a chance to make it big.
There’s nothing wrong with a real estate boom, but economic development must accompany it.
So what will happen in Vancouver on this course?
While economic productivity decreases and home buying increases, resort town factors will increase. Vancouver will have a transient, wealthy, and/or retired population that is just here not doing much. Much of the “excitement” will come from tourists visiting our otherwise beautiful city. However, with such a non-productive population we will soon experience the economy of a resort town.
A resort town is characterized by a ratio of low-paying jobs that serve the retirees and tourists visiting the town. Such a ratio of low-paying wages often result in high cost of living and these same workers have difficulty living in the same area of their jobs. The consequence is these workers will often reside in neighbouring communities. Does any of this sound familiar!? A resort town often struggles with growth.
Unfortunately, Vancouver is not as blessed as Hong Kong. Although our country was previously ruled by the British, we are not the Westerner’s gateway to Asia. It’s quite the opposite. We also don’t even have near the population as Sydney, the previous 2nd most expensive city in the world. We’re a rather unbalanced city at the moment.
Local government factors and Vision Vancouver
Currently Vision Vancouver has tight control over council. So who put Vision Vancouver in power? Approximately 7 of the top 10 donors to Vision Vancouver are developers. It’s in their absolute best interest to influence municipal politics since local government controls zoning and approves projects. Our top developers have bought themselves a rubber stamp to build. Additionally, it’s very difficult for the city to reject new projects because money is also promised for new community projects along with developments.
Do you know the business strategy attached to these developments? In a December meeting with city councillor Andrea Reimer, she revealed to me the following concept:
The value proposition presented by the developers is high prices. The argument is that people will buy simply because they are expensive.
It’s obvious that we are lacking the tools to balance out these economics with good policy. So where do we turn?
Tech will railroad you to greatness
I’ve said it time and again—I’m not backing down from the tech theme. There is a big opportunity that Vancouver has right underneath it: our tech community is very talented. However, local government has devalued this agenda and we need to start encouraging more of this growth. The provincial government is well aware of it, some federal programs are very supportive of it, but we need to drive our tech industry to the finish line with city support.
There is one stinky habit that Vancouver entrepreneurs will need to kick, and it will require additional help. Since the beginning of time, Vancouver entrepreneurs have sold their companies to foreign entities. It happens time and again. Selling off our local companies is a bad idea. And what can the city do to support it? The first step is simply saying, “I support tech.” But there’s no motivation unless you as a citizen kick them in the ass.
When in doubt, learn from example. San Francisco Mayor Ed Lee is an icon in municipal tech development. He appointed a director of innovation, Jay Nath, and rolled out “Code for America“. Is it that hard for Gregor to even tweet “go tech!”…?
Title photo credit Steve-h.