Foreign Investors Not the Driving Force Behind Price Growth in Vancouver

Foreign investors take a lot of flack in Vancouver and are generally blamed for the rise in home prices in recent years. The unease is completely understandable as the average single-detached home in the Greater Vancouver Area now costs $1.1 million dollars. Within the City of Vancouver itself, the average single-detached house ranges in price from $1.1 million in Vancouver East to $2.6 million in Vancouver West (areas defined by the Greater Vancouver Real Estate Board). Using year-to-date sales as a weight, the average single-detached home across the city of Vancouver now costs upwards of $1.86 million.

While it may be easy to blame foreign investors, the data simply don’t support the assertion that they are the main driving force behind price growth in the Vancouver market. Rather, it appears to largely be a home-grown issue – we have fewer single-detached homes now than we did in 2001.

Summary

• The average single-detached home in the city of Vancouver now sits at $1.86 million, almost 150% more than the average price just ten years ago
• The city of Vancouver has lost almost two out of every five single-detached homes that existed in 2001!
• These aren’t all being torn down for larger homes though, as the net change in housing stock is still a 27% decline in single-detached homes, meaning that most of these are being replaced with other housing types
• Vancouver is currently rezoning some of its major corridors for higher density development, such as Cambie street. This puts upward price pressure on the homes in those corridors
• With this in mind, falling supply and re-zoning, rather than rising foreign demand, are likely the main drivers of price growth in the Vancouver market.

Home Prices in Vancouver

First of all, we need to be specific when we talk about housing prices in Vancouver. The headline number of $1.1 million for an average single-detached home is catchy, but it glosses over too much:

• This number includes all of the Greater Vancouver Area, within which prices range from $370,000 to $2.6 million;
• Price growth has been largely concentrated in the city of Vancouver, especially for single detached homes. Apartments, for example, have risen by notably less compared to single-detached houses. This diversion began to emerge in 2010.

Falling Supply of Single-Detached Homes Driving Price Growth

A careful examination of available data shows important trends in new housing development within Vancouver, stemming from the lack of available land for single-family development. The graph below is a solid visualization of the effect of being land-locked:

• Over the 2001-2011 period, the city of Vancouver saw a net decline of 27% in the number of single-family homes
• Semi-detached homes (think duplexes) have risen by just 2% over that same time frame
• Multi-family developments (townhouses and apartments) have grown more substantially and have accounted for essentially all of the growth in Vancouver’s housing stock

At this point, it is basic economics. With increasing population and falling supply, price increases are unavoidable.

Mildly Depressing Conclusion

If you buy the above argument, then you are stuck with the logical conclusion that the issue will only become more acute. As we have argued in the past, dealing with the realities of affordable housing in Vancouver requires a fundamental change in how we view and discuss the problem.