Yes, it is different this time. As Metro Vancouver’s housing prices surged to yet another record high, the public’s response stood in stark contrast to what it was a few years ago.
During the housing boom – or crisis – of the 2010s, politicians and opinion-makers angrily accused foreign investors of killing affordability in the region.
The outrage against the supposed foreign invasion, led by newspaper columnists being mistaken for real-estate experts, created a new type of populism. Politicians were quickly on the bandwagon as they campaigned to crack down on the so-called “toxic demand” emanating from out of Asia, notably China.
These days, the public is just as anxious, but the anti-foreign anger over Metro Vancouver’s housing problems seems less explosive. More people are waking up to the far bigger threat of increased domestic money supply and low interest rates that have been driving the housing market for more than a decade.
Some have just discovered the modern-day alchemy called quantitative easing (QE) where central bankers mysteriously create money out of thin air. (Yes, it can be done.)
Josh Gordon, a Simon Fraser University academic who became famous for his strident blaming of Chinese buying, is finally showing signs of acknowledging monetary policy. Another veteran anti-foreign-capital campaigner, Raymond Wong of Housing Action for Local Taxpayers (HALT), recently discovered QE and can’t stop tweeting about it.
Between 2009 and 2014, the US Federal Reserve System, in effect America’s central bank, led other countries to launch three rounds of QE to fight the global financial crisis that began in 2008. Together, they unleashed trillions of dollars into the world economy so that it would not collapse under the combined weight of the US subprime banking crisis and the humongous costs of former president George W Bush’s two disastrous wars in Iraq (2003) and Afghanistan (2001).
The high priests of finance continue to conduct extreme monetary experiments on an unsuspecting public that even most Canadian politicians still do not comprehend.
Equally blindsided, the Canadian media have failed to explain to the public that billions of dollars, mostly leveraged from within the country, have poured, and continue to pour, into the hot housing markets of Metro Vancouver, Greater Toronto, and other major cities.
The Bank of Canada did not participate in the initial QE exercises, but it oversaw the doubling of the country’s domestic money supply between 2009 and 2019.
I first mentioned the impact of QE and money supply on housing prices on my blog in October 2015. I e-mailed my article to David Eby and Professor Gordon, as well as mentioning QE in conversation with David Ley, a University of British Columbia academic who studied the migration of Asian people into Vancouver. Eby, British Columbia’s housing minister and attorney general in the New Democratic Party provincial government, was then the housing critic when the party was in opposition.
Astonishingly, these three influential people dismissed QE’s relevance to the Vancouver housing market despite it being the most important monetary event of this century.
More than a decade of ultra-loose monetary policy has led to the inflation of stock and real-estate values in major cities around the world. But wages or labor costs hardly budged as businesses held back investments as companies chose to hoard their surplus cash and buy back stocks, to the delight of shareholders.
The early QE experiment was deemed a success as governments claimed credit for saving the global economy while keeping inflation low. For those who realized what the central banks were doing, QE was manna from heaven, which explains the huge widening of the wealth gap between the elite and the rest over the course of the 2010s.
The convenience of scapegoating Chinese
When people in Metro Vancouver started feeling the pain (or pleasure) of rising housing prices, the focus immediately fell on foreign buyers, especially Chinese people.
The 2010s coincided with China’s growing assertiveness under President Xi Jinping, and the increasing presence of “Asian-looking” people in Metro Vancouver that included old-stock Chinese-Canadians as well as the rising number of students, businesspeople, new immigrants, and affluent travelers from across the Pacific.
The conditions for scapegoating were set. They were further enhanced by dubious research and flawed studies that purported to “prove” that Chinese investors were buying up Metro Vancouver’s limited housing supply. The media heaped more misery on Vancouverites with regular false stories that they had the world’s second least affordable housing, a ranking derived from Demographia’s limited survey of eight countries.
People were soon led to the “obvious” conclusion that “foreigners” had cornered the housing market at the expense of “hard-working local wage earners.” Politicians joined in the scapegoating as it enabled them to evade responsibility for the region’s housing problems, widening income disparity, and rising living costs.
While foreign demand certainly contributed to Metro Vancouver’s rising housing costs, the mainstream media and academia failed to investigate a host of other factors that were also in play.
Since last year, I have tweeted out at least 16 other factors that have driven the region’s housing markets over the past decade. I have compiled them into the list below, in no order of importance.
Vancouver’s housing boom – or crisis
Factors ignored or downplayed by those scapegoating Chinese buyers:
- More than a decade of strong economic growth
- Record lending by banks and alternative mortgage providers
- Historically low interest rates
- Doubling of Canadian money supply between 2009 and 2019
- Quantitative easing’s impact on hard asset prices
- Real estate investment trusts (REITs)
- The commodities boom, including oil at US$100 a barrel or more from 2008 to 2014
- Metro Vancouver’s population boom
- The surge in technology and LNG investments, 2010 to 2018
- The tourism boom and record arrivals 2008 to 2019
- Airbnb, 2015 to 2019
- Intergenerational wealth transfer
- Government regulations and red tape blocking and delaying housing supply
- Millennial household formation (that is, non-population-growth household growth)
- Pre-boomer seniors living in their houses
- Limited supply of developable land in Metro Vancouver
Given the precarious state of the Covid-scarred global economy, most major countries will likely continue with their policies of suppressing interest rates and boosting money supply. Governments everywhere, including in Canada, are bankrupt of ideas and money. They are counting on their housing markets to stay strong and remain a source of growth for their heavily indebted economies.
Whether they succeed or not with more QE is another matter.
The world’s geopolitical and economic conditions today are far worse than they were a decade ago. So, yes, it already is different this time.
Vancouver-based Ng Weng Hoong has been writing about political, economic and energy issues in Asia and the Middle East for more than three decades.