Why High House Prices: Vancouver academics vs. Ottawa economists

Why are Vancouver real estate prices so high? For several years, Vancouver based geographers and political scientists have laid the blame squarely on wealthy Chinese immigrants and foreigners. The media has enthusiastically covered studies that promote this view.

But many of these studies are questionable. One SFU study draws conclusions by looking at how people spell their names. Other studies make assumptions that are incorrect. Some show a correlation between the arrival of wealthy immigrants and rising house prices but do not prove causality.

Some Vancouver economists have done good research and conclude that foreign buyers have a measurable impact on prices but do not have specific estimates. Most of them also believe that the best solution is a significant increase in housing supply.

Finally the Government of Canada has had 30 trained economists spend almost one year and $1.5 million to get to the bottom of this problem. They used massive data sets from Statistics Canada and academic quality research techniques to come to some startling conclusions.

These economists were able to predict 75% of Vancouver house prices just by plugging in income, population and mortgage rates. They identified the rest by determining the housing supply elasticities. Vancouver has the most inelastic house supply curve in Canada at around 0.25. They were able to determine the great majority of the rise in house prices. Wealthy Chinese play a very small role.

Government policies that restrict housing supply are by far the greatest factor.

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