There are some important economic implications lying behind those gaudy numbers, and they extend beyond the boundaries of Greater Vancouver.Getty Images/iStockphoto
Watching the unfolding drama and political machinations surrounding the Vancouver housing market can feel like bloodsport – it has become our national visit to the chariot races at the Colosseum, in parts voyeuristic (for sure) and cathartic (well, maybe). But there are some important economic implications lying behind those gaudy numbers, and they extend beyond the boundaries of Greater Vancouver.
Which is why the housing-mad metropolitan area's August home sales numbers, released Friday, deserve attention beyond the mere schadenfreude it will certainly illicit from some observers outside of Vancouver or even British Columbia. And why there's a danger in reading too much into this single month of data – especially given that those data appear to confirm the worst fears of some observers.
The Real Estate Board of Greater Vancouver published its first monthly sales report since the British Columbia government imposed a hefty 15-per-cent tax on purchases of homes by foreign buyers a month ago, and the numbers looked pretty shocking. Sales slumped 23 per cent in August from July, and were down 26 per cent compared with a year earlier. In fact, the supposedly booming Vancouver housing market is suddenly generating sales that are below the 10-year average for the month. The average selling price for detached homes, meanwhile, slumped 17 per cent from the previous month.
This is pretty much what the critics of the tax feared: That it would stop the market in its tracks, hammering sales activity and wiping out home values to owners and investors. The told-you-so moment has come remarkably quickly.
But let's remember that we're looking at a single month of data, in a sector prone to volatility and mood swings, capable of being altered by quirks of the calendar or a bit of rainy weather. And frankly, it's impossible to tell how much of August's downturn we should be laying on the doorstep of the new tax on foreign buyers.
Remember that Metro Vancouver's sales in July – before the tax was announced – fell 27 per cent from the previous month and were down 19 per cent from a year earlier. Maybe, just maybe, an overheated market has begun the process of cooling down all by itself, without a new tax to blame.
The fact is, what we know about foreign buying in the Greater Vancouver market is still statistically flimsy and largely anecdotal. The B.C. government introduced its tax after compiling data for a mere five weeks – from June 10 to July 14 – showing that foreign buyers accounted for about 10 per cent of residential purchases in Greater Vancouver. It's a substantial number, but a puny time sample. It's impossible to know if it was representative; indeed, sales may have been distorted by rumblings that the government was preparing to crack down on foreign buying.
Similarly, the August sales data provide thin grist for the analytical mill. It simply isn't enough time for anyone to confidently say what is going on.
But it's entirely understandable why people want to do so, and why it matters beyond mere spectator sport. There's little question that the real estate boom is a big part of the economic story for British Columbia, which is, perhaps, the country's most important economy right now – a leader in growth with a major dependence on an industry that suddenly may be in flux.
Residential construction and real estate services, combined, accounted for 22 per cent of the province's gross domestic product last year – a far bigger share of the economy than the 14 per cent in the rest of the country. Over the past five years, during which time B.C.'s real GDP (i.e. excluding the effects of inflation) expanded by 14 per cent, its residential construction surged an outsized 30 per cent. The services side of the real estate business – sales, renting, leasing, property management, appraisals, etc. – grew 21 per cent.
Soaring real estate values have also greatly enhanced the personal wealth of B.C.'s homeowners – and the wealth effect acts as jet fuel for the province's consumer demand. Retail sales in B.C. grew 6 per cent last year; in the rest of the country, they inched up just 1 per cent. Retail trade accounts for about 5 per cent of B.C.'s economy, but last year it delivered more than 12 per cent of the province's real GDP growth.
All of which is to say that the housing market has become a critical engine for the B.C. economy. Applying the brakes on that engine, as the foreign buyers tax is designed to do, will have broader economic implications beyond home sales and prices. Indeed, as B.C. is expected to lead Canadian provinces in growth this year, it has implications for the pace of the entire Canadian economy. It's kind of a big deal, therefore, to get a read on just how heavily that brake is being applied.
Some pessimists are already viewing the August sales slump as the tip of the iceberg – the beginning of a major correction in the Vancouver housing market brought on by the foreign buyers tax. The optimists are already saying the sales slump could have been much more dramatic, and that price corrections, outside of the uber-expensive luxury homes that have been favoured by well-heeled foreign investors, could prove to be quite modest.
But the realists will concede that, as much as we crave answers, it's too early to pass judgment. Feel free to raise your eyebrows, but let's reserve our conclusions until we have a decent body of data to lean on.
David Parkinson