After a decade of soaring real estate prices that have turned ordinary homeowners into paper millionaires and added billions to the provincial GDP, the B.C. economy finds itself in a dangerous position, says an SFU professor.
On its own, real estate accounted for 18 per cent of B.C.’s GDP last year, according to Statistics Canada. Add in building construction, and it’s something like a quarter of the GDP — more significant than the oil and gas industry in Alberta.
“We have an economy that’s been made dependent on this through a faulty policy framework and this is a bad long-term model,” said Josh Gordon, an assistant professor in the school of public policy at Simon Fraser University,
The province relies so heavily on the real estate industry that a crash would have major impacts on both the economy and the everyday British Columbian, according to academics and former finance ministers who spoke with CBC News.
Jobs on the line
Thousands of construction jobs and an important source of tax revenue hang in the balance, as do the life savings of new homebuyers and the retirement plans of long-time homeowners. The experts say something needs to change.
“This is why you shouldn’t design your economy around real estate and real estate price appreciation,” Gordon said.
Many construction jobs could be lost if B.C.’s real estate market crashes. (CHEK News)
It’s not just the fact that real estate is king. Gordon also worries it’s become increasingly difficult for other industries to get a foothold in B.C.
When housing becomes as unaffordable as it is in many parts of the province, attracting skilled and talented workers becomes a major challenge, Gordon said.
If a true crash were to happen, he believes it would offer opportunities in the long term for other businesses to move in.
But in the short term, there would be pain.
“There’s a range of dynamics that happen in housing bubbles and booms, which is that people take on a lot of debt. So when that process stops or reverses, there’s a lot less discretionary spending that happens, so you would see an impact in the retail sector and so on,” he said.
Real estate is ‘not real life’
For Vladimir Dvoracek, real estate’s supremacy isn’t just an economic problem. It’s also sociological.
“What does life consist of? The important things are … having kids, playing with them in the park, holding hands with your spouse and going for dinner,” said Dvoracek, an associate vice president of institutional research at the University of the Fraser Valley.
“Speculation in real estate, sure it happens, but it’s almost become a mania in Vancouver. It’s almost all people think about, and that’s not real life.”
He believes that despite a raft of new taxes from provincial and municipal governments, the system remains fundamentally unfair. The average worker gives up a large chunk of each paycheque to income taxes, while taxes on real estate assets remain comparatively low.
“Transfer the incentive so that there’s more incentive to work and live and less incentive to speculate and hold,” Dvoracek said.
Finance ministers weigh in
Former B.C. Liberal finance minister Kevin Falcon acknowledges there were signs of an imbalance while he was in office in 2011 and 2012.
He remembers visiting Asia to promote the province’s credit rating to the world, and hearing stories about how huge sums of money were flowing out of China and into the housing markets of major cities.
“I remember saying to staff, we need to take a harder look at this,” Falcon told CBC News.
“I wish in some ways I’d hung around, because I think there were some policy things that maybe we could have considered earlier.”
Kevin Falcon was B.C. finance minister from 2011 to 2012.
He’s doubtful that British Columbia will ever experience a major crash in the housing market, citing conservative lending policies and the province’s attractive climate and scenery.
But he said the provincial and federal governments both need to work on supporting other industries like tech and natural resources.
“It would be a mistake if we relied on the fact that we’re a beautiful place and lots of people want to live here and turn it into a bedroom community for people from abroad,” Falcon said.
Fellow-Liberal Colin Hansen, who preceded Falcon in the finance ministry, is similarly dismissive of the theory that B.C. is in a real estate bubble.
And he argued that housing-related industries — particularly construction — have helped B.C.’s GDP grow at “very healthy rates.” He said that if a crash happened, it would be devastating for the province’s construction workers.
Hansen said he supports gentle moderation of the market that would cause prices to plateau, rather than drop. That includes construction of even more housing, and redirecting foreign investment away from luxury homes and condos and toward things like purpose-built rentals.
“If we are simply going to discourage foreign investment from coming into the British Columbia economy, that would not be a good thing,” Hansen said.
If you are interested in housing affordability, check out CBC’s new podcast, SOLD! Host Stephen Quinn explores how foreign investment in real estate divides community, class and culture. Find it at CBC Podcasts or Apple Podcasts.