Does Foreign Capital Trump Supply and Demand?
English Bay, Vancouver (Andrew Raun/Wikipedia)
Charles Mudede is latest in a line of columnists (see here, here, here, and here) drawing comparisons between the rapidly appreciating housing markets in Seattle and Vancouver, BC:
The forces at work in Vancouver BC's housing market seem unrelated to those at work in, say, Toronto's-a city that, like Seattle, has a real economy and lots of high-paying jobs. Vancouver, on the other hand, "relies largely on an inflow of foreign money to fuel its real estate industry."
After acknowledging that Seattle's demand may be less finance-driven, Mudede still says later on that we have "lost Seattle to finance" in the same way as Vancouver. That's not the only perceived similarity between the cities. He asks Globe and Mail reporter Kerry Gold about Vancouver's HALA-like proposal:
They have also acknowledged that their policy to build tons of market condos backfired, because they became the perfect speculative commodity. So that's all fine and good. But their strategy, which calls for greater numbers of rental buildings and incentives for developers to build more affordable housing, largely depends on addressing demand at the same time. If they just build, build, build, which has been our way, the hyper-commodification of housing will just continue. They need to address the demand side-as in, closing the floodgates with a speculator tax, or bigger foreign buyer tax, or even banning foreign buying of existing properties, the way New Zealand just did.
I think there's reason to believe Seattle's market has key differences from Vancouver. In particular, legal incentives to build apartments instead of condos ($) often limit investors to the single family market. While skyrocketing single-family prices are painful for those looking for a larger house, they are largely orthogonal to the question of how many homes the City of Seattle should build. But let's set that aside and assume that the tide of foreign money is coming for us next.
Like an overcrowded light rail train, or a gas tax that can't raise money because no one buys gas, this seems like a nice problem to have. First, an investor that rents out her property is not contributing to the housing shortage, but instead shifting inventory from the purchase market to the rental one. This, on balance, is a progressive move.
Moreover, even outside investment in an empty tower (the dreaded "speculators") creates working-class jobs to build and operate the building, and implies a commitment to pay property taxes (and other levies, like affordable housing funds) without consuming much in the way of services. The only cost is a tiny bit of land, land that is only scarce because of artificial zoning restrictions. In the limit where speculator money is truly bottomless, various taxes and fees on endless new buildings could probably fund all the city's needs with little or no burden on residents.
Indeed, for all Vancouver's outstanding success boosting transit ridership with aggressive upzones around stations, their overall zoning map isn't all that better than ours, as Matt Nicholson's wonderful map shows:
Gray is single-family, yellow is duplexes
Vancouver has made buildable land scarce, so scarce that a bit of foreign money can absorb the zoned capacity they've allowed. Current policy in Seattle is going down the same road, but it doesn't have to be that way.
And even with the restrictive zoning both cities share, the end result of this investment is building up physical housing stock, stock that is unlikely to remain idle forever. The thing about speculators is that they make a killing until they don't. Mr. Mudede concern-trolls about "bubbles," when in fact a post-bubble crash will help the people most in need of it, those with no property at all. If the for-sale market really is taken over by speculators, only the speculators will lose.
Someone that has an aesthetic problem with tall buildings, seeing them as a cancer only to be accepted at the minimum rate possible, may not like that future. But people most interested in creating enough housing to accommodate all who would like to live here, and enlarging the city's employment and tax base, have nothing to fear from dropping artificial constraints on supply.