Lamphier: Foreign cash pumps more into Vancouver economy than pipelines

 

 

BY GARY LAMPHIER, EDMONTON JOURNAL JULY 5, 2014

 

 

A man walks in Stanley Park as the skyline of Vancouver is reflected in the water in February 2010.

Photograph by: Jae C. Hong , AP

EDMONTON – My wife and I loved living in Vancouver. Who wouldn’t? It’s a spectacularly beautiful place.

After a day at the office, I’d run the seawall or take the kids for a swim at Kits Beach, and then watch the harbour seals frolic while the sun set over English Bay.

In the winter, we’d sometimes hit the nearby slopes on Cypress Mountain for a night of skiing as the city lights glittered below. Do we miss all that? Of course.

Don’t get me wrong. I’m not knocking Edmonton. This is a city that works, where commutes are short and housing is affordable. It’s easy to see why thousands of middle-income earners flock here each year, despite the frigid winters.

But Vancouver is seductive. It’s like an adult version of Disneyland, where many people seem to play at working, while working noticeably harder at playing.

My old boss, for example, spent months each year cycling, skiing or wine collecting. When I asked one of his vice-presidents about it, she simply shrugged her shoulders and said: “He’s always been like that.”

I can’t imagine many execs getting away with that kind of work ethic here in Alberta, where people put in longer hours on the job than anywhere else. So how is it possible to do that in Vancouver, where average local incomes are modest, yet house prices are sky-high?

It’s a question I’ve often pondered. Unless you’re born into wealth, win a lottery, or earn well above six figures, the West Coast lifestyle seems to defy economic logic. Except, well, it doesn’t.

Vancouver, you see, has become a “hedge city” — a term coined by urban planner Andy Yan of Vancouver’s Bing Thom Architects, who was quoted in a recent feature piece in The New Yorker magazine.

“Vancouver isn’t an obvious superstar,” the piece declares. “It’s not home to a major industry — as New York and London are to finance, or San Francisco is to tech — and it doesn’t have the cultural cachet of Paris or Milan. Instead, Vancouver’s appeal consists of comfort and security.”

What such cities offer, Yan argues, is social and political stability. In a nutshell, they are cities where the world’s uber-rich, from Saudi princes and Russian oligarchs to Iranian exiles and China’s nouveau riche, seek to “hedge” their risks by stashing their cash, primarily in local real estate.

That in turn drives up the value of all local properties, making many lucky homeowners rich. No wonder many Vancouverites earn more on their homes than they do toiling at some mid-level job. It’s also why Vancouverites are cool toward industrial development — including new oil pipelines.

Vancouver isn’t the world’s only hedge city, of course. Miami, San Francisco, Toronto, New York, London, Sydney and Perth have also attracted a growing flood of cash from rich foreign real estate buyers, who often care far less about generating a fat return on their capital than simply getting their capital back.

For them, buying a $5-million luxury condo on Vancouver’s False Creek or a $10-million home on the city’s leafy West Side is more of an insurance policy than an investment.

According to a 2013 report from Sotheby’s International Realty Canada — a firm that offers private jet and helicopter tours to entice wealthy homebuyers — foreign buyers account for about 40 per cent of total demand in Vancouver for luxury single-family homes.

“As seen in previous years, China remains the top market influencer as buyers often purchase homes in Vancouver as secondary or investment properties,” the report reads. “There has also been a recent surge in buyers from Iran and the United States.”

Company president Ross McCredie told Vancouver’s Province newspaper he sees no sign of waning foreign interest in local real estate.

According to Sotheby’s survey results, the average starting price of a single-family home in Vancouver’s high-end segment starts at $2.8 million, and the entry level is $4 million and up in such desirable neighbourhoods as Shaughnessy, Point Grey, Southlands or Kerrisdale.

Typical buyers of luxury homes are 40 to 50 years of age, and 80 per cent have incomes of $200,000 to $500,000 per year, while 20 per cent earn at least $1 million.

A recent research paper by two Oxford economists bears out Yan’s theory of so-called hedge cities, The New Yorker reports. The economists found a tight connection between London house prices and turmoil in southern or Eastern Europe, while the real estate boom in Miami is closely tied to Venezuela’s political unrest.

“Vancouver, which has a large Chinese population, easy access to the Pacific Rim, and nice weather, has become a magnet for Chinese investors looking for insurance against uncertainty,” the article states, noting that a recent Conference Board of Canada report confirms that Vancouver’s housing market is tightly tied to what happens in the Chinese economy.

The message for Albertans: you can stop wondering why west coasters see no need for more oil pipelines. They don’t need them, as long as the foreign cash keeps pouring into Vancouver real estate.