In my introductory post on 'Life in Lotusland' the theme was appreciation of our choice to live in our region. In this post, I would like to discuss some of the key milestones or watershed events that I think have contributed to transforming our region from 'The Village of Vancouver'* to its emergence as one of the top places in the world to live along with the challenges of housing affordability. Many will want to debate the outcomes of these events but my intent is simply to document what did happen and its subsequent impact on our region’s real estate markets.
Back in April 17, 1973, after much controversy, amendments and protest (primarily from farmers who owned land near urban centre’s hoping to cash in on future re-zoning), our provincial government at the time enacted a piece of legislation called the Land Commission Act and by extension the Agricultural Land Reserve (ALR). This Act effectively served to protect valuable productive agricultural land that could be threatened by urbanization and land development. It was a piece of legislation that strived to strike the balance between growth and sustainability. While the ALR was province wide it did shape our region’s future development and will continue to do so.
I think one of the ALR’s biggest impacts has been not only the intended conservation of valuable farmland but it has also served to limit the urban sprawl effect we see in so many major North American metropolitan areas. While we do have our share of “subdivisions”, the intensity has been muted because the redevelopment of land in our region to highest and best use has been shaped with the ALR in mind. The obvious outcome of the ALR has been to limit the land supply for development but it has also served to help shape our region along the lines of rapid transit oriented growth and has allowed us to keep our local food supply offerings intact. Consequently, our region has developed around transit hubs and densified regional town centres which is viewed by most urban planners in North America as one of the key features of our Region’s livability.
For me, the event that saw the rise of Lotusland in getting the world’s attention, was our decision to host Expo 1986. Expo 86 in terms of the numbers of attendees (estimated at 22,111,578) and the promotion of our region to the world was a success.
Having grown up in Vancouver, the rezoning and sale of the Expo lands in preparation of the World Exposition stand out as the seminal moment when those of us who lived here knew things had changed forever. From a real estate perspective, the years following Expo 1986 have marked the beginning of the long-term climb of our real estate prices.
The next big event which impacted Lotusland's real estate market was the handover of Hong Kong from British oversight to Communist Party Rule by mainland China in 1997. The people of Hong Kong having lived under a democracy were concerned about the hand over. This led many, prior to 1997, to relocate or buy some real estate as a safe haven investment in our region. Lotusland had become, and continues to be, a desired destination for many people from the Pacific Rim region.
2001 saw the election of the BC Liberals in the province and the introduction of a platform of significant personal tax reduction and stimulative tax and regulatory policy. These provincial policy decisions happened to coincide with macro level events such as, declining mortgage interest rates and a bull market in commodities. This combination of events strenghtened our region’s economy and in turn our real estate market. By 2003 our real estate market began a sustained upward price trajectory only briefly interrupted by the 2008 global financial crisis.
The 2008 global financial crisis hit the world’s economies hard including our own economy. Most, if not all governments, responded by enacting policy measures to prop up or stimulate growth. One of the key policies was a reduction of interest rates. Low interest rates and stimulative policy measures had a number of impacts around the globe. One of the most evident impacts was the search for yield by investors as traditional low risk investments often had negligible yields. As a result, asset classes like real estate, in prime locations, began to attract the attention and capital of investors the world over. While our region’s real estate market saw a moderate decline in 2008, most people do not realize that 2009 was one of the strongest years in terms of the number of sales (not necessarily price appreciation) in our region’s history. Some of the uptrend in real estate sales in 2009 preceded the hosting of the 2010 Winter Olympics
The hosting of the 2010 Winter Olympics saw Lotusland capture the world’s attention once again. The USA Today in the build up to the Olympics, as many of you might recall, dubbed us "The Super Model of North American cities".
Our weather even helped in the promotion. Instead of the usual February rainfall, many days during the Olympics featured sunny backdrops to a region in full “Super Natural BC” glory. I can remember watching one of Stephen Colbert's shows (taped in Vancouver during the Olympics) and the day was clear, mild and sunny with a Super Natural backdrop that would help to sway anyone watching that this might be one of the most beautiful places on earth.
In the past few years, a combination of continuing global trends since 2008 coupled with domestic market demand and accommodative fiscal policy, has supported a steep escalation of prices in our region.
Our region is by no means alone in the impact of these foreign capital inflows into real estate markets. Many desirable western and emerging market metropolitan real estate markets were impacted by these trends.
More recently, since 2015, we have seen continued low interest rates, our currency depreciation relative to other major currencies, the continued search for yield and security of capital by global investors, the 2016 Chinese Yuan deprecation, and in the case of Mainland China a desire by those individuals to get their wealth and families out of a communist country.
Further, the impact of these global trends on the Vancouver and Toronto regions, in my estimation, were exacerbated by our Federal government’s lack of enforcement of our existing, banking, mortgage financing rules, immigration and tax laws to curb speculative activity in our real estate markets.
Specifically, one factor in our region’s steep real estate price escalation in the past couple of years was commented on by Philip Cross noted in a recent Financial Post editorial titled “Ultra Easy Money, Ultra-risky debt”. The surprise decision by the Bank of Canada (BOC) in January of 2015 to further lower interest rates appears to have unintentionally contributed to the significant price escalation in Vancouver and Toronto housing markets. Between August 2011 and January 2015 house prices in Vancouver rose a modest 4.9% but after the BOC announcement prices surged 46.4%**. Toronto saw increases in the same periods of 21.2% and then a 54.6% respectively**.
From a Canadian perspective, demand in our region has also been driven by solid economic growth and in migration population growth from other areas of Canada.
Combined with these broader trends, at the municipal and regional level the inability or unwillingness to aggressively increase housing supply and housing types, plus a lack of leadership by the Province, we now find ourselves in a market that has significant housing demand and long-term housing supply constraints.
*Remember the late ABC broadcaster Jim Mackay’s comment regarding the Vancouver Whitecaps run to win the now defunct NASL Soccer Bowl 1979 championship.
**The price growth figures in Philip Cross’ article appear to be for all property types as detached single family homes would have significantly outperformed condo’s and townhouse price escalation in these time frames.
E.& O.E.- I make every reasonable attempt to make that the information is correct and that my spelling and grammar are checked.