All this house could be yours for $1.39 million in Greater Vancouver. Even at the lowest mortgage rates in 90 years, residents are finding housing unaffordable. It’s not the interest payments that are the problem, it’s the principle sums that are impossible.
Fuelled by the special sauce of Chinese wealth – and good old Fear of Missing Out – prices have decoupled from the local economy, with an average detached price of about C$1.4 million (HK$8.9 million). So far, so normal for Vancouver…
It is important to understand that the Chinese money that flooded into Vancouver since 2005 came via the recycling of the credit bubble through the world. As western households gorged on credit they were also able to gorge on Chinese goods which sent US dollars to China who then lent them back to America by buying US treasuries. This went on for years until the US housing bubble burst in 2006 and the credit derivatives market imploded western banks.
Then in 2008 China ramped up stimulus spending to try and jump-start the world economy back to insatiable demand. This was unsuccessful but it did manage to inflate the largest credit bubble in human history in China. As the government kept pumping credit, Chinese total debt surged and capital looking for places to park flooded into other foreign asset markets. The dramatic effects of this in places like Vancouver are obvious:
From 2005-2012, about 45,000 millionaire migrants arrived in Vancouver under just two wealth-determined schemes, the now-defunct Immigrant Investor Programme and the still-running Quebec Immigrant Investor Programme. Let’s put that in perspective. The entire United States only accepted 9,450 wealth migration applications in the same period under its famous EB-5 scheme, likely representing fewer than 30,000 individuals.
So, Vancouver has recently received more wealth-determined migration than any other city in the world, by a long stretch. This, in a city with some of the lowest incomes in Canada.
The trouble is prices have become so impossible that new buyers are not able to step on to the property ladder. This is a problem for those hoping to cash out and step off…