A City of Empty Towers What Seattle Can Learn from Vancouver's Real-Estate Crisis

Amos Latteier, a tech worker in Vancouver, British Columbia, is talking about what everyone in Vancouver can't stop talking about: the city's skyrocketing property values and its seemingly endless construction boom, where one luxury condo after another has been built, is being built, will be built.

It is a story that should now sound familiar to Seattleites.

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"All property holders in Vancouver literally won the lottery," Latteier says, sitting in a restaurant called Havana, with decor meant to reproduce the four-decade-long architectural decay that defines the Cuban capital. "This has created a huge divide between property owners and renters."

I've known Latteier since 1995. In 2010, he designed the excellent iPad app The Strange & Wonderful World of Ants, which had moderate sales and received very good reviews (four out of four stars by USA Today).

"I missed making my million," Latteier says. "I just did. I go to parties and I can see people looking at me and saying: 'He missed making a million.'"

He moved to Vancouver from Montreal nearly a year ago but is still in a state of shock about the situation. He did not think it would be so bad. But it's worse than he could have imagined.

"That chasm [between renters and property owners] is not one you can cross by working a lot, even at a very well-paying job," he says.

His wife is a landscape architect; in any other time and place, they would have had it all. But now they are in the same boat as anyone who does not have a million or two in the bank or some offshore account.

"It's not just that you are locked out of the middle class, but it turns out that being a renter sucks in Vancouver," Latteier says. "There are few renters' rights. Evictions are common, and there is very little social awareness that this is a problem. I've had multiple property owners tell me that it's not bad to be evicted: 'Hey, change is good.'"

Latteier describes the general mentality of Vancouver's landowners as that of resource extractors. They may be fine with paying extra money for fair-trade products in the grocery, but they are totally cold when it comes to the lives of their renters and making big deals on their properties. They want to get paid as much as possible and as soon as possible. And what's of little or no consequence is how their rapacity might affect the city or the people who live in it.

Across the border in Seattle, tech workers are often seen as the enemy. (They are making Seattle so expensive! They have too much money! They come from California!) In Vancouver, they are lumped in with the proletariat, and are even leaving the city for places like Victoria, BC.

According to the Globe and Mail, the cost of a typical detached home in Greater Vancouver in June of this year was $1.56 million in Canadian dollars (about $1.2 million US; the average cost in King County is a little more than half that). A year before, a detached home cost C$1.1 million. That's a nearly 40 percent rise in a single year.

This has caused Vancouver to lose its young people; Bloomberg reported that those between 18 and 44 are leaving the city in droves.

"Tech workers can make a lot of money," explains Latteier. "Especially for a kid only a couple years out of university, you can make more than $100,000 a year in the US. That's a lot for a single young man (and they are mostly men). But in Silicon Valley, you can easily spend $30,000 a year on rent. Not sure what it's like in Seattle. In Vancouver, tech wages are much, much lower."

According to a report by the Ministry of Technology, Innovation & Citizens' Services, the average pay for tech workers in Vancouver is around C$73,000 (US$55,256). John Shinal, USA Today's technology columnist, puts Seattle's average tech salary at US$108,350.

Vancouver's typical home cost places it well out of the reach of most tech workers, not to mention average Joes.

According to Andy Yan, an urban planner who teaches at the University of British Columbia, who has been receiving attention in the BBC, the New Yorker, and the Globe and Mail for his research into Vancouver's foreign ownership, says that despite the lower wages, the city has a real-estate market that is as expensive as the Bay Area's. "It's like Reno and San Fran in the same city," Yan says. Airbnb rentals are also making the situation worse by taking much-needed units out of the rental market.

But how did the property market get so bad? Local market urbanists like Roger Valdez, the director of Smart Growth Seattle, and real-estate developers often place the blame on a lack of supply. Like San Francisco, the city is not building enough homes and apartments to meet demand. If the market becomes less restricted by rezoning certain sections of the city, it could meet this demand, prices would fall, and everyone (developers, the rich, the workers) would be happy.

