It feels like a case of déjà vu. South of the border, experts are divided about whether or not the city’s housing market is being driven by foreign buyers – the same argument that dragged on for a couple of years in Vancouver. Today, the effect of foreign buying is indisputable.
In Seattle, there’s the question of whether the city is seeing a spillover effect from the B.C. government’s 15-per-cent foreign-buyer tax.
Svenja Gudell, chief economist for Zillow, doesn’t believe it is. Dr. Gudell, who has a PhD in finance, did the media rounds in Vancouver last week. Zillow’s findings are that Chinese buyers did not go property shopping in Seattle after the introduction of B.C.’s 15-per-cent tax. The findings are based on the number of searches by shoppers in China who used the site after the tax was introduced.
“It’s really hard to get real data on this because we don’t have a great way of tracking foreign buyers in our markets, either – we face similar issues to you,” she said. “But at least from our search data, which is what we use to give a pretty good proxy … we are not finding a pick-up in terms of traffic. Right around the Lunar New Year we saw a pickup, but beyond that we didn’t see much of a blip in terms of the tax causing more people to now search in Seattle.”
The entrepreneurs that founded online travel company Expedia also founded Zillow. Its strength is a database of 110 million U.S. homes, which represents the vast majority of homes in the United States. It also offers real estate services, connecting real estate agents and lenders with buyers and sellers.
Zillow has a vested interest in Chinese buying activity. Last year, the company announced new marketing efforts to connect directly with buyers from China, who now represent the greatest portion of the foreign-buyer market in the United States. Zillow offers Mandarin-speaking customer-service teams and agents in cities of interest to those buyers, including Seattle, New York, Los Angeles and San Francisco. The company also directly connects with potential buyers through hugely popular Chinese mobile messenger app WeChat. It powers a Chinese search website of U.S. homes and it has partnered with a major Chinese real estate company.
Seattle City Council member Lisa Herbold also doubts that the B.C. tax plays a significant role in Seattle’s escalating prices. She points to the city’s job growth and high local salaries as the biggest drivers of the housing market. Unlike Vancouver, Seattle’s housing market is connected to local incomes. In Vancouver, the median family income is $67,000 and the average detached house price is $2.6-million. In the region, the average single-family house is $1.5-million. In Seattle, the median household income is about $80,000 (U.S.) and the median single-family home around $675,000. In Seattle, both incomes and house prices have gone up in the past few years. In Vancouver, incomes have remained stagnant.
“The context for our housing market challenges is set by the tech jobs that have fuelled increases for years and well before Vancouver’s action,” Coun. Herbold said in an e-mail.
She says that a foreign-buyer tax is not legally possible due to state and federal laws. She is pushing for more information to address the issue of escalating prices. About 40 per cent of homes for sale in Seattle are listed for more than $1-million.
“I am interested in working with our county assessor to require disclosure of information related to which individuals and companies are purchasing properties, whether property is being purchased for primary residence versus investment purposes, length of ownership and whether we can track how many property exchanges individuals or companies are doing in a certain time,” she says. “I think disclosure of information like this would tell us more than we know now about the nature of our housing market, and help us design effective and legal solutions.”
The Zillow report is at odds with other reports. Charles Pittar, chief executive officer of Juwai.com, an international Chinese property website, says Toronto and Seattle benefited directly from the “Vancouver tax.” The site tracks more than 2 million Chinese users a month. In September, 2016, one month after the tax was introduced, it showed a 93.3-per-cent increase in Chinese buyer inquiries in the Seattle market compared to the year before. The amount peaked in November, at 140 per cent, and has since declined. However, that could be attributable to the usual decline in winter buying in general.
Charles Mudede is associate editor of Seattle weekly The Stranger and he writes regularly about the housing situation.
“For me, it is outside money, both national and international,” he says. “It’s silly to say, ‘It’s tech money,’ when this money attracts global investors looking for higher yields. I keep warning people about this, but they keep thinking it’s just the big pay cheques from Amazon and so on. Capitalism has not worked this way since the rise of finance in the 19th century.
“Why is Seattle suddenly obeying the laws of ordinary demand?”
But Dr. Gudell says Seattle has a supply problem, and she believes Vancouver does, too. She said that foreign-buying activity was already concentrated in the Seattle high-end property market before the B.C. tax. As well, she doesn’t believe the tax would incentivize buyers to look elsewhere.
“We are dealing with very high-end buyers oftentimes, buying multimillion-dollar properties. They aren’t that price sensitive that the 15-per-cent tax for a lot of them would deter them. I think it’s the cost of doing business.
“I read that your affordability problem is purely driven by investors. I don’t quite buy that. I think it’s really hard for an investment of 10 to 15 per cent of foreign money to drive a city’s affordability issues. I think it’s supply. You clearly have people attracted to come to Vancouver, and they’re not building enough units, period.”
It’s a refrain we’ve heard in Vancouver before. Premier Christy Clark has repeatedly called on more supply as a panacea to unaffordability.
But according to data provided by Simon Fraser University City Program director Andy Yan, the last two years of supply of building permits has outpaced new population growth. He analyzed the city’s permits and BC Statistics population data and found that more dwelling building permits were issued than people who newly arrived in Vancouver in 2015 and 2016. That includes children.
“The assumption that the mass of new market units will automatically make things more affordable without scrutinizing their details, like size and price, as well as the type of marketplace that the City of Vancouver has become, cannot substantially deal with housing problems for local income earners,” said Mr. Yan.
University of Toronto housing professor David Hulchanski has stern words for those who argue that we can build our way out of an affordability crisis. He says supply of market housing is not a problem in Vancouver or Toronto.
“It is a highly efficient and exclusive mechanism for increasing wealth and inequality – rather than providing adequate and affordable housing for everyone.”
When supply does cause affordability, it’s by accident. It’s not in the interests of developers to create a glut of supply so big that it would cause prices to decline.
“The only time supply lowers housing costs temporarily is when there is a dramatic oversupply, a glut, meaning developers and builders go bankrupt because they cannot sell all the units they have built. A temporary market collapse and/or a burst housing bubble means prices fall for a while.”
Vancouver and Toronto have “lots of supply,” says Mr. Hulchanski. “The supply argument is a lobby by those who want to sell land and or build in protected areas. It is also an argument that seeks to deflect analysis away from the structural problems of the way our housing system operates.”
Instead, Mr. Hulchanski argues for a return to government-subsidized privately built rental projects, which was the norm decades ago, before condominiums became the preferred housing type. In those days, “multifamily housing” referred to zoned areas that were entirely rental housing.
But of course, the market then was appealing to a large middle-income demographic. That group has shrunk, and the gap between rich and low-to-mid-income has grown wide.
The political will is not there to provide housing for that lower income group, particularly renters. In Canada, and the United States as well, the majority of voters are homeowners.
Another major flaw is the system too greatly rewards ownership. For example, property owners extract the entire financial benefit when a property is rezoned for added density. As well, only 50 per cent of a profit made from secondary real estate is taxed as capital gains. We do not have a speculation tax. These are examples of the system supporting the “hyper commodification” of housing, Mr. Hulchanski says.
“It’s about paying attention to what we’re not doing.”
Seattle might want to take note.Report Typo/Error