What the Metro Vancouver Housing Crisis Reveals
By Stanley Lee
Are you getting tired of how housing is becoming more and more unaffordable in Vancouver and nothing changes about it? Chances are good that you are like many residents, students, and business executives here. That said, in order for real change to happen, we need to understand how it got to this place, let alone how to cope with it.
The Nixon shock
For the majority of human history, wealth is tied into something rare. This includes precious metals (like gold and silver), land, slaves, livestock, resource bearing plants (cedar, fruit trees, etc.). Gold is chosen as the currency for the majority of our history given its portability. With the arrival of fiat currency and its eventual departure to have value tied to gold, the real estate industry started to boom for several reasons: (1) wealthy families looking for more robust ways to store wealth (promoted by top managers like these), (2) budding middle class perceives as there are no viable investments given how innovation has been stalling since the early 1970s, (3) banks granting essentially free money to developers through loans, propping up educational franchises like Trump University, Rich Dad Poor Dad, and all the late night real estate investing infomercials you see.
Canadian Government’s Attitude Towards Attracting Foreign Investment
In order to understand this, you would have to go back to what the Canadian economy is like between the end of the Second World War and 1960s. Factories are popping up left and right in Ontario and Quebec, specifically the Montreal-Toronto-Windsor corridor. Plastics and oil industry is starting to grow in Alberta. New roads, sewers, powerplants, schools, and hospitals were built to improve infrastructure and keep veterans employed. The Trans-Canada Highway, the Saint Lawrence Seaway, and the Trans-Canada pipeline were built within the same period.
However, the catch was a lot of these investments came from America. While these operations provided valuable employment for Canadians and tax revenue for its government, profits from branch plants and resource extraction went to Americans rather than being re-invested in the country, and as a result Canada was losing control over its economy.
In a desperate attempt to hedge its bets, the Canadian government decided to open its gates to more countries for capital investment and immigration. The Expo 67 in Montreal and Expo 86 in Vancouver were cases in point, and they are successful to this effect – so successful that those who are already living in the country are facing greater challenges in shelter, food, and resource supply security.
When the Canadian economy is susceptible to Corporate America’s decisions and boom-and-bust cycles, foreign investors often have few options to invest here other than real estate or shipping Canadian resources back home. And who can blame them? They most likely don’t understand the dynamics of the Canadian market. Heck, Canada in many cases lack the required population for a consistent market. And for the immigrants who come here, they often can only make meager income from minimum wage deadend jobs or serving the diaspora community (which is threatened by the internet).
Oh, and the fertility taking a nose dive doesn’t help either…. It makes the country even more dependent on accepting more immigrants to be misled.
Government Zoning Management (Also “Not-In-My-Backyard” Mindset)
So I’ve explained the reasons behind the exciting the demand for Canadian real estate. The rule-of-law that everyone aspires here also created a protectionist environment (Not-in-my-backyeard, NIMYB for short) towards any changes – such as high-rise development, pipeline development, port expansion.
Their concern is understandable. In the high-rise development case, they are concerned about the influx of new people moving into their neighborhood high-rises also bringing along more crime, congestion, and garbage with them. Who can blame them when government officials and city planners haven’t done an adequate job of calming them? Can’t they just work with the developers to offer tax rebates in order for them to go ahead? I mean, the government already committed this crime with the First Nations. So how come it can’t afford to bribe the protectionists to comply with its agenda?
Speaking of zoning, there is another problem – the kind of apartment units the developers are building. You see, developers make the most amount of money by selling the most number of units. They would have no problem building exclusively 100 sq feet shoebox condos if they can sell them, which would be anyone with the money to buy them around the globe. That said, these units are only suitable for single folks who do not intend to form families. Speaking of which, families need more room than that, and there isn’t enough family-friendly condos, hence the reason why single family housing is becoming more and more expensive. It’s also in the region’s interest to maintain its fertility rate as a hedge against immigration’s results falling short.
Oh…municipal governments dropping the ball on rental housing supply management (specifically through land use bylaws) doesn’t help either…
Alignment of Incentives
Words are empty. The alignment of incentives is the only thing that speaks truth. Let’s face it, campaign contributions from developers and bankers likely have clouded the judgment of elected officials. Banks make most of their profits by approving mortgages and collecting interest payments. Developers make the most amount of money by maximizing the number of units built. The construction industry earns their paychecks only when there is construction, as maintenance doesn’t require that many tradespeople.
