Josh Gordon, an academic at Simon Fraser University in suburban Vancouver, in May 2016 made a sweeping declaration that “puts a lot of the blame for the housing crisis on foreign buyers, and buyers from China in particular.”
He delivered this conclusion in a rudimentary paper built largely on news clippings, the flawed Demographia survey, and his own arguments that money from China had made housing in Vancouver unaffordable for local-wage earners.
The public-policy specialist, who admits he is not a housing expert or an economist, dismisses the role of other factors in the region’s housing-price surge of 2009 to 2018. He shows little interest in analyzing domestic credit growth, the role of lending by banks or alternative mortgage providers, or the impact of quantitative easing in inflating asset prices in major cities around the world.
He supports taxes as a major solution to make housing affordable for two reasons: They discourage foreign investors from entering British Columbia’s real estate market while raising revenues, presumably for the government to build affordable homes for local residents.
Ironically, 74% of BC residents told a recent survey that the deluge of new taxes was adding to the region’s housing and living costs. At the same time, the taxes and new regulations are deterring investors, both local and foreign, from adding supply to meet the housing demand of the province’s growing population.
Since the introduction of the foreign-buyers tax in August 2016 followed by other anti-demand taxes and measures, Metro Vancouver remains mired in its housing-affordability crisis. Meanwhile, the province’s tax revenues from housing transactions have taken a big hit, with 2018 revenues plunging 24.2% to C$55.8 billion (US$41.9 billion) from the previous year.
Jens von Bergmann, a founder of MountainMath, an independent Vancouver company that provides data analysis, has written a critique of the data and methodology that Gordon employs. He concluded his comment by calling Gordon’s paper “a mess” and its thesis that foreign ownership is the main reason for Vancouver’s unaffordable housing as “irresponsible.” Gordon has responded with a lengthy rebuttal.
While both have raised valid points about data and methodology, their dispute risks becoming a narrow academic discussion for ignoring the bigger issue of Gordon’s failure to investigate other factors behind the strength of Vancouver’s housing market. Gordon said he had found a high correlation between rising home prices and foreign ownership.
But as others have noted, correlation does not prove causation, which in this case means it is not conclusive that foreign ownership alone or largely caused the run-up in prices. For a high-volume, high-value market such as housing, a complex myriad of factors is in play, all at the same time.
The surge in Canada’s money supply – a basic building block in the understanding of modern economics – is glaringly not on his radar, as can be seen from his 2016 paper and subsequent public pronouncements. According to Statistics Canada, the country’s M2 money supply measuring the total amount of cash, checking deposits and convertible near-term money in circulation doubled from less than C$900 billion in 2009 to more than C$1.7 trillion by mid-2019.
Along with the world’s major economies, bank lending and money circulation in Canada exploded in the aftermath of the 2008-09 global financial crisis. This was the result of a concerted joint effort by the world’s leading governments and central banks to boost spending to prevent the global economy from collapsing under the weight of the US subprime crisis and that country’s disastrously expensive wars in Iraq and Afghanistan.
A large chunk of that new liquidity went into mortgage lending that ignited a global housing boom, Metro Vancouver included.
Gordon also ignores the impact of the commodities boom on Canada’s resource-heavy economy. Crude-oil prices surged to a record US$145 a barrel in 2008, and stayed above US$100 a barrel through early 2014. Other commodities also rose to record prices during this period.
Some of that wealth generated in Alberta and Canada’s other western provinces would have found their way into Metro Vancouver’s coveted real estate.
There is also a strong case for Gordon to follow up on the Strategic Insights study that C$1 trillion in personal wealth is now being passed on to the next generation. If true, the “biggest inter-generational wealth transfer in Canadian history” easily exceeds the impact of foreign money on the housing market. The Strategic Insights study looks just as, if not more, worthy of a closer examination than Wozny’s data.
The high-tech and LNG sectors are multibillion-dollar industries that are creating high-paying quality jobs while tourism is labor-intensive. All three are putting further pressure on housing demand in Metro Vancouver
In recent years, Metro Vancouver has witnessed the emergence of a high-tech sector and the liquefied-natural-gas industry along with a booming tourism trade that seem to have escaped Gordon’s attention. The high-tech and LNG sectors are multibillion-dollar industries that are creating high-paying quality jobs, while tourism is labor-intensive. All three are putting further pressure on housing demand in Metro Vancouver.
Gordon will have to study these factors exhaustively and many more before he can make the unimpeachable conclusion that foreign capital is the main or sole culprit of the region’s expensive housing.
Perhaps the most intriguing aspect of the Gordon-von Bergmann duel lies not in the merit of their respective arguments, but the media’s coverage. Gordon’s Wozny paper was given prominent coverage by the South China Morning Post and ZeroHedge as well as several local newspapers including the Vancouver Sun, Vancouver Courier and StarVancouver, while von Bergmann’s critical review was not mentioned at all (as of my writing this commentary).
Ian Young, the SCMP’s Vancouver correspondent, gave Gordon’s study the biggest endorsement that included a quote describing its finding as “unimpeachable.” Young’s unqualified support for the study – his story failed to include any opposing views – is consistent with his partisan position in the Vancouver housing debate.
Since his arrival in Vancouver at the start of this decade, he has given plenty of coverage to misbehaving Chinese immigrants, their wealth and its impact on the region’s housing market. Like Gordon, he rarely discusses the other factors driving the housing market despite the SCMP’s pledge to provide balanced reporting according to the principles of “Truth and Fairness.”
Not content with his lengthy puff piece, Young continued to market the Gordon report on Twitter at the same time as attacking its critics, which included a description of von Bergmann’s critique as “insane.”
But instead of inviting skepticism and derision from the public, the media’s lack of objectivity and impartiality has become the new norm in the housing debate.
The threat of Sinophobia
This strikes at the core of Rose Wu’s lament in online Vancouver publication The Tyee that while “my family and I haven’t contributed to the skyrocketing prices … we’ve been lumped together with all Asian-looking people.”
The harsh reality is that the Canadian public is already convinced that foreign capital, especially Chinese, is the source of Metro Vancouver’s housing crisis. The public is not interested in continuing with the discussion. The Chinese-blamers have won.
Over the past year, this guilt-by-association trend for “Asian-looking people” has extended to their alleged involvement in widespread tax evasion by satellite families, casino money-laundering and the opioids crisis.
As if these challenges weren’t enough, Chinese-Canadians must contend with three emerging major trends that will subject the community to further suspicion.
First, Chinese-Canadians, despite their mostly negative sentiments toward Beijing, have the new burden of proving they are not China’s proxy. But not without basis, there are growing fears in Canada’s policymaking and security establishments that some immigrants of Chinese descent are potential conduits of influence and espionage for Beijing.
Second, the public’s conflation of Chinese with China is becoming a public relations nightmare for the community. These days, China’s global image is in free fall on account of human-rights abuses in Xinjiang and Tibet, the riots in Hong Kong and Beijing’s worsening ties with neighboring countries and the West. Canada’s all-time-low bilateral relations with China are still reeling from Huawei-related security issues and diplomatic disputes.
Third, in line with the United States and Europe, anti-immigration xenophobia and populism are on the rise in Canada. Non-white immigrants will have to contend with increasing “go back to your country” sentiments, especially now that the US president has made it all but officially acceptable. Ethnic Chinese will be under pressure to prove their Canadianness.
Rose Wu may not have intended it, but her article speaks to the growing uncertainties for Chinese-Canadians amid the challenges brought on by an increasingly aggressive China, and the emergence of a new and troubling strain of Sinophobia in Canada.
This is the concluding article of a two-part series. To read Part 1, click here.