The supply-and-demand model seems so reasonable, so logical, so rational. But the forces at work in Vancouver seem anything but that. Something totally insane and even monstrous is happening in this city.

In 2005, according to Yan's research, around the time Vancouver's housing market started heating up, just 19 percent of single-family homes were worth C$1 million or more in Greater Vancouver. Ten years later, 91 percent of single-family homes are worth more than that.

Yan's research shows Vancouver's real-estate market has growth rates far beyond what is normal.

"We can talk about supply and demand. Fine, but we need to also ask: What kind of demand is going on?" explains Yan. "Is it your regular kind of demand in Vancouver?" he says, meaning a low supply of houses and apartments in a city that has lots of potential buyers and renters. "I don't think it is. We are dealing with another kind of demand. A demand that's not making things clear but distorting the marketplace."

Yan and I are at a dinner party held by Lindsay Brown, a designer, historian, and urban activist who I follow on Twitter. Her house is a renovated church near Chinatown. It's in a neighborhood that was once popular with artists and working-class types.

Brown bought the place years ago for a song. I'm now too scared to ask her how much it's worth. But as I sit at the table looking at the huge living room, she reads my thoughts and says: "My place has quadrupled in value since I bought it in mid-2002."

Brown is good friends with Yan, a third-generation Chinese Canadian. In Yan's small study of recent home purchases in a handful of wealthy neighborhoods, he found that more than two-thirds of buyers had non-Anglicized Chinese names, indicating that they could be new immigrants.

"Vancouver has always been a city of immigrants. That is not new. What is new is the wealth of the immigrants. It's huge and not really associated with local economic activity," he says. "Also what is new is a lot of money is entering the city without people. This has caused many problems. For example, a set of condominiums I recently studied were found to be 50 to 60 percent unoccupied. No one lives in them. They are just investor-owned."

Indeed, two weeks before, when Brown and I had lunch on the patio of a downtown hotel, we noticed that the street was empty but for one car—a roaring and going-nowhere-fast black Maserati. The condos on the street appeared to be empty. The sun was setting, and no lights appeared to be visible in any of the hundreds of units.

Yan's research on empty condos used electric bills; another study that was conducted by the City of Vancouver in 2014 and used data from water bills found nearly 11,000 homes in the city are vacant (90 percent of which were condos). These are places occupied only by money.

The world is drowning in cash. Much of this surplus capital is coming via Wall Street, or directly from China, or Central and South America, which is fueling Miami's luxury condo boom.

"The Shaughnessy is one of the most expensive neighborhoods in Vancouver," says Kerry Gold, another guest at the dinner party and one of the most important commentators on the real-estate crisis in Vancouver. (Cary Moon, the founder of the People's Waterfront Coalition, is also in attendance.)

"But the income declared for tax purposes is actually around the poverty level. So here you have a neighborhood with properties valued at $10 million or $15 million and you also have, according to taxes, one of the poorest neighborhoods on paper," Gold says.

The income of the rich owners is not even on paper. The situation is so deregulated that the government can only claim taxes from home sales but not from the actual wealth of the buyers. The poor, the working class, the tech workers, however, are the ones paying taxes on their wages.

"The government is not even looking into the data. It doesn't want to know where the money is coming from," Gold says. "It just wants to get the money up front, by home sales and also selling public land, and balance the budget."

There's nothing really exceptional about the economic structure and developments of Vancouver, BC. Like all cities in the US, it underwent deindustrialization in the 1970s and 1980s; like all American cities, it turned to real-estate investments to revive its dying economy. And large-scale revitalization projects appeared in its core.

Eventually, forms of social housing were destroyed, and poor and working-class people were displaced, and the city became more and more dependent on the revenues generated by rising property values to fill budget gaps. Lastly, gentrification became big business and whole neighborhoods were transformed seemingly overnight. This pattern is so common that its result has a name: the neoliberal city. (Jason Hackworth's The Neoliberal City: Governance, Ideology, and Development in American Urbanism says that neoliberal simply means a devotion to private ownership and a resistance to government policies that do not promote this kind of ownership.)

