With car sales breaking records in B.C., and long lineups happening in Vancouver’s trendiest restaurants, not many of us can imagine a sudden shift in our economy that could drive house prices down.
However, the stagnation happening today in neighbouring Alberta could also occur here too.
To understand how, let’s look at the recent history of Vancouver home prices.
Over the past 35 years there have been several global economic downturns, and Greater Vancouver has hardly been immune to them all.
In the early 1980s, our region saw a precipitous house price crash — with the value of many homes dropping around 40 percent within 18 months. Adjusting for inflation, the real value of some of these properties took nearly two decades to climb back.
Going forward — as the rest of the world faced economic collapses — real estate prices in Vancouver remained amazingly resilient.
It is said that Expo 86 buffeted B.C. against the stock market crash of 1987 because of its infrastructure spending on projects such as the Coquihalla Highway and B.C. Place Stadium, and its boost to our tourism sector.
Home values dropped slightly that year, but surged back before the next recession that arrived in the early 1990s.
During that time what should have been a hard landing for B.C. was cushioned by the concerns over the impending 1997 handover of Hong Kong to Mainland China.
Increasing numbers of wealthy migrants — many of whom purchased properties on Vancouver’s tony west side — helped to “recession-proof” our province, albeit temporarily.
During the subsequent Asian financial crisis of the late nineties, B.C. saw an immediate decline in home prices. The value of local real estate dropped by about 20 percent, and would not stabilize for nearly five years.
It portends what may happen here again if the flow of offshore capital dries up.
When Vancouver won the bid for the Winter Olympic and Paralympic Games in 2003, it became another catalyst for economic growth.
Billions were spent on Games preparations, including investments in the Canada Line subway, Vancouver Convention Centre, and Sea to Sky highway improvements.
It helped drive up the price of labour and land, and had buyers clamoring for condos right up to the next recession at the end of 2008.
Next, as home prices crashed elsewhere, Greater Vancouver experienced a comparatively minor price correction. The cost of detached homes recovered quickly and has not looked back since.
Our politicians are loath to speak freely about it, but there can be little doubt that the some of the recent capital flight from China — estimated $100 billion each month — has been a catalyst for our skyrocketing home prices.
And while B.C.’s economy has benefited from offshore investment, it has also contributed to house prices here that are not sustainable.
Consider that a professional making $400,000 a year could not possibly make mortgage payments on a typical $4 million west side home with his or her after-tax income.
You know it is tough when the “one per cent” can no longer afford Vancouver home prices.
So what can be done to make Vancouver housing more affordable? For our elected officials, the options are limited.
Driving down home prices through new regulations or taxation would either result in homeowners losing their equity, or in many cases their ability to make mortgage payments. Our personal debt levels have never been so high.
A sudden collapse in housing prices would have a ripple effect. Dropping car sales and restaurant attendance would be only the tip of the iceberg. Our whole economy would be impacted.
It would be a case of the cure being worse than the cold.
Most likely it will be forces outside our control that slams the brakes on runaway house prices here, such as increasing interest rates or the predicted clampdown on capital flight from China.
If housing continues to be out of reach for so many, it may force us to ask, do we have enough of the right kind of housing here? Are we willing to change more of our single-detached housing into multi-family units?
It is a shift that we all will have to come to terms with, and not just leave it to our politicians.
Originally published in Vancouver Courier.