Friday, July 1, 2016

Mass Immigration and Vancouver House Prices

Mass Immigration and Vancouver House Prices
Herbert Grubel
Professor of Economics (Emeritus)
Simon Fraser University

Published in the Vancouver Sun, May 28, 2016

In recent years about 33,500 immigrants have settled in the greater Vancouver area annually. Assuming an average of three per family, the needs of these immigrants for housing has resulted in a demand of 11,166 units a year, 931 a month or 233 EVERY WEEK. This demand for housing is the direct result of the mass immigration permitted under federal law.

Speculative investment in housing by foreigners adds an unknown but likely very much smaller number to this demand. Virtually no demand has been coming from Vancouver residents as a result of births exceeding deaths and net migration to and from the rest of Canada.

It does not take a PhD in economics to understand that the demand for housing created by the immigrants and foreign speculators leads to higher prices. Whereas in the case of most goods price increases are restrained by the response of suppliers who can buy inputs at constant costs, this is not the case for the supply of housing. Land needed for building is in limited supply because Vancouver is surrounded by mountains, the ocean and the US border and is reduced further by laws restricting a large proportion of available land to agricultural use. Increased demand for this land leads to increases in its cost and the cost of building homes.

The other reason for the high prices of housing is that the efficient use of available land is prevented by codes restricting the height of buildings and regulations concerning safety, amenities, congestion and pollution. These codes exist because the residents of Vancouver want them.

Top prevent future increases in house prices, nothing can be done to eliminate the natural scarcity of land. This leaves only two alternatives. One is the relaxation of restrictive building codes, which requires the action of local politicians. There are no indications that the public wants their politicians to enact such a relaxation of codes.
The other alternative is the curtailment of mass immigration, which is the responsibility of the federal government. Such curtailment will not take place since federal politicians are pressured to maintain present policies by the many beneficiaries of mass immigration: The owners and workers in the construction industry; real estate agents; employers hiring immigrants to keep labour costs low and increase profits; retailers benefiting from increased sales to immigrants; the owners of land and homes whose capital gains depend on high demand by immigrants; the members of the immigration industry consisting of lawyers, consultants, providers of adjustment assistance, teachers of English as a second language and others who are paid by government to serve immigrants; members of immigrant communities wanting to increase their economic and political influence; immigrants who want to have their parents and grand-parents join them.

There are also Canadians who enjoy more ephemeral benefits from mass immigration: many socially conscious people who want to do good and get satisfaction from seeing immigrants escape poverty in their home countries, make Canada a globally admired multicultural society, create jobs and make its economy grow. Politicians whose re-election chances are increased by catering to these do-gooders and who, ironically gain status and self-esteem by designing and financing at tax-payers’ expense policies for the assistance of those suffering from the high costs of housing.

Because of the politics surrounding building codes and immigration policies, Vancouver’s young will continue to suffer from the high and increasing costs of housing. Many will leave Vancouver. Some will live in the basement of their parents’ home or share accommodations with others, postponing and often foregoing marriage and having children.

However, eventually the silent majority of Vancouverites who do not benefit from mass immigration may vote for changes in federal policies. This will happen once this silent majority becomes aware of the negative effects on their own well being caused by mass immigration: fiscal deficits resulting in higher taxes; lower wages and incomes per person; traffic congestion, pollution, scarcity of family physicians, hospital beds and university places and diminishing returns from multi-culturalism.

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