The B.C. bolthole

By P.F. | VANCOUVER

PROPERTY speculation in Vancouver has a new meaning these days: wondering what exactly is driving up prices in the least affordable housing market in North America (see chart). The average sale price of a single-family detached home is now around C$1m ($920,000). Over the past five years, Vancouver homes worth C$1m-2m have doubled in value, according to tax-assessment records.

That puts property beyond the reach of most local residents. A Vancouver family earned a paltry $68,970 total median income in 2011, putting them 23rd out of the 28 major cities in Canada. Although Canadian consumers are taking on more debt, credit growth cannot explain the price-to-income multiples in Vancouver. The likely culprit is an influx of foreign, and especially Chinese, capital, as people move money from the mainland to a safe and pretty spot.

But exactly how much of Vancouver’s property market is being fuelled by foreigners, and how rapidly they might disappear, is uncertain. Although there are data on investor immigrants—those who have at least $800,000 to invest in order to fast track their application to get Canadian citizenship—there isn’t information on where they are investing their money or how much goes into property.

So analysts have had to look for patterns themselves. One study monitored electricity bills as a way of figuring out how many high-end city-centre condominiums sit empty most of the year. That analysis led to the conclusion that foreign investors own 8 out of every 100 apartments in pricey areas in downtown Vancouver. Another survey tracked where municipal assessments of property values were sent and found that less than 1% was mailed overseas to China. Yet another report counted mainland Chinese-sounding names on sales records for luxury homes that were priced at C$3m and more: 74% of the buyers ticked this box.

Another option is to look at macro-level data. Robin Wiebe of the Conference Board of Canada, a research outfit, has charted the links between China’s economic health and the local housing market in Vancouver, and found significant correlations between China’s real GDP growth and growth in housing prices. Urban planner Andy Yan, who sits on the city’s planning committee, says that understanding the impact of foreign investors on real estate is like searching for the Higgs particle. “Everyone knows it’s there, but it’s proving it that’s the problem. We know it’s not wage growth; and it isn’t the economy here. All we know is that in Vancouver, real estate has been de-coupled from the local economy.”

If so, prices may soon drop back. The number of investor immigrants has dropped since 2012; earlier this year, the Canadian government axed the programme entirely. That should soon give analysts more clues to the mystery of the Vancouver housing market.