In this column, which first appeared on the
Vancouver Condo Report website , BC real estate commentator and author Frank Schliewinsky argues that the softening of the Chinese economy could have a direct impact on the housing market in Vancouver. At least, it has in the past - but is that changing?. To read the story on the original site, click here.
In early August, the IMF suggested that China should lower its GDP target to 6.5 per cent next year instead of 7.5 per cent, primarily because of the continuing decline in the country's real estate market. So does this have any implications for the Greater Vancouver housing market? Probably yes.
Why probably? Because since post "economic meltdown 2008", there's been a disconnect between China's annual GDP growth and housing starts in Greater Vancouver. Prior to 2010, there was a fairly strong correlation between China's GDP growth, net migration to BC and housing starts in Greater Vancouver. But since 2009, starts have continued to increase while China's GDP dropped from 10.4% to this year's estimate of 7.5% (see graph).
In previous Vancouver Condo Reports, it was argued that much of this disconnect was due to non-resident and speculative purchases. So the question has to be, is this disconnect now a permanent feature of the Greater Vancouver housing market or not?
Total housing starts in Greater Vancouver are expected to be just over 18,000 units in 2014. In 2015, this market will be going into the 6th year of the present cycle. Housing market cycles typically last four to five years. The previous housing cycle was a bit longer, going from 2001 to 2007. But it's unlikely that the present housing cycle will last as long.
Based on the pre-2010 relationship between China's GDP, net migration to BC and housing starts, total housing starts in Greater Vancouver in 2015 are expected to result in only about 9,400 units; less than half of this year's expected starts. Although developers are unlikely to slam on the brakes this hard (lenders are always the last to figure out what's happening), demand is expected to slow.
For one, net migration to BC and Greater Vancouver will likely be down in 2015. For another, the flow of speculative money into the Greater Vancouver market may also slow down thanks to ever escalating prices for single family homes and a continuing crack-down on corruption in China which may see a repatriation of monies stolen by corrupt officials. The slack may be taken up by Russian oligarchs, but oh, forgot about the sanctions. And finally, there's a growing tide of resentment against foreign money pouring into the Greater Vancouver housing market and the inaction of politicians. This all adds up to a serious obstacle to business as usual in Vancouver.
