BC Government Drowns Out Housing Critics; Party Rolls On
There seems to be a little confusion surrounding the objectives of Christy Clark and the BC Government. Just last week Christy Clark added Fuel to the Fire by creating more demand in the market by introducing interest and payment free down payments for first time buyers. Of course this comes just 3 months after she tanked the market with her foreign buyers tax.
So what are their objectives? To cool the market, or keep the music playing?
Prior to the introduction of the foreign buyers tax the BC Government’s Mike De Jong and Christy Clark totally downplayed the role of foreign buyers driving up Vancouver real estate prices. Here’s an expert from an interview in May, 2016.
“There is a perception that foreign investors and speculators are driving an affordability crisis in residential real estate — particularly in Greater Vancouver. The data we have does not support this perception,” the Finance Ministry analysis said. “However, industry experts estimate that foreign buyers likely make up less than five per cent of home sales activity in Greater Vancouver.”
Of course stats showed we did indeed have an issue. Foreign buyers accounted for 13% of all sales across Metro Vancouver and an even more alarming 25% in Richmond, driving up detached house prices 80% in three years.
“There is evidence now that suggests that very wealthy foreign buyers have raised the price, the overall price of housing for people in British Columbia,” she said. “If we are going to put British Columbians first and that is what we’re intending to do, we need to make sure that we do everything that we can to try and keep houses affordable and to try and make sure that those very wealthy foreign buyers find it a little bit harder to buy a house in the Greater Vancouver area.” -Christy Clark
Queue the foreign buyers tax which immediately slams the brakes on the real estate gravy train.
“When I see the new numbers and they tell us that we’ve slowed down the rate increase or the price increase for housing I say good, because that’s what we were trying to do… The prices were going up way too fast, and if we have helped slow that down that’s good, I think that’s what British Columbians were counting on us to do.”
The foreign buyers tax did more than just slow the market. Detached prices have fallen 15-20%, sales down 50% year over year. Condo sales fall 22%, townhouse sales 40%. A huge concern for the BC economy and developers who have started building a record number of housing.
The BC Government, in need of a lifeline to avoid a meltdown before the spring elections announces interest/payment free down payment loans, stimulating the market. And just like that over 4 million BC taxpayers become subprime lenders overnight.
Despite economists calling it “terrible policy” and the Bank of Canada warning against record levels of household debt and the drunken brew of cheap credit, the BC Government defends the new policy, even going as far as firing back at economists.
Without the support of economists what possible reason could Christy Clark and the BC Government have for implementing such a risky policy?
“The banks are willing to lend them $700,000 for a mortgage but they can’t scrape together $50,000 for a down payment. If the bank can trust them with their money, for heaven sakes the BC Government can trust them.” – Christy Clark
And therein lies the issue. Faith in the banks to be responsible lenders. A belief that our American neighbours also had in 2008. Part of the reason we are in this mess is because of easy access to cheap credit. Famed economists Atif Mian and Amir Sufu who have studied housing markets relentlessly are quoted as saying:
“a close relationship has existed between the build up of credit during an expansion and the severity of the subsequent recession..We show that the economic costs of financial crises can vary considerably depending on the leverage incurred during the previous expansion phase.”
But alas if you don’t want more debt “You don’t live in real world“ says Clark.
Further, she went on to say she had no concern of first time buyers defaulting on their payments leaving taxpayers on the hook. Adding “Do I think prices will go down? No I don’t. But I hope they will go up in a much more moderate way.”
She obviously doesn’t read this blog. Or the BC Real Estate Associations prediction for prices to fall 8.7% in 2017. Prices are already down 15-20% in the detached market.
It appears the BC Government is flying by the seat of their pants heading into elections. The music is getting louder, the party must continue. Any economist or rational person who tries to remove the punch bowl shall be shown the door. The housing market is teetering, but the party goes on.