It seems like many major cities of the world are experiencing this problem, and no city has been able to come up with a good solution. It always leads to displacement and newspaper articles about displacement, but no real solutions.
Here are a couple of solutions:
1. Build really tall. Hasn't worked out all that great in Hong Kong, though.
2. Rent control. This is often unfair and inflates price of non-rent controlled apartments.
3. Tax the living crap out of property speculation. Not sure if this has been tried anywhere, and I'm sure it would be unpopular among many middle class home owners as well. I'm still rooting for Georgism.
4. Accept that it's a lost cause and move on to the next underdog city that will stay un-gentrified for the next 10 years.
Singapore has a pretty good solution for this sort of thing. Socialize Housing (https://en.wikipedia.org/wiki/Housing_and_Development_Board), and then drop 10s of thousands of new units onto the market continuously, subsidize citizen ownership (with further subsidies if you live close to your parents), and further, create a culture of constantly wiping out the older (20-30+ year) apartment blocks that were lower density, and replacing them with taller, higher density buildings. (https://en.wikipedia.org/wiki/Selective_En_bloc_Redevelopmen... )
Pricing has stabilized, and, even is dropping a little bit.
That requires the government to acknowledge there is a problem and come up with a clear strategy to solve the problem.
The BC Provincial Government is working very hard to ignore it as a problem, where they won't even commission studies to generate data on how bad the problem is (or isn't). The federal government has also signaled their distancing from the Vancouver housing issue.
Also, the real problem is foreign ownership. Canada has some of the loosest foreign ownership laws in the world, and provincial/federal governments do not punish foreign ownership with taxes or anything of the like. That means if you are making a lot of money in a corrupt country (China/Saudi Arabia), the Vancouver housing market is a great insurance policy.
The result is you have entire neighbourhoods with no available properties, but are virtually empty (Coal Harbour), and new buildings are built small and shoddy (meant for investment, not livability).
My wife and I make over 100k per year combined, and we will absolutely be leaving the city when we start a family. It all stems from the fact that the local government is willfully ignoring what can be compared to a cancer. It'll only get worse.
What evidence is there that foreign ownership is a major problem? I've heard plenty of anecdotes, but no actual data. I do know that Vancouver real estate agents are milking the "yellow peril" for all it's worth. "Buy now before China owns all of Vancouver!".
Suffice to say, Canadians are doing what American's did in the early 2000's. They are going into a crazy amount of debt to buy housing, which is only pushing prices up even higher. Some of the stats make Canada look even worse than the US did at it's peak[1].
Ian Young, who writes the Hongkouver blog for the South China Morning Post, said this in a recent interview with Vancouver Magazine:
> We’ve got peer-reviewed academic data from David Ley at UBC, who found what he called ‘an unusually decisive link’ between immigration and property prices in Vancouver, and this is going back over 25 years. We had Markus Moos and Andrejs Skaburskis who did another peer-reviewed piece of academic research that found that prices in Vancouver had become decoupled from local incomes by virtue of the fact that the home buying behavior of many recent immigrants was not tied to their local income. That cuts directly to the issue of foreign money.[1]
A quick google for those authors will turn up their studies.
Those studies are seriously flawed imo as their methodology is to filter on non-anglicized Chinese names and use that as a proxy for foreign money. That would describe a lot of people that aren't recent immigrants, like me.
If anything, those studies show that ethinic-Chinese people are more predisposed to buying a house than renting, even when renting is much cheaper.
seriously flawed is an overstatement; there have been two studies done so far and while the researchers acknowledge the limitations of the method, in aggregate it is considered mostly sound by their peers.
But I agree - we should have something a bit more conclusive than 'Chinese names'. But the whole point is that the current provincial government is actively hostile to requiring real estate agents to collect this information. So last names are all we have.
Unfortunately, the provincial/foreign governments refuse to even study the problem. So all we get is anecdotes and investigatory journalism[1], which do not make for good data points.
