Two to three years ago, houses in Vancouver and Burnaby were reaching prices that few could afford. In 2017, the average price in Vancouver reached a new high of $1.83 million–an intensification of a trend that has been ongoing for years, often attributed to the effects of foreign investments and money laundering. Now, recent moves by BC’s government have begun to tame the rocketing prices.
In 2016, housing prices spiked due to a few different factors. One reporter’s property in the Burnaby Heights area, had risen to the high price of $1.85 million, being only around $1 million in 2010, according to the homeowner. According to real estate expert David Ley, the number one cause for this rise was foreign buyers.
Investors would come from other countries, buy property, build new houses on that property, and sell the houses for significantly more money. A large portion of these buyers have come from China.
Ley said in an interview that “exodus of capital from China from 2014-2016 impacted a number of housing markets in gateway cities.” Other cities like LA, San Francisco and Singapore have all experienced fluctuation in price from foreign money.
In the 1980’s, Ley says, BC was facing “a declining resource-based economy,” so the government reached out to East Asia for investments. And 30 years later, Vancouver is dealing with the consequences. Immigration also brought in more investment-ready migrants, looking to increase their capital. Ley says that over 25 years, the rise of housing prices and the rise of immigration in Vancouver has been “1 to 1,” implying that the rise in population and wealthy immigration may be directly responsible for the rising prices. These wealthy investors not only have lots of money, they also continue to earn high incomes outside of Canada, so their cash stream to buy property won’t run out.
Another thing coming from foreign countries, is money laundering. It was found that organized crime from outside of Canada reportedly laundered over $5 billion through Vancouver homes stated in a report prepared for B.C.’s attorney general. In fact, it contributed to an over five percent raise in price for homes in B.C. Some real estate agents would “neglect” identification and passports, sources of money were not verified and firms didn’t report suspiciously large amounts of cash being used to buy these properties. This has allowed dirty money to slip right under the radar of authority and FINTRAC, the Financial Transactions and Reports Analysis Centre. This added to the increase of the prices, and still is occuring.
However, in the following year, the government put a rule in place to further complicate the process of buying a home, the “Real Estate Stress Test.” This new policy makes it more difficult for buyers to apply for a mortgage and buy property. Findings by the BCREA, show that without this test, prices would be 10% more than they are now, and the test makes sure buyers would still be able to pay mortgage payments if the rate were to increase suddenly. When this policy came into play in January 2018, there was a 20% drop in new buyers. It also caused the province to lose $500 million in economic activity, although this policy did make the price of homes more affordable.
The recently re-elected Liberal party has said it wants to make homes across Canada more affordable for low income citizens. They state they will undergo reviews or investigations in cities experiencing raising home prices and invest $20 billion towards creating affordable homes, to make buying homes in the future less difficult.
Buying a home is one of the hardest decisions people make in a lifetime. In Vancouver, it’s even harder, but as prices lower and investors settle down, it’s becoming slightly more affordable.
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