More supply mitigates foreign impact on Vancouver housing: Economist
UBC Sauder School of Business professor says building more housing is the best way to address negative impact caused by out-of-town buyers.
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The best way to deal with foreign buyers pushing up Vancouver housing prices is to build more homes, according to a University of British Columbia economist.
Sauder School of Business professor Jack Favilukis, along with New York University’s Stijn Van Nieuwerburgh, have developed an economic model that gauges the impact of out-of-town buyers on housing costs and city welfare.
Their research shows Vancouver is more negatively affected by the same rate of foreign ownership than the Big Apple.
For example, a 10 per cent out-of-town buyer rate in Vancouver leads to price increases of at least five per cent, but just a 1.1 per cent increase in New York.
And while local sellers benefit from selling to an out-of-towner (defined as someone who purchases property but does not live in the home, rent it out or pay local income taxes), Favilukis said the net impact is negative for local owners and especially bad for renters starved of housing options.
The best solution, Favilukis believes, is more supply.
“In New York, we find that the impact is pretty tiny because New York is very large, [out-of-town buyers] is still fairly small relative to the total size of the New York real estate market,” he told Metro. “The most obvious solution, and the one economists say over and over again, is increase supply. As long as we’re not taking houses off the local supply by creating more, we should build more and more and more if we can. This is a simple supply solution and I think that’s the best possible thing the city can do.”
Such a move requires extensive rezoning of less dense neighbourhoods or more transit infrastructure to build more housing further from urban centres.
Both have proven to be tricky and hotly-debated in Metro Vancouver.
“Second-best” solutions such as taxation are less effective, Favilukis said.
“I think the 15 per cent foreign buyers tax is better than doing nothing, but I think it’s on the worse end of welfare improving policies,” said Favilukis, who would rather see property and income tax reforms to address out-of-town owners and empty homes.
Favilukis said foreign ownerships isn’t the biggest impact on Vancouver’s current housing prices but is still significant, according to his modeling.
Future studies will focus on other factors, he said.