Foreign buyers’ effect on Vancouver’s housing prices is ‘modest’: study

A new study from the University of British Columbia shows foreign buyers might not have as big of an impact on Vancouver’s housing market as people may think.

Jack Favilukis, assistant professor with UBC’s Sauder School of Business, said the review found foreign buyers have only “slightly” increased the price of real estate.

The study, also written by New York University, studied the effects of foreign ownership by building a fake city.

The model was calibrated to look like Vancouver, so “within that model, we can ask how much is each household worse off or better off. And then we can group that by renters or owners, young adults, and so on.”

He said the study examined what would happen if international buyers came in and bid up housing prices.

“So we found that the price effect is modest… so we think that prices due to foreign buyers have increased by five to 10 per cent, and the same with rents. But the more interesting thing we found has to do with the consequences for local households.”

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He said even though the research shows prices have not been as affected as some may think, some residents will benefit from foreign investment more than others.

“We found that the average household in Vancouver is made worse off by these international capital flows to the tune of about $200 per year. But this masks a much larger difference within the winners and the losers,” said Favilukis.

“We think the winners went up by about $600 per year and the losers are worse off by about $900 per year.”

He said some of the benefits from international investment also include a spur in construction, which requires local labour, as well as additional property tax revenue that can be re-injected into the community.

But he said it’s very important to be able to share the benefits and burdens of foreign investment, adding that if that’s not possible, more supply and measures such as a foreign buyers’ tax are necessary.

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However, Favilukis said estimating the number of homes owned by out of town people is very difficult.

For the purpose of the study, foreign ownership was estimated at about 10 per cent.

“We did our best with taking the data that B.C. started collecting about a year ago and unfortunately that’s just the best that we can do in terms of estimating these numbers.”

So what’s the takeaway? According to Favilukis, the answer is supply.

“The city needs to drastically make it easier to build,” he said. “So before we even start talking about taxes, and other types of restrictions, I think supply is a bigger issue. I’m finding that I think people are coming around to this.”

He said Vancouver needs to remove the red tape so more supply can be created.

Favilukis said it’s very difficult for displaced households to still stay within a reasonable distance of the city centre, and construction can help with that. But for now he said a foreign buyers’ tax is better than nothing.