The most stunning statistic to come out of China's offshore money-laundering mecca located in Vancouver, where over the past two years Chinese buyers have created the biggest developed world housing bubble in recent history as a result of unprecedented capital flight from China's financial system, is that just by sitting on their assets local homeowners "made" more in 2015 than the entire city population earned by actually going to work.
According to SCMP, while top-paying jobs aren’t easy to come by in the City of Vancouver - which partly explains its spiralling unaffordability - at least 75,000 "tireless workers" in the British Columbia city made the incredible average rate of C$126 per hour. Sadly, the Hong Kong website notes, "these workers are not among the city’s human inhabitants. They are its single-family homes." Putting this in numbers, the quiet "efforts" of Vancouver's houses (or, more accurately, the dirt on which they sit) whose value exploded in the past year, were rewarded so handsomely last year that they made their owners about C$25 billion, or about 30% more than the C$19 billion the entire city population made in employment earnings the entire year.
That shocking calculation comes courtesy of mathematician Dr Jens von Bergmann, a former teacher at Notre Dame and the University of Calgary. As SCMP reports, Von Bergmann now runs MountainMath Software in Vancouver, but his side interest is combining and presenting data in ways that help us better understand the city. He is best known for his “census mapper” depictions of Vancouver, that vividly chart the distribution of everything from poverty and mortgages to Irish ancestry.
For Vancouver workers, the results are disheartening: von Bergmann's calculations - which are the result of combining data from the Census and National Household Survey, the City of Vancouver, Metro Vancouver and BC Assessment – show just how much more lucrative it is to own a house in Vancouver compared to, say, slogging away in a cubicle or on the end of a shovel with the rest of the schmucks. Of course, to own a house in Vancouver one first has to work long hours for many years; however the baseline price has now risen so high it has become virtually impossible to be a local homeowner in Vancouver thanks to honest, hard work. Now crime and subsequent money-laundering by Chinese oligarchs on the back of the world's biggest financial bubble with $35 trillion in bank assets which have to be parked offshore asap... that's a different matter entirely.
Von Bergmann, who first posted his findings on the MountainMath site earlier this year, also raises an interesting point about the Vancouver affordability debate: while there is a hue and cry about the origins of buyers’ money as it floods into the market, there is a lot less about how to treat that money once it has arrived in the bank accounts of sellers. “[There is] a tendency to view the money that is buying Vancouver real estate very critically, whereas once locals pocket the land value rises that same money is suddenly welcome and well-deserved,” he said. “I find the vilification of the money pre-purchase in contrast to the silent acceptance of the money post-purchase problematic.”
Bingo, and that is precisely why the Vancouver housing bubble will continue because local politicians are mostly focused on the "post-purchase" aspect of the transaction. Of course, potential buyers could care less and are merely shocked by just how unaffordable the pre (or post)-purchase prices have become. And as long as this selective focus remains unchanged, so will the general Vancouver situation as the bubble gets even bigger, despite the unexpected warning by none other than the OECD last week warned of a "disorderly housing market correction" In Canada. The OECD is of course correct becuase while many of those have an incentive to perpetuate the status quo, only the poor and powerless want change and they obviously don't matter.
How does von Bergmann reach his conclusion that owners of single family houses earned more than all City of Vancouverites did by working? The latter part is pretty easy. The 2011 National Household Survey shows that the city’s average household income was C$80,460 (for the 2010 tax year). Multiply this by the 264,575 households in the city for total income of C$21.29billion. But of this total, only 78 per cent is attributable to employment or self-employment income (versus, say, investment income or welfare). So the total pre-tax amount that City of Vancouverites earned by actually working in 2010 was C$16.6billion.
Assuming that Vancouverites’ overall employment income rose at the rate Statscan suggests that median incomes did from 2010 to 2013, then did so again from 2013 to 2015, this results in total citywide pretax work income of about C$19.2 billion.
Von Bergmann offers a slight caveat here: “Average incomes have probably risen a tiny bit more than median incomes [because of] the nature of incomes at the top … generally growing faster. But [the] effect will be very small.”
On the other hand, calculating the amount “earned” by Vancouver’s single family homes is trickier. First, von Bergmann had to identify these homes, which he did by combining a City of Vancouver property outline dataset with Metro Vancouver land use data to calculate all single family and duplex properties, then subtracting stratified properties identified as having received multiple property tax bills.
In this way, he included houses with non-stratified basement suites or other dwellings, which are excluded from oft-cited census data that suggests about 47,000 single-family homes in Vancouver. Instead, von Bergmann concludes there are 78,740 single-family houses in Vancouver.
[It should be noted that the City of Vancouver has previously tallied about 76,000 single family houses; Von Bergmann said he could not explain that discrepancy. However, it’s not a big enough difference to alter his overall findings]
Von Bergmann then looked at the increase in value of these 78,740 properties, according to data from BC Assessment. Excluding building-value increases, the land-value-only increases averaged C$313,072, for a total land value rise of C$24.65 billion.
By simply dividing the average land-value rise by the average Vancouver household’s 62 person-weeks of work per year (and assuming a 40-hour work week), von Bergmann calculates that the owners of Vancouver houses earned about C$126 per hour for what he called “thumb-twiddling”. East of Main Street, the rate was C$92 per hour; west of Main, a whopping C$173 per hour.
“I am not entirely sure why anyone would want twiddling thumbs to stay so lucrative…or why earnings from thumb-twiddling should remain tax-free [as untaxed capital gains on a principal residence],” von Bergmann said on the MountainMath site.
Not everyone agrees with Von Bergmann’s general point, that the speed, scale and taxability of house equity increases demands scrutiny. It was in February’s throne speech, outlining her government’s agenda, that BC Premier Christy Clark made it clear she would “carefully protect the savings and equity that existing homeowners have painstakingly placed in their homes”.
“Painstaking” is not a word many would use to describe the process that last year saw the average price of a single family home in the Metro Vancouver rise by 40 per cent, hitting C$1.8million.
Of course, anyone concerned about Vancouver housing prices rising by 25% in one year and casting blame on homeowners who did nothing more than "twiddle their thumbs" will surely have nothing but praise whose destructive monetary policy may have crushed the American middle class and led to the widest chasm in income inequality on record (one which even the Fed admits is helped create) thanks to a market which has nearly tripled in the past 7 years purely as a function of a few money printers not twiddling their thumbs but instead repeatedly pushing the buttons CTRL and P.
One thing is certain: neither the US asset bubble, nor Vancouver's housing bubble have a happy ending.