A new research paper provides what is arguably the most precise data yet pointing to an impact of foreign money, but can’t account for the extent to which real-estate prices have increased in recent years

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A forthcoming study of Vancouver real estate provides clear evidence that foreign money does impact home prices. However, the effect may be far less significant than many believe.

SFU’s Andrey Pavlov and UBC’s Tsur Somerville examined how prices changed in neighbourhoods favoured by Chinese immigrants during a three-month period following the July 2012 closure of the federal immigrant investors program (IIP).

From 1986 to its termination in 2014, the IIP served as an express lane for wealthy immigrants, allowing them to move to Canada in exchange for a five-year loan to the federal government of $800,000. An estimated 120,000 people used the IIP to relocate to British Columbia, according to one calculation by the South China Morning Post.

Pavlov and Somerville found that when the program was closed to new applicants in 2012, property prices in neighbourhoods preferred by Chinese immigrants declined by an average of 2.5 percent relative to non-Chinese neighbourhoods. (Such areas were identified with data from the 2011 census.)

According to the Real Estate Board of Great Vancouver (REBGV), over the past three years, the benchmark price for all residential properties in the region it describes as Greater Vancouver increased by 48.3 percent.

In a telephone interview, Pavlov, a professor of finance who specializes in real estate, said that although it is generally assumed that foreign money is driving Vancouver markets, there’s little data that definitely proves that’s the case.

“The whole study is trying to answer the question, is there any effect that we can measure, or not?” he told the Straight. “The answer is, overwhelmingly, yes, absolutely, there is an effect.”

However, while the research paper provides what is arguably the most precise data yet pointing to an impact of foreign buyers, it does not show that foreign money accounts for the extent to which prices have increased through 2015 and 2016.

Pavlov described the 2.5-percent figure as a “lower bound” estimate and acknowledged that the immigrant-investors program is only one source of foreign money. But he noted even a multiple of 2.5 percent still leaves a large divide between that number and the 50-percent change in prices the region has experienced over the past three years.

“Maybe it wasn’t 2.5 percent,” he said. “Maybe it was five, maybe it was even 10 percent. That’s still a lot lower than the 30 or 50 percent we’ve seen.

“There are many other factors that are contributing to this market,” Pavlov continued. “It is not just foreign investors. The big point here is [that] it is not just the Chinese. Yes, our paper finds that the suspension of the [investors] program had an impact; therefore, foreign investors in general have an impact on the market in Vancouver. But that is not the only explanation. Of course it is not.”

The study also found that although the closure of the IIP had a quantifiable effect on neighbourhoods where Chinese immigrants settled, the elimination of this source of foreign capital had little impact on the region’s real-estate market as a whole.

Pavlov listed a number of other factors he suggested are contributing to Metro Vancouver’s hot market. He said those forces include low mortgage rates, low property taxes, burdensome development-permit processes, and infrastructure shortcomings that slow the construction of housing throughout the larger region. He also did not discount the impact of foreign money, stating that it certainly has an effect, though exactly how great remains unknown. (On June 15, the Straight reported that speculative buyers also likely have an increasingly strong hand in the Vancouver market.)

The paper is still a work in progress but near completion. Pavlov said it will likely be sent to academic journals for publication next month.

Its findings are sure to prompt debate, given it’s a widespread assumption that foreign money is playing a significant role in Metro Vancouver real estate.

There are studies that suggest many homes are being sold to foreign buyers or immigrants new to Canada, though most of that data pertains to homes on the high end of the market. For example, a November 2015 study by UBC’s Andy Yan found that two-thirds of properties worth more than $1.25 million in three West Side neighbourhoods sold during one six-month period went to buyers with non-Anglicized Chinese names.

However, there is also research that suggests the impact of foreign money is less significant than has come to be commonly assumed.

A March 2016 study commissioned by the City of Vancouver found that single-family and duplex homes have a vacancy rate of just one percent, suggesting that foreigners living abroad are not buying homes and leaving them empty, as some reports have suggested.

There’s also a May 2015 briefing note drafted by the B.C. Ministry of Finance that states: “foreign buyers likely make up less than five percent of home sales activity in Greater Vancouver”. It cites an estimate supplied by the B.C. Real Estate Association.

The Straight has repeatedly reported on REBGV surveys that found agents reported less than five percent of sales involved foreign buyers.

All four of those studies have been criticized for imperfect methodology.

On June 8, Finance Minister Bill Morneau said the federal government was conducting its own research into Canada’s housing markets. “We’re making sure that we have a deep dive into the information to ensure that any considerations we have for change are evidence-based,” he said.

Today (June 17), Prime Minister Justin Trudeau is in Vancouver attending a roundtable on housing affordability, one where the Globe and Mail has reported that the issue of foreign money is being discussed.