Real change involves changing how the incentives are aligned.
Mentalities on Real Estate
Immigrants who came to this country are often stuck in abusive minimum wage jobs after being professionals in their home country, for example, middle managers, doctors, engineers, accountants. They have often sold everything in their home country and buy something more comfortable here when the real estate buying power stretches further here. Sometimes they even stretch themselves financially to buy a more comfortable home for their families, especially if it’s an astronaut one.
Technology and free trade have consolidated a lot of industries, rendering a lot of careers useless. Regardless of the reason, many of these displaced workers never got another well-paying job again. Our education system is producing a lot of young people who can’t seem to get their footing into producing wealth. As a result, their search for prosperity often land them into speculatory schemes, such as multi-level and affiliate marketing of shoddy products and services. One of these schemes involve real estate investing. Some courses teach you how to buy rental properties, which is not bad considering it creates rental supply. Others teach you how to buy a crackhouse, fix it up, and then sell it back to the hot real estate market for capital gains.
When the level of innovation (other than the computer and internet) hasn’t created as much economic opportunity as the period between the end of the Second World War and the early 1970s, our societies would start engaging in speculatory economic activities, such as flipping real estate and stocks for capital gains between the trades. While these behaviors need to be discouraged, we also have a lot of work to do to promote innovation again, specifically addressing intellectual property challenges, reforming the education system, reforming credential recognition, investing in new economic ecosystems.
How to Cope
Sharing With Family
There is a reason why young people are moving out of their parents’ home later than ever before. This is one of the only available options to save money on rent, often at the expense of being mobile to take advantage of economic opportunity.
Couchsurfing With Friends
A lot of the silent homeless do that, often at the risk of their friends getting kicked out by their landlords. This is a decent option if you want to explore your international horizons while you’re couchsurfing. The drawback is that you may not be well-rested enough to be productive for survival.
Instead of complaining about how inaccessible it is to live in this place, perhaps we should take this as a sign that it’s over-crowded. Housing is inaccessible whether you rent or buy, especially with the kind of employment opportunities here. Even if you get to find a corner to sleep in, your health is going to take another hit with the traffic gridlock. Young families who can’t afford to pay the price of living in the most desirable place to live in Canada are understandably moving to more affordable postures, like Calgary, Edmonton, Regina, and Winnipeg. I don’t think the overcrowded communities would miss those who decide to leave.
Making Money While Keeping Mobility
Being able to make good money these days involve being able to move to accessibly prosperous places at a given notice – especially given how precarious the economy is today. When the borders start disappearing and the promotion of free trade, it’s a no brainer of why industries like consulting, ecommerce, online entertainment, and information publishing are thriving. You can operate these from anywhere with reliable electricity and internet connection. Communities actually do have to compete for these top producers who can live anywhere to stretch their income’s standard of living.
Where Do We Have To Go From Here For Vancouver?
Citizens and politicians from all levels have to ask themselves what they want Vancouver to be known as to the world. It already has a reputation of being an expensive resort town which isn’t even that friendly to raising a family anymore.
The elites can afford to live anywhere, and the mild climate and nature here is definitely attractive on top of the friendly immigration and foreign investment policies. Low income residents likely can’t afford to uproot to a different location, nor are they likely to receive government help from doing so. Middle class families are either moving to the interior or out of the province entirely.
However, if no action is taken, low income households becoming homeless would lead to the region taking a hit on its livability reputation, if the society even cares about this. Also, the lack of local employment supply for certain service industry jobs threatens certain restaurants to close up shop, shrinking the desperately-needed economic opportunities further. Affordable housing for these low income households and workers who have to reside in the region make sense from a reputational, humanitarian, and economical point of view.
In terms of AirBnB and speculation crackdowns, communities need to work with politicians of all levels (difficult to do given the different ideological loyalties) to accurately target the behaviors. This involves setting the proper metrics, detection, reporting, and enforcements mechanisms, as well as proper funding for the job to be done properly. Creating patch-work legislation in the final hour doesn’t help, and creates a whole lot of other unintentional problems.
Given its geography, Vancouver is already known as an expensive resort town. The question is whether the society is willing to take the time to understand the root of the problems, the courage to define whether they are satisfied with its current reputation or desire further (like being able to establish as a key trading port and innovation center), and sacrifices to change course (for example, converting more parks and farmland into housing, less laissez-faire construction activity, retraining excess construction labor into doing something else, and working with different levels of government with different ideological loyalties).