Seattle is also a neoliberal city—which is defined by the globalization of labor, the rise of Wall Street over Main Street, and the displacement of the poor (by demolition or gentrification).

Although Seattle has an industrial sector that's not dead, it is in decline. According to Puget Sound Business Journal, federal data showed that Seattle suffered a 21 percent drop in manufacturing jobs between 2000 and 2010.

The city relied on huge property developments to revitalize our business district. Pacific Place is a classic example of this sort of revitalization. Completed in 1998, the project drew investments from the private sector because the city basically paid for its massive and very expensive—$73 million—parking garage. As KIRO recently reported, the city is now selling this parking space to the current owners of the mall, Madison Marquette, for $87 million. It was and still is a money loser.

Since the 1990s, gentrification has transformed the Central District from a poor black neighborhood with low property values into a middle-class white one with ever-increasing property values, culminating with Paul Allen's purchase this year of what used to be the downtown of Seattle's former black community, the Promenade 23 shopping center.

Gentrification is about speculation, investment banks, and property booms. Remove speculation, and gentrification becomes a very mild and almost charming affair.

Like Vancouver, Seattle has no capital controls, so money can enter or exit its markets easily. For example, Cory Doctorow, a Canadian-British blogger and science fiction novelist recently predicted on Boing Boing that Brexit could have an impact on Seattle's real estate market. According to Doctorow, for three decades, London has been very popular with investors looking for a place to store surplus cash. Because it is (or was) one of the major financial centers of the world and it looked safe (politically, economically, culturally).

Those two things are now in doubt with Brexit—the UK is leaving the EU. And property values in London have begun to fall, and a property-market crash will send shock waves around the world's major real-estate markets. "If you live in Vancouver, New York, LA, or Seattle," writes Doctorow, "get ready for an all-out assault on your housing stock!"

Local economist Alan Harvey, the executive director of IDEAeconomics, a website that promotes post-Keynesian views (government spending is not all bad, high wages are good, private debt is too huge, markets are not perfect or that efficient, and so on), explained that in the past, the value of a commercial property in downtown Seattle was "the capitalized value of the stream of rents from that property."

Occupancy rates (content) mattered. Now commercial properties are not selling content and value but merely value. They are selling a "projected increase in price." This is Wall Street at its purest.

"My speculation is that this has been caused by people looking to move their money into the US," he says, citing a source who works with the CBRE Group, which bills itself as the "world's largest commercial real-estate services and investment firm." Harvey's source confirmed that global surplus capital is behind this transition. "It's much more lucrative to build or buy with the hope of selling at an inflated value rather than actual revenue," explained Harvey.

Vancouver is not unique. It is only exceptional in the speed at which it has been transformed. Vancouver is the neoliberal city we are all structured to become.

What is the solution? How can Seattle avoid the same fate? Kerry Gold recommends muscular regulation by the government of the real-estate market. She says that Christy Clark, the premier of British Columbia, has, though belatedly, begun moving in this direction. Clark and Vancouver mayor Gregor Robertson, recently proposed taxing vacant apartments. And in late July, she surprised everyone by imposing a 15 percent tax on foreign home-buyers (the tax does not apply to immigrant residents).

Lastly, Gold thinks there should be much higher taxes on international capital flows, transactions, and events—a recommendation most likely to be efficacious. Without capital controls, all is lost in our globalized world. Why? Because if capital can go where it pleases, leave when it pleases, it can and will evade democratic accountability.

At brunch at Havana, Amos Latteier tells me that his apartment building is being sold. "I haven't met the new owners yet, but it seems likely that they are going to evict us, though probably not immediately," he says.

A few minutes later, I'm in a cab heading back to my hotel. My driver, a Steve something, excitedly explains that he has a piece of land right by the Georgia Viaduct. It's a 25-foot-wide plot just off a main street. And it's across from a fire hall. These, in his money-mad mind, are amenities. He wants three million for the plot. But he fears he will only get a million. He is also upset about the "socialist government" intervening and changing things before his dream comes true. He needs the money so badly. This is the only game in town. It's now or never. He says all of this as he turns this way and that, in the maze of condo towers.