In February 2018, B.C.’s Finance Minister Carole James announced that it was the stated policy of her government to force down home prices. Together with a suite of initiatives announced at that time, she made it clear that the policy of her government was not just to moderate home price increases, but to enact whatever policy initiatives were necessary to bring them down.
With this announcement, BC entered unchartered territory. For the first time in history, a government in Canada announced that its policy was to reduce the wealth of its constituents. Approximately 70% of British Columbians own their own homes and for the vast majority it is the primary repository of their wealth and savings. Every home owner assumes considerable personal financial risk in purchasing their home, and most worked diligently to slowly pay down large mortgages. These purchasers knew marketplace corrections were part of the risk they assumed. Few expected that their government would willfully set out to destroy what they had worked to accumulate.
There were of course reasons for the NDP’s policy. Home prices had risen rapidly creating often insurmountable barriers to ownership for new buyers. British Columbians were angry and blaming foreigners and their foreign money. Something had to be done.
But almost a year and half later, it is worth assessing our government’s policy to see how it is doing so far.
First, it cannot be denied that it has been wildly successful. Never in history has BC lost so much wealth so quickly. Recent reports are that $90 billion has been lost in home value just in Metro Vancouver just over the past year. This figure is roughly 65 per cent of the entire annual economic output of the region (GDP $137B). It represents approximately $40,000 for every resident of Metro Vancouver in the year, almost matching average annual salaries.
What is the key to this success? It is that no rational person would make an investment into an asset where it is the stated policy of the government to make that asset worth less. Some observers point to other drivers of BC’s housing correction, especially federal government tightening of mortgage lending rules. However, the GTA has absorbed the federal changes and the market there remains healthy. The key ingredient in BC is that there is no reason to believe the market will recover so long as it is the policy of the government to ensure that it does not.
Second, the real estate development and construction industries, over 20 percent of BC’s economy, are facing a significant downturn. MLA Advisory’s April 2019 Pre-Sale Real Estate Insights stated that approximately 5,000 concrete units within 17 development projects have been postponed. Housing starts are down by at least 20 per cent. Further project cancellations are announced weekly. Billions in investment has already been lost, with job losses and associated decline in economic activity to follow.
Third, one is hard pressed to find the winners of this policy. Despite the massive wealth destruction and economic damage, few Millennials are now celebrating that they can finally afford a home. Nor would it make sense for any of them to buy a home, so long as it is the stated policy of their government to destroy the savings they invest.
For the believers in the policy, the argument is that the benefits of the policy have not been realized yet because it has not gone far enough. Surely, they believe, we can eventually wealth-destroy our way out of this problem.
Norm Streu is president and COO of LMS Reinforcing Steel Group. Send Industry Voices comments or questions to editor@journalofcommerce.com
Norm: nobody believes you. We’ve been listening to the news saying “record high prices” and “affordability crisis” and we’ve seen the impact for years. The Federal Conservatives, BC Liberals, and City of Vancouver all intervened to reduce the bubble, but you focus on the NDP like any good sponsor of the BC Liberals would. This article reeks of partisan favour and a detached reality to match the detachment of housing prices in the GVRD from any local demand or value. At least you declare your vested interest in residential development, as the Reinforcing Steel Group clearly participates in all kinds of development in the GVRD. Unfortunately, your opinion isn’t widely shared and every single government is aware of, and acknowledges the housing affordability crisis that has turned Vancouver into the least-affordable city in North America (by average income). The insanity has to stop, and your opinion can’t be allowed to go unchecked by people who are telling the hard truths here.
I agree with the policies put in place by first the Liberals (foreign buyers tax) and then the NDP. It was a bubble. If you invested all your money in RIM and it dropped then you made a bad investment decision. No different here. The bubble was created by money laundering from fentanyl and from speculation. It had to be popped before growing even larger.
Reduce the wealth of its constituents? More like reduce the size of the wallets of the fat cats that have pillaged this great province for their own short-term gain.
Can you provide any other industry (or real estate market for that matter) where growth has been so rapid and there’s a further expectation that it continues and that initiatives aren’t needed to settle it? The wild growth without any true or steadfast reason would even have stock market and bank regulators shaking their heads about the inaction of the former disgraced Liberal government.
This author has zero credibility and this article reads more like an advertisement for steel, lumber, and real estate industries who have become accustomed to lavish lifestyles in industries where minimal education and training are required. I – like the vast majority (and growing number) of people in this province will go NDP again and again until the Liberals turn away real estate lobby groups and corrupt political practices.
Signed,
Former Liberal supporter who came to the realization that they only support themselves and the wallets of their friends.