Following the release of my article “The Decline of Vancouver”, I was inundated with an outpouring of encouraging messages. I hit a nerve in the city, it seems. Many Vancouverites feel disenfranchised, unrepresented, and powerless. The grievance is real and remarkably consistent – from working class couples to even high earning young professionals, those without property to call their own are getting pushed out of the housing market at a staggering pace.



This is, however, in many ways a tale of two cities. It is the best of times, it is the worst of times. The words of Dickens in his in epochal work seem incredibly relevant. For every non-homeowner complaining of breakneck property appreciation, there are as many homeowners who became, and continue to become, millionaires in a matter of a few years. New homeowners don’t want the gold rush to end, and those permanently priced out of the market inevitably leave the city and the voter base.

This is the crux of the problem, really. For all the talk by politicians that housing affordability is a priority, their foot dragging and punting is not a result of a lack of available policy measures, but rather voter and political will.

Frustratingly, politicians are afraid to address foreign ownership and hide behind self-imposed ignorance to allay criticism. They will readily admit that housing affordability is a problem but will dodge any deeper discussion on root causes with rehearsed talking points about how we need to collect more data – the same talking points we have now heard for years and for which an request for (contractor) proposals was only just released.

Despite political silence on the issue, there are strong reasons to believe millionaire migrants and investors are pushing up property prices. (1) The unprecedented wave of millionaire migrants has injected conservatively $60 billion of capital in Vancouver’s real estate market* (2) Many new developments and properties are exclusively marketed to foreigners. (3) Peer-reviewed academic papers have determined a strong relationship between Vancouver property prices and foreign economics. (4) Vancouver’s property prices paradoxically rise in bad economic times due to a weaker Canadian dollar. (5) The world’s largest asset manager advises its clients to invest in Vancouver as a store of wealth. The list goes on, but much like the case with global warming, biased interest groups continue to demand an unrealistic burden of proof before even considering policy to counter foreign ownership. We can debate the magnitude of foreign influence, but to dismiss it categorically is at best ignorant and at worse cowardly and intellectually dishonest.

It is a problem of short-term vs long-term thinking. In the short term, growing property prices inflate GDP figures, pad the coffers of property owners, and increase tax revenue. In the long term, Vancouver will lose its greatest asset: talented people with economic, personal, and emotional ties to this city. It’s simply a question of what type of city we want to have: a city like Miami, a physical bank account and playground for the world’s wealthy; or a city like San Francisco, a vibrant global center for innovation and culture.

Both cities are expensive. The point is that there is nothing right or wrong with high real estate prices. There is something wrong when residents who work in and contribute to a city are priced out by foreigners who have no meaningful economic ties to it.

Because of political refusal to discuss root causes of our unaffordability problem, proposed solutions to counter it are short term band-aids that do little to nothing to address systemic problems. For instance, the city has discussed subsidized housing and legislation to encourage more apartments to increase the supply of rental units. While the intent is noble, similar programs in other cities have shown this would actually exacerbate the housing gap in the long term by effectively reducing the supply of housing available for purchase and creating disincentives for homeownership by lower and middle income residents.

For many people, property ownership is the greatest opportunity for wealth generation in their lifetime and any programs discouraging it will actually make people poorer in the long term. In addition, subsidized housing furthers the incestuous relationship between developers and politicians, advancing opportunities for crony capitalism and corruption. It is not a government’s job to build us apartments; it is their job to create legal and policy frameworks that incentivize private markets to act fairly, rationally, and efficiently. We have elected policy makers, not property developers.

So what can be done? I propose that any meaningful policy solutions must be rooted in three principles if Vancouver’s housing market is to ever again become rationally rooted in domestic economics. (1) Accept foreign ownership is at least a material factor in housing unaffordability, (2) Favor first time and resident-class (vs. investor class) home buyers, and (3) Establish progressive taxation policy that favors lower and middle class homeowners.

The first point is really an optics point. A doctor who prescribes insulin to an obese diabetic without also encouraging proper diet and exercise is a bad doctor. In turn, a politician who is unwilling to diagnose root causes of our housing crisis is frankly a bad, if not dangerous, policy maker.

Several policy measures can support the second point. The most obvious is to tax foreign ownership federally and encourage skills-based vs. wealth-based immigration. Even without a full stop end to millionaire migration, things can still be done at a more local level. For instance, with cooperation from provincial utilities, the city can tax empty condominiums and homes by using power usage data to determine occupancy.

Two proposals that would support the third point include increasing both the property transfer tax (PTT) and annual property tax rate on properties greater than $2 million. These two policies would have a threefold positive effect for the city. First they would increase the supply of properties under $2 million. Second they would disincentive luxury investment ownership while encouraging residency. And third, they would generate additional revenues that could reduce or eliminate the need for taxes elsewhere to fund things like transit.

No one loves taxes, however, property taxes are incredibly efficient and progressive. Consider what this 2014 paper on Property Tax Reform from the University of Toronto has to say.

Economists consider taxes on immovable property good taxes, especially for local governments, for a number of reasons. It is difficult to evade the tax because property is immovable: the tax base cannot shift location in response to the tax and it cannot be hidden. In addition, the property tax is considered to be efficient because it distorts the allocation of resources less than other taxes. Since changes in property taxes are, to a large extent, capitalized into property values their impact on economic behaviour is likely to be smaller than other taxes such as income and sales taxes. 1 Where property taxes are levied largely by local governments they promote local autonomy and accountability owing to the connection between many of the services provided at the local level (for example, schools, roads, transit, parks) and property values. When local property taxes finance local services, public sector decisions will tend to be more efficient because taxpayers will presumably support those activities for which the benefits received exceed the taxes. Property values will increase to the (usually significant) extent that benefits and taxes are capitalized into property values (Fischel 2001).2 Residential property taxes are especially appropriate to fund local government spending because they are largely borne by local residents who use local services.3

In many ways the damage is already done. Tens of thousands of millionaire migrants and foreign investors have injected billions of dollars into Vancouver’s real esate market – money that will circulate and cascade from homes to townhomes to condos and continue to buoy property prices for years to come. We can’t change the past, but we can stop the bleeding.

Perhaps the most frustrating thing about this issue is that it is not one rooted in ideology. Regardless of where you lie on the political spectrum, foreign distortion of domestic markets is malignant. For the left, the problem is rooted in unaffordability, and for the right it is rooted in market distortion the likes of which even Milton Friedman would object to.

In my time doing policy work at McKinsey & Company I observed how even in relatively politically functional place like Canada, safe solutions and short-term thinking too often interfere with the right solution. A mix of special interests, populism, and jurisdictional politicking make it difficult to move the needle on any policy. What we need now more than ever is courage from our leaders. The courage to publicly recognize there is a problem, the courage to make unpopular decisions, and the courage to put the long-term prosperity of a city ahead of self-interest.

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End Note: If you are wondering what you can do to support housing affordability in this city, consider attending the Housing Affordability Rally on May 24.



*Based on 30,000 millionaire migrants from Mainland China alone (government figure) and estimated $2 million average value of property owned per migrant. Actual figure likely higher when including migrants from other countries.