I have a lot of love for Vancouver, but the strange insistence on low salaries in an expensive housing market, with serious traffic and physical natural barriers to transportation, is a real problem.
I know of several developers, whose advice and preference is to move out of the city (closer to skiing/biking/etc) and work remotely for a US company.
There is plenty of evidence of the foreign property issue, and the willful ignorance of the government. Besides everything else posted, here's an academic case study:
What evidence is there that foreign ownership is a major problem? I've heard plenty of anecdotes, but no actual data. I do know that Vancouver real estate agents are milking the "yellow peril" for all it's worth. "Buy now before China owns all of Vancouver!".
It's pretty easy to find them. Google 'Andy Yan'; he's an economist at UBC who did the most recent study.
Suffice to say, Canadians are doing what American's did in the early 2000's. They are going into a crazy amount of debt to buy housing, which is only pushing prices up even higher.
Vancouverites are going into unsustainable debt, but at this point mostly for condos, which remain expensive but affordable. The detached house market is long past being affected by CHMC policy and borrowing rules; not even doctors and lawyers can afford the $5-6 million dollar homes that are such a big part of the market here, not even with leverage.
This is part of what I try to tell people when they say that the Vancouver housing market is a 'bubble' - it isn't a bubble because it isn't being driven by leverage; it's being driven by regulatory differences in Canada and China; China has a punishing inheritance tax, and Canada has the most lax rules in the OECD for importing money and buying real estate. There simply is no 'bubble' here to burst. That's not to say that the situation isn't extremely unstable, but without leverage this simply isn't a 'bubble'.
China has a punishing inheritance tax, really? China has no inheritance tax, it also lacks a property tax or even a capital gains tax. Libertarians would love it here if it weren't for the police state...
Why Chinese buy abroad: to park money outside of China, to participate in real estate markets leased screwed up than their own (say what you want about Vancouver, it isn't anywhere near as bad as Beijing Shanghai Shenzhen), and to have an exit plan when they fall out of favor or things go to hell in China.
My point stands; Canadian interest rates could double and Vancouver house prices wouldn't budge; some Canadians would have their homes foreclosed on, but there's so much money in the market from China that homes here would still be unaffordable to people working in Canada and paying Canadian taxes.
This just isn't a 'bubble'.
China has no inheritance tax, it also lacks a property tax or even a capital gains tax. Libertarians would love it here if it weren't for the police state...
Nice! This sounds like a pretty good way to game the system; earn all your money in a tax-less free-wheeling libertarian wonderland, cash out, then bring your millions to a place with no wealth tax! The new place will have lots of social services and lots of burdensome income taxes for the locals to pay for them, but you made your money and you don't have income to tax! Win!
That is quite old. Anyways, taxes are not a problem in China yet.
Anyways we've seen is before with the Japanese in the 80s, and it eventually all crashed down, leaving the Vancouver/Seattle/California real estate markets in a rut for more than a decade! I'm guessing when the Chinese economy comes back down to earth, the exact same thing is going to happen again.
Japan had 120 million people in the 80's. China is currently at 1.35 billion. There were a million new millionaires created in China in 2014. I'm not sure that the Japan situation compares to China very well.
The way things are going right now, it seems to be playing out exactly the same, just the scale is much larger given the increase in population (million of new millionaires were created in Japan also, of course, with a much smaller population base than China!).
I think the point is that if housing prices in Vancouver peak around $2M, the dust settles, and housing prices fall and equilibriate down to $1M, living in Vancouver doesn't really get any more realistic.
I too am skeptical of the Japan comparison. China is both a very densely populated but also an extremely populous country and I think its just natural that a lot of Chinese will want to leave for less-densely populated places. Just the number of people involved makes this a problem unlike any other we've seen in history; how many tens of millions of Chinese millionaires now have the option of picking up and leaving their homeland? The scale of the migration is larger but the size of west coast cities isn't; certainly not by a factor of 10.
