I recently came across this interesting article written by Ian Young who blogs for the South China Morning Post about immigration, property prices and Vancouver.
No one in Vancouver better understands the impact that rich immigrants have had on the city’s property prices than Professor David Ley.
Ley, holder of the Canadian Research Chair in Geography, literally wrote the book on the subject. Millionaire Migrants, published in 2010, is the definitive account of latter-day East Asian migration to Vancouver, describing how wealthy newcomers and their migratory patterns moulded the city.
It’s no surprise that he has been closely watching the fallout from the Canadian government’s surprise decision last month to terminate the 28-year-old Immigrant Investor Programme (IIP), which has brought tens of thousands of Chinese millionaires to Vancouver.
Oxford-educated Ley has particularly noted attempts to downplay the impact of the scheme and its closure on Vancouver’s sky-high property prices, which he said represented deliberate “suppression”.
“There are interest groups who are in denial and the moment that you or I make a suggestion [about the impact of rich immigrants on property prices] we are immediately racist and this is how the discussion has been closed down,” the University of British Columbia academic said.
“We are very polite in Canada and if anyone raises the red flag of racism then everyone shuts up. To my mind that is an irrelevance. The issue is investors, wherever they are coming from, creating an issue of affordability in the market.”
Ley’s previous research revealed the exceptional correlation between international immigration to Vancouver and the city’s property prices. He charted this from 1977 to 2002, with the results presented in eye-popping clarity on page 153 of Millionaire Migrants. A graph (above) of the two factors shows them moving in near lockstep.
Ley calculated the correlation at +0.94; that’s about as close to a statistical sure thing as you can get.
By contrast, “made in Canada variables” – interest rates, employment, domestic Canadian migration and rental vacancy rates – proved rather hopeless as price predictors. Interest rates, routinely touted as the most significant factor in Vancouver’s property boom, had a negative correlation, of -0.12.
During this period, prices peaked in 1995, then fell when migration from Hong Kong all but ceased. The drops that followed were concentrated in areas favoured by rich Hongkongers, such as wealthy Shaughnessy. “The overall prices dropped, although it was concentrated. In Shaughnessy, prices went down by 25 per cent … that’s a big drop,” Ley said. “But it was not as great across the market as a whole.”
Now for the big question: is the current Vancouver market similarly tied to mainland Chinese migration? And is the cessation of the IIP analagous to the way that Hong Kong migration under the scheme halted in the mid-1990s?
Sadly, Ley isn’t sure. “There are a number of similarities. It’s not perfectly the same,” he said. He notes that the Asian financial crisis coincided with the Hong Kong handover, exacerbating the sell-off in Vancouver as immigrants repatriated their funds to the SAR.
“The combination of the exodus [back to Hong Kong] plus the repatriation of funds led to significant sales and declines in the high-price property markets here,” he said.
Nevertheless, Ley takes issue with some observers who have sought to disregard the impact of the IIP on Vancouver prices. These critics point out that arrivals in British Columbia under the scheme (recently averaging 4,600 individuals, or 1,340 households, per year) are dwarfed by greater Vancouver’s 25,000-30,000 annual residential sales.
“The problem with that argument,” said Ley, “is that if that estimate of a couple of thousand does not include secondary migration from other parts of Canada then that is an underestimate.
“The other point: are people coming in buying only one property? Undoubtedly, it has been that property is the primary form of class mobility and property is a very easy investment to manage. I would question that these folk are only buying one property.”
Ley said the investor migration scheme also fuelled Vancouver’s market in indirect ways – namely, by helping word get out among China’s rich that the city’s real estate market was a convenient, friendly and profitable place to invest. If such word-of-mouth turns in the other direction, will prices do the same? That remains to be seen.