A “Chinese shock” on house prices: study by the US Federal Reserve
The study used a methodology deemed racist by some in the Vancouver housing debate.
A United States Federal Reserve June 2020 Study who concluded that the country’s residential real estate market had experienced a ‘Chinese shock’ of foreign investment used methodologies similar to a 2015 Vancouver housing study that has since been pilloried by developers and civil rights activists for alleged racist overtones.
However, the reservation’s findings go to the root of the public policy proposals of Canada’s three major political parties, all of which are committed to restraining foreign investment in the housing sector – especially in large cities – with taxes and temporary bans for foreign buyers.
The reserve discussion paper authored by reserve board members Sheng Shen and Calvin Zhang, and Peking University HSBC Business School researcher Zhimin Li concluded that “residential real estate capital inflows from China significantly increase housing prices and employment in the local economy ”. Such impacts can cushion the local economy against downturns, such as that of 2009, but also have negative consequences for low-income residents and induce gentrification by forcing residents to relocate.
The study says it was “conservative” in its findings, recognizing a lack of data to determine the extent of foreign buyers. However, he arrived at his conclusions by grouping the non-Anglo-American names together, which is exactly what housing researcher Andy Yan did in 2015 to estimate the extent of Chinese investment in Vancouver’s housing market.
The study used only cash transactions and eliminated purchases made from U.S. lenders because foreigners are three times more likely to purchase cash. The study was adjusted for U.S. residents with non-Anglo-American names as well as the known proportion of those with Anglo-American names who buy cash.
Yan’s research in 2015 was a six-month look at 172 single-family home sales in affluent West Vancouver. He showed that 66% of buyers had non-anglicized Chinese names. Some politicians, such as then Vancouver Mayor Gregor Robertson, anti-racist developers and activists publicly criticized the study as being race-blind or racist.
Yan’s study was again criticized last February by the Commission of Inquiry into British Columbia Money Laundering of the BC Civil Liberties Association, whose allegations appear to contradict the reserve study. . The association claims on its website that anti-Asian racism “has played a significant role in public discourse on money laundering in British Columbia.”
The association says online that “contrary to popular belief, foreign investment is not a major factor driving up housing prices in British Columbia.”
To support her claim, she cites testimony from the BC Real Estate Association, which also admits that it does not have conclusive data on foreign ownership, and that it did not produce any studies using the granular data produced in the study of the reserve.
The association, a stakeholder in the investigation, asked Attorney General David Eby about Yan’s study, which he helped (as an opposition MP for West Point Gray) by providing files real estate transaction in Yan. Eby said he regretted that the study had brought the Chinese community into disrepute.
The association’s lawyer, Jessica Maginot, also asked a panel of housing researchers: “Would it be of the opinion of the panelists that this 2015 study might not tell us a lot about foreign ownership in this? Vancouver neighborhood? ”
SFU professor Josh Gordon said the study aligned with a mismatch between the area’s average incomes ($ 100,000) and average home prices ($ 7 million).
“I think subsequent data confirmed [Yan’s] the claim that this could indicate flows of funds from abroad, ”Gordon said.
Yan, director of the City program at Simon Fraser University, did not have a chance to defend his study during the investigation, but told Glacier Media, ironically, that the study of the reserve must be ” super racist, with a capital R, ”if hers is.
“This work is documented. You look at the methodologies. They use a 2006 algorithm. I mean, in the same way, my research follows a particular chain of methodologies that you see has been established for over 20 years, ”said Yan, who adds that both studies are big. part the result of poor data collection. by governments (although the authors of the reservation had a “much richer” data set than he did).
The reserve’s study determined that the Chinese government’s home buying restrictions and capital controls led to an increase in demand from Chinese nationals between 2007 and 2013. While other foreigners stopped buying , Chinese buyers have only increased in number. And this demand was eight times higher in neighborhoods with an already established Chinese population. The study used the county’s real estate transactions and a home value index.
It does not give a definitive figure on the impact, except that a standard deviation of overseas purchases from one postcode to another contributed to a 15% increase in house prices.
The study also found a negative relationship between Chinese real estate transactions abroad and the number of tax returns.
“The observation that home purchases by foreign Chinese are not accompanied by an influx of migrants could be reconciled with anecdotal evidence that foreign Chinese tend to leave their overseas homes vacant,” suggests study.
Such a conclusion goes to the origin of the British Columbia Speculation and Vacancy Tax, which aims to do two things: make homes available for rental and match home purchases with tax returns.
The study found a positive correlation with the service sector, or what is known as “non-tradable employment”.
Finally, the study concluded that “because low-income households are more likely to be renters, these findings imply that foreign real estate capital inflows are more likely to push local tenants to less expensive neighborhoods. In other words, Chinese real estate transactions abroad induce gentrification effects in local economies.