It depends on how much is speculation vs. how much it is Chinese from the mainland actually moving to Vancouver. How many Chinese can actually emigrate to Vancouver, or why would they go there when they can go elsewhere? I'm old enough to have seen Vancouver real estate go through boom and bust before, and I'm just a Seattleite.
Anyways, we've all heard "its different this time" before, and it never is.
I have witnessed and seen the day to day effects of a city (albeit, a very small one) that did find a solution to this problem: Aspen, Colorado.
It's a tremendous outlier - both in population (8000 full time residents) and in pricing (even more expensive free market housing than any of the big markets that are typically discussed).
The solution was to build city-subsidized "resident housing" that actual residents (as opposed to seasonal) enter a lottery to win, which gives them the ability to purchase the property (again, subsidized) and become property owners inside Aspen. Although the property itself can appreciate with the market, the owner can only realize 2-4% appreciation per year - the rest goes back to the city.
It works. There is a legitimate, affordable path to actual home ownership for regular folks in Aspen, and it takes those people out of the "affordable" rental pool which softens the pricing pressure for people who aren't staying forever or who haven't won a lottery share yet.
They already have this lottery system in various cities in the SF Bay Area. I'm sure it helps some, but it hasn't made a big dent in the housing problem.
"1. Build really tall. Hasn't worked out all that great in Hong Kong, though."
What do you mean when you say it hasn't worked out great in Hong Kong? Is it because prices are still high in a lot of neighborhoods there? I'd say the build-really-tall strategy has worked out quite well in HK. There is a range of affordability in close proximity with good transit, and lots of parks and open space. It's a remarkably livable city.
The fundamental problem is that real estate in major cities has become a scarce luxury good covered by the wealthy. Restrictions on building - rent control and aggressive property taxes basically fall into this category - only make things worse.
The only way to make Vancouver, SF, and anywhere else affordable is to radically increase supply relative to demand. In practice things aren't that simple.
The best bet for someone looking to live and raise a family is probably your fourth option. There are a lot of really nice cities out there.
They certainly are in plenty of neighborhoods - especially compared to other cities in China. The thing is that despite the tall buildings there isn't actually that much supply on HK island itself because it's so tiny. Still, I think there's a much bigger range relative to overall quality of urban life compared to, say, SF. And things get a lot more affordable across the harbor in Kowloon and in the New Territories. Though, even there it's probably not cheap compared to most cities in mainland China.
I'm far from an expert on this though, and maybe I'm off base here. I've just spent time there and looked at real estate and been struck by how not impossible it was to find reasonable places at reasonable prices compared to the Bay Area.
The price are through the roof, and you have to compare it to Median salary. The price per Square Feet / or Square Meter is expensive.
Of coz if you are working in Hong Kong as a wealthy individual you would have no problem enjoying everything HK has to offer. This is the same as any other place in the world.
You have to also include the City and State difference. Vancouver has a problem with Median Salary to Housing price at 10, and Sydney is at 12.
Hong Kong is 19. Which means if HK property prices dropped by 50% it will still be around the same level as Vancouver.......
I think it's a symptom of something else: the hyper-centralization of relevance and cultural center of gravity in only a few places.
When I was younger (1990s), I don't remember it mattering so much where you were located. I've spoken to older people and they concur: they've all said that when they were young being in, say, Indianapolis or Toledo was not a big deal.
Today, at least in the USA, there's a strong sense that you're nobody unless you are in one of about eight big coastal cities. Nothing happens anywhere else.
I'm talking about perception here. You can argue that this isn't really true, and that you can do anything most anywhere, but the cultural perception is that you're nobody and can't do anything unless you are in NYC, SF, LA, etc.
