Vancouver's soaring property prices sound a warning to Australian markets
As the Federal election slugs out issues such as negative gearing and corporate tax, and Australian house prices continue to rise, spare a thought for those living in New York, London or… Vancouver?
Ah, Vancouver. That idyllic little British Columbian city the west coast of Canada. Almost everyone has heard of the bustling little centre of 600,000 residents, but most people would be hard-pressed to tell you anything about it.
Well, here’s a fun fact: The average price of a dwelling is now almost AU$1.5 million – up around 30% in the last year. That increase was seen across the entire city, and not just the downtown or more desirable addresses.
What will shock most Australians in that the average income of a Vancouver family is barely over AU$70,000 – a fact which makes the city almost uninhabitable for most of its residents.
So, how did this happen?
Vancouver House development
According to BBC’s Business Daily, it all started with a recommendation from The Blackstone Group – the largest landlord in the US – that New York and (quite surprisingly) Vancouver were great places for Chinese investors to park their wealth.
Based on that simple statement a flood of money started pouring into Vancouver’s property market, and the race to join the boom began.
This is important it wasn’t just international investors pushing up the prices. As soon as the locals saw the above-the-odds prices and significant quarterly gains, plenty of Canadians joined the feeding frenzy.
In Vancouver, buyers were also spurred on by British Columbia’s very low property taxes and higher than average income and sales taxes, and this simply added further fuel to the property fire. All of a sudden it was clear that there were multiple triggers encouraging investors to throw as much cash as they could at the market.
It’s a situation in dire need of remedy. Wealth generation is now so centralised that buying property is seen as a faster path to success than starting a business. Thomas Davidoff of the University of British Columbia believes that the city would greatly benefit from greatly increasing property taxes and lowering the cost of doing business.
This strategy would have a two-fold effect in that it would stimulate the economy to create new business and products and rapidly reduce the cost of housing to ensure that the local community is able to participate in home ownership.
As we grind through the third week of a seemingly endless campaign, it’s not difficult to make the leap between the experience of Vancouver and our domestic discussions around negative gearing and housing affordability.
Perhaps in the weeks to come there will be room for more substantive discussions between the major parties around this issue.