The $22.5 billion drop: Figures show Vancouver real estate coming ‘back to reality,’ realtor says
Vancouver’s housing market has been on ‘on a bender,’ professor says, ‘and after that bender will come a hangover.’
Dan Fumano
The Vancouver Sun
With the first half of 2019 in the books, local realtor Barry Magee reviewed sales data from the Real Estate Boards of Greater Vancouver and the Fraser Valley. He said he expected to see a slowdown given the market recently. But the extent of that plummet, Magee said, was striking.
In Greater Vancouver and the Fraser Valley, the combined value of properties sold in the first half of 2019 was $15.6 billion, less than half the total of $38.1 billion recorded over the same period in 2016, at the market’s high point.
The total transaction value is a result of lower prices and fewer sales. Sales have dropped most significantly, but prices have been dropping as well, particularly in certain segments of the market. This week, the Real Estate Board of Greater Vancouver’s monthly report showed its benchmark price for homes in Metro Vancouver fell below $1 million for the first time in two years, and reported the lowest June sales numbers in almost 20 years.
This follows a years-long boom that made Vancouver one of the world’s least affordable housing markets. For a story last week in the Financial Times, the England-based newspaper’s global property correspondent visited Vancouver to compare the local situation with that in far larger cities like New York and London.
TAX TURNS
The B.C. NDP government has implemented measures, including new taxes, intended to dampen the market. But, real estate industry figures say, that slowdown also means reduced tax revenue and other economic impacts in a province with an economy largely dependent on real estate and construction.
“I do think it’s a good thing, in my personal opinion. I’m firmly on the side that lower prices are better for society in general,” said Magee, a realtor with 2 Percent Realty West Coast. “It’s really just coming back down to reality.”
Josh Gordon, an assistant professor at Simon Fraser University’s school of public policy, said Vancouver’s real estate market was hit by a surge in demand in the years leading up to the high point in 2016.
“What’s really interesting is that there was this surge in demand, and that doesn’t really coincide with any fundamental changes in the local economy, or the local situation. We didn’t have a big population surge, it’s not as if incomes all of a sudden took off,” Gordon said. “That kind of a dramatic escalation in demand simply has to be connected to factors like outside money and speculative demand.”
Last month, Gordon published a new working paper showing a strong correlation between the price-to-income ratios for detached houses across different Metro municipalities and the proportion of that housing stock owned by non-residents. The more unaffordable the municipality, Gordon reported, the higher proportion of homes were owned, at least partly, by people who do not live or pay taxes in Canada. These findings, Gordon says, further establish the long-debated link between foreign property ownership and unaffordability in Vancouver.
In the weeks since Gordon’s working paper was published, he’s had some pushback, he said Thursday, which he expected. But he’s also heard from other academics validating his findings. A University of B.C. geography professor, David Ley, told the Vancouver correspondent of the Hong Kong-based South China Morning Post last month that Gordon’s findings were “unimpeachable.”
Magee agrees that Vancouver’s boom in recent years was largely driven by external demand.
‘THE DEBATE IS OVER’
“It is incredibly clear that money earned outside of our economy was driving the unprecedented real estate market from 2015 to 2017,” Magee said. “Anyone who argues against this, after seeing $22.5 billion disappear from the market, must be financially, and emotionally, motivated by selling misinformation. The debate is over.”
Some slowdown was to be expected following the record-setting sales pace and price increases of previous years, said Ashley Smith, president of the Real Estate Board of Greater Vancouver.
“There’s always going to be cycles in real estate. We’ve just seen a bit of a dramatic one,” Smith said. “So when the market’s moving incredibly fast, I think a lot of folks might benefit from that, and a lot of folks might feel disenfranchised.”
“There’s obviously, some could argue, a negative economic impact. When we look at significantly reduced revenue from property transfer tax to the government, that’s huge,” Smith said. “So we’re not seeing that kind of money go into services such as health care and education.”
The provincial government has anticipated the real estate slowdown in its fiscal planning. This year’s B.C. budget, released in February, forecast for $1.91 billion in property transfer tax revenue over the following fiscal year, a reduction of more than $340 million from the forecast for the previous budget. Updated forecasts are expected in the government’s next quarterly financial report in the fall.
Gordon predicted that the revenue generated by the B.C. NDP’s new taxes — including a surtax on high-value homes and the speculation and vacancy tax — is unlikely to make up for the reduced property transfer tax revenues. But, he said, “Unless the province was supposed to persist on a frenzied housing market year after year after year, then something was going to have to change in the economic situation, and that includes the fiscal situation.”
Several factors are influencing local real estate, including federal government changes and global forces, Gordon said. But in his view, “there’s no doubt” the massive property transfer tax revenues of previous years were part of the reason the previous B.C. Liberal hesitated to dampen the red-hot market.
“The B.C. Liberals took us on a bender, and after that bender will come a hangover,” Gordon said. “And suggesting that we should have a couple more to put off the hangover is probably not a strategy that your doctor would recommend.”
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