Vancouver will always be an expensive place to own property, says Tom Davidoff — but the UBC economist is worried about a potential bubble, and says changes to taxation and zoning policies can ease the pressure for those who live and work in the Lower Mainland.

Davidoff said the explosive growth of Vancouver's housing market is due in part to what he called "legitimate" growth fuelled by supply constraints and demand from wealthy foreign buyers. But he said the behaviour of many locals — particularly speculative buying with the assumption of guaranteed growth — is worrying.

"That has classic bubble feel to me," Davidoff told The Early Edition host Stephen Quinn. "[It] doesn't look too dissimilar to some of the activity we saw in the States in the mid 2000s."

Housing prices in Metro Vancouver have risen almost 37 per cent in the last year, which Davidoff characterized as unsustainable, and due largely to the combination of a weak Canadian dollar and an exodus of money from China for fear of instability.

Davidoff said that, if demand were to weaken and foreign money stopped flooding in, he would expect to see a "correction" — that is, a collapse of housing prices — in the order of 25 to 50 per cent.

Low taxes a magnet for foreign money

Davidoff said any government hoping to deal with the situation needs to address taxation and zoning, which he sees as the main problems.

"We really roll out the red carpet for affluent buyers from all over the world," he said. "We have low property taxes, and there's no favouritism for people who live and work in Canada."

He compared this to the San Francisco Bay Area in California, where locally employed buyers get a tax rebate of almost $20,000.

Davidoff said the current B.C. homeowner's grant is not enough, and that he, along with 50 other economists from UBC and SFU, would like to see a similar scheme that involves much higher property tax — in the order of two per cent — but with exemptions for those who pay significant Canadian income tax, rent out their property, or are drawing on the Canada Pension Plan.

Current zoning laws unrealistic

Davidoff also called for changes to zoning laws. He said a truly free market would not allow for single family detached homes, and would instead result in many more highrises and townhomes.

But in that scenario, he said, single family homes would be unaffordable even for the super-rich, because developers would be willing to pay even more — in order to put up more highrises. In that sense, Davidoff said, Vancouver's single family home situation is "socialism for the rich."

"Single family zoning throughout the city of Vancouver, not to speak of the suburbs, is a gift to affluent buyers from overseas with a taste for luxury real estate," Davidoff said.

With files from CBC's The Early Edition.