I'm a startup founder and have been told by several people on several occasions that we are doomed because we are not in the Bay Area. I'm in SoCal but apparently if we're not in SF or its Southern suburbs it's impossible to succeed as a tech company. Obviously I don't believe this, but the meme is strong. If enough people take this stuff seriously, it's going to contribute to a hell of a property bubble in SF/SV.
I still don't understand why this is the case, especially since the Internet was supposed to have the opposite effect. By making information globally available and communication easy, the Internet was supposed to flatten the world and make place less relevant. Instead I've noticed a strong and obvious trend in the opposite direction since circa 2000.
I can only comment on the USA, but what I see elsewhere seems to support this being a global thing. London has gone totally insane for example. I wonder if the Internet is actually having a paradoxical centralizing effect here, allowing larger cities to broadcast their cultural "signal" and then have that signal amplified enough by network effects to make them appear exponentially more and more influential. This in turn drives a feedback loop in which talent and ambition is drawn increasingly to these cities, etc., and the rest of the country is hollowed out.
It's actually part of an even larger trend. Since 2000 everything seems to have gone increasingly power law: wealth distribution, geographic relevance, education, etc.
As far as I can see this is exactly what is happening. More powerful computers and communications are amplifying the power of individuals, and as a result making relationships even more important. And cities have always been the places of innovation and relationships. Just even more so now.
But it's not just cities. Philadelphia and Baltimore and Atlanta are big cities, but they aren't the right cities. It's a small number of them. It's not just urbanism, but also brand.
True, but as someone from Europe, I can tell you the branding has always been the case. NYC, Boston, SF, and LA, were always the outstanding cities relative to those you mention above. We rarely heard of, rarely saw in movies and TV, many other cities outside of those few.
I'm not saying you're wrong -- far from it -- but the brand has been there for longer than the phenomenon we're discussing here. Perhaps the tech has just made it even more pronounced.
I think it may just depend on what it is you're trying to accomplish with your career. Take Atlanta since you bring it up. Atlanta already is the number one place to be globally for a career in Information Security which is a significant chunk of the tech community even though it's not nearly as flashy as social-web. Atlanta is also becomming a nexus for email-related startups (it's really not just Mailchimp there are several major ones here when you look at volume of email sent). Turner is headquartered in Atlanta, as is Coca Cola, Home Depot, CNN, and more.
Atlanta has become a really excellent city for graphic artists and design firms because companies such as Cartoon Network pull artists in from the global market, and then these artists stick around and end up engaging with the local startup community. In other words Atlanta is becoming a designer hub (and the city's close-enough proximity to Disney helps boost this effect)
In addition it's also a nexus for medical startups probably due to the fact that the CDC is here.
Those are good points and I don't disagree at all, but I was talking about perception more than reality. There's still this immense perception that if you're not in the top five you don't exist, and I think that's one of the factors driving real estate hyperinflation in those places.
The other funny phenomenon I've noted is people assuming we are in SV and asking whether we are "down in the valley" or "up in the city." I say "we're waaaaaay down in the valley... like eight hours South." I bet companies in Atlanta will give an address in one of Atlanta's burbs and get asked "where's that? is that in the East bay?"
Maybe the whole thing is just real estate fund or bank propaganda.
Yes, but there are others to choose from, depending on sector. Fintech startups, for example, can be based in Chicago rather than NYC, biotech has several hubs that are outside your list, etc.
I agree with you that this a phenomenon that is taking place and yes when I was younger I don't remember it being so severe. Even mentioning you're live in a 'second tier city' makes some people think, well this persons not serious. Aside, I live in London UK and people are paying insane rents for pure garbage tear down style disgusting properties.
I agree that this is the status quo re: startups, but the high water mark was probably a couple of years ago, with the caveats that there have long been 'SV' startups that have or keep all or most of their engineering in an offshore location, say in Israel, with only the corporate office and upper management / sales moving to SV after VC investment.
