Last year’s big house price increases in Vancouver was accompanied by discussion of the role Chinese purchasers were playing in the price run-up. Now, the pendulum has swung the other way and Vancouver’s housing market is slowing. This shift coincides with recent hints that China’s economy is cooling. In truth, the shadow from the east has long loomed over the Vancouver housing market and some believe that a slowing Chinese economy could signal a period of weakness ahead. But is that consistent with past trends?
As Canada’s “gateway to the Pacific”, Vancouver’s attraction to Chinese immigrants stretches back to the 19th century when the gold rush and railway construction brought thousands of Chinese residents to British Columbia. More recently, the Chinese takeover of Hong Kong in 1997 spurred many of that colony’s residents to seek Canadian citizenship and migrate to the province. Data from the British Columbia Bureau of Statistics show that immigration from mainland China to Vancouver averaged just over 9,600 persons per year in the decade to 2010, the most recent figures available, peaking at nearly 13,000 persons in 2005. China is typically the largest source of immigrants to Vancouver, accounting for nearly a quarter of all arrivals in 2010.
These immigrants need a home and have supported housing demand growth in British Columbia for several years. Some come to BC with a significant amount of wealth and, thus, a strong appetite to invest in the housing market. Catering to Chinese residential demand is big business out here; the Chinese Real Estate Professionals Association of BC lists over 200 members on its website.
There is a clear correlation between Chinese immigration and real estate activity in Vancouver. In fact, the Chinese immigration peak of 2005 was matched by a peak in existing home sales in that same year. The 42,000 resale transactions that year were nearly 50 per cent above the previous decade’s average and remain a record high for this market. By contrast, Vancouver existing home sales volume was fewer than 22,300 units in 1999 when less than 7,700 Chinese arrived.
But is there a similar correlation between economic growth in China and the Vancouver housing market? Offshore investors do not need to live in Canada to own a property in Vancouver and it is possible to arrange property management by a professional or a family member. This is in contrast with Australia, for instance, which requires temporary residents to sell their real estate before leaving the country.
Accordingly, Chinese wealth probably has a larger affect on the Vancouver housing market than immigration numbers alone suggest, since Chinese investors can buy homes here while remaining there. Faster Gross Domestic Product growth in China makes more of its citizens well-off and some of these are likely to invest money in Vancouver real estate.
Several measures of Vancouver housing market health have broadly followed the Chinese GDP performance. For instance, as shown in Chart 1, resale price advances hit double digits in 1992 and 1993, while China’s economy was hot, then subsided as Chinese output hikes eased. Accelerating Chinese growth during the past decade was accompanied by surging Vancouver MLS price increases. The financial crisis of 2008 was hard on both Chinese growth and Vancouver house prices, but by 2010 both were once again in double-digits.
The new construction market has reacted similarly to the Chinese economy. Chart 2 shows that total housing starts in Vancouver hit 21,300 units in 1992, but softened markedly thereafter. Slowing Chinese economic growth in 2008 preceded a big starts drop in 2009.
The bottom line is that expectations of slowing Chinese economic growth could be considered as big a drag on the Vancouver housing market going forward as anything else, including the city’s notoriously poor affordability.
Author: Robin Wiebe