However, now we're seeing two things happen:
* Several cities technically in 'flyover country' (eg. Boulder CO, Austin TX, etc.) have already built brands/ecosystems as startup hubs, and more cities are trying to copy their example rather than 'become the next SV'.
* Some fully geographically distributed companies (eg. Automattic, Buffer) are gaining visibility as success stories, and although they are still the exception, I expect more new startups to try and copy them, if only because Bay Area COL is now so ridiculously high.
> Rent control. This is often unfair and inflates price of non-rent controlled apartments.
There's the rub. Virtually all rent control schemes in North America only apply to a subset of properties (usually the shitty ones), which isn't fair and often doesn't work. Meanwhile, Germany has a long history of successful rent control, perhaps not coincidentally because it applies universally.
Singapore has been able to solve it to a certain extend. 90%+ of land is owned by the government and leased/purchased back to its residents at an affordable rate. This generates revenue the government can re-invest into the economy. It also reduces the impact of a small group of rent seekers siphoning billions out of the local economy.
I think the conclusions drawn in this post are outdated.
The german real estate market was undervalued for a very long time. In the last 10 years there has been a very rapid (100%+) rent increase in the cities and a massive property rush from foreign investors in the in major cities (especially Berlin). Another factor to consider: seeing that 1.5million+ "refugees" came to Germany in 2015 alone, these increases will become even sharper over the next few years.
What's wrong with #3? Maybe it wouldn't have been popular 10 years ago, but after seeing the disastrous effects of a housing bubble, I for one would be perfectly happy to see property speculation taxed heavily. For instance, I think a simple solution would be to eliminate property taxes altogether for primary residences, but levy significant property taxes on investment properties and second/third homes. You'd have to design this bit well, though, because you don't want to kill the rental market: a lot of people aren't in a position to buy their own home. Perhaps a tax break for a first rental house, but jack up the rates if you own more than one rental house.
Politicians can put as many fancy well-intended laws in place as they want. All these laws will have only have minimal effects on the underlying supply and demand market forces. In fact, chances are that those laws will even increase the overall average rent due to the added bureaucratic overhead und regulations that are indirectly passed on to the tenants.
Areas of Tokyo like Setagaya have population densities in excess of 14000 residents per square kilometer. There are few tall buildings; it is largely single-family homes.
Vancouver proper only has a density around 5000 residents per square kilometer. There's plenty of land to infill with housing without building tall.
Whenever I look at hong kong on google earth, I see a lot of empty green space that tall buildings could be built on. I also see an area in the north that isn't really dense, large open sports areas and green areas on the south island. HK the territory seems to be much larger than HK the city and it smells suspicious that prices are high but land is not being used.
And don't say, we need parks! I'm fairly certain that large amounts of that parkland is unused because you need to hike in pretty deep to enjoy it. And highrises can be built on mountains.
>And don't say, we need parks! I'm fairly certain that large amounts of that parkland is unused because you need to hike in pretty deep to enjoy it.
So we should monitor how far people hike into these parks? And if the number of people in a remote part of a city park falls below X number of people a day for Y days we should just bulldoze that part of the park for buildings?
It's one of the most populous, unaffordable and dense cities in the world, where people live in metal cage bunk beds because it is so unaffordable. On top of that, the majority of the land in HK is park land.
I think a few acres of park land can be developed to release pressure on the housing market so people are not forced by circumstance to live in such situations. And by developing on some park land, the deep park land will start to get some utilization.
Go look at singapore for example, they use a significantly larger amount of their land as actual city space.
Here are a couple of solutions:
1. Build really tall. Hasn't worked out all that great in Hong Kong, though.
2. Rent control. This is often unfair and inflates price of non-rent controlled apartments.
3. Tax the living crap out of property speculation. Not sure if this has been tried anywhere, and I'm sure it would be unpopular among many middle class home owners as well. I'm still rooting for Georgism.
4. Accept that it's a lost cause and move on to the next underdog city that will stay un-gentrified for the next 10 years.