Front Burner - Vancouver's complicated relationship with Chinese money

Episode Date: November 5, 2018

Bloomberg's Vancouver bureau chief Natalie Obiko Pearson helps us navigate the city's complicated relationship with Chinese money. That relationship has ties to the city's housing affordability crisis. Tackling affordability is job number one for Kennedy Stewart, who begins his work as Vancouver's mayor today.

Hey there, I'm David Common. If you're like me, there are things you love about living in the GTA and things that drive you absolutely crazy. Every day on This Is Toronto, we connect you to what matters most about life in the GTA, the news you gotta know, and the conversations your friends will be talking about. Whether you listen on a run through your neighbourhood or while sitting in the parking lot that is the 401, check out This Is Toronto, wherever you get your podcasts. This is a CBC Podcast. Hi, I'm Jamie Poisson. This is FrontBurner.

Today is Kennedy Stewart's first day on the job as mayor of Vancouver, and he's taking control of a city that's been radically transformed by money, a very specific kind of money. Cash made in China and moved into British Columbia in huge volumes. You can literally see its impact, from high-end boutiques to penthouse condos. And that money, it's also been blamed for helping make the city so unaffordable. But Chinese money, it didn't just recently transform Vancouver. Some would argue that it helped build the city in the first place. Today, Vancouver's complicated relationship with Chinese cash and how solving that relationship might be the key to the city's future.

My name is Natalie Obiko-Pearson. I'm the Vancouver Bureau Chief for Bloomberg News, and my story is the city that had too much money. Natalie, thank you so much for joining me today. Thanks for having me. I'm hoping that we can start this relationship between Chinese capital and Vancouver. Just how far back does it go? Where does it start? It's a really long, deep, and complicated history, and I think that's part of the reason why it's made it so difficult

for Vancouver in some ways to address this question. I mean we're going back to the late 19th century when Chinese laborers were in Canada helping build the first transnational railway. That was the time when Canada was imposing a head tax on Chinese immigrants followed by decades of virtually an outright ban on Chinese immigrants. On behalf of the province of British Columbia, we sincerely apologize. The pervasive discrimination against Chinese immigration and Chinese immigrants is a stain on our history. And is there a place in time where this starts to open up,

where we're after this freeze against Chinese immigrants. So that's right. Like in the 1970s, Canada just broadly began liberalizing its immigration policies. And then you had a sort of successive waves of Asian immigration after that. You know, it was different in character. During the 1980s, Britain agreed to return Hong Kong to China. We are in the closing seconds now of Hong Kong as a British colony after 156 years. That was seminal for Vancouver in the sense that there was a huge exodus of both people and wealth coming out of Hong Kong looking for safer places to go and Vancouver was a natural destination. Right. So why would people want to move their money out of Hong Kong, looking for safer places to go. And Vancouver was a natural destination. Right. So why would people want to move their money out of Hong Kong at that time?

There was a lot of trepidation about what it would mean to be under Chinese rule again. People who had some degree of wealth wanted to take that to a safer jurisdiction. And, you know, I would point out here, there were also the there was somebody like Li Ka-shing. In the late 80s, he clinched the largest land deal in Vancouver's history, a $320 million deal to buy up this sort of vacant industrial land on the waterfront Falls Creek area. Rumors had estimated the sale price between $200 and $300 million. It's more. But about the buyer, there was never any doubt. He turned that into a bunch of gleaming high-rise glass towers that essentially became the template for high-rise development in this city. And to

this day, it's sort of symbolic of the arrival of Asian capital and city and also a target for those who want to criticize growing density or the influence of foreign capital in Vancouver. Completely transformed the city. It did. Downtown, let's just take Alberni Street as an example. That was this sort of dowdy thoroughfare 15 years ago. It had a Dollarama on the corner. You go there today,

there's a two-story Prada boutique, one of Rolex's biggest showrooms in North America, you know, five-star hotels, and it's some of the highest grossing luxury retail per square foot in the world. And do we think that most of this development is being done with Chinese investment? I think the simple answer to that is yes, absolutely. You go to any of these businesses and you talk to them and you say, who is a major target audience for you? And it's obviously these high spenders coming from Asia. I spoke to one commercial real estate developer who's now a venture capitalist named Ron Sean. He's an Asian immigrant himself, came over in the 1960s. And he says Asian capital has kept this city alive, period.

Like you can't deny it. Most of these places have bilingual staff on hand because that's how many clients you're getting from Asia. I feel like you've painted this great picture for me of the historical ties to Vancouver that Chinese immigrants have. What has been the draw beyond that for real estate being such an attractive thing in the city? And I would go back to Li Ka-shing here. I mean, I think you can probably talk about a turning point that happened there. Li Ka-shing's investment in Vancouver helped place Vancouver on the map for an entire generation of Chinese, not just in the mainland, but sort of in the Chinese diaspora across Asia. And now we're talking about the kind of people who have the wealth, the prosperity to think

about buying a place in Vancouver as an investment, not necessarily uprooting and rebuilding your life there the way previous waves of immigration might have. your life there the way previous waves of immigration might have. Do you have a sense of why or what potential that Li Ka-shing saw in Vancouver in the first place? It's very easy. It's very comfortable for Asian immigrants to come to Vancouver because you have this long history here. If you land in Vancouver, you are going to find great Chinese food.

You know, you're going to find a community of people who already speak your language, you know, that is maybe sets Vancouver apart from, say, taking your money to a London or New York or something like that. Obviously, part of it is that there are limitations on how capital can be used back home in China, too, right? Is it a combination of those two things? Absolutely. So and I'll speak to the sort of most recent wave of mainland money that's come. You know, there are restrictions that were imposed by China on how much every person could take out per year, a $50,000 per year nominal limit. The Chinese for many years were getting around those because they perceived it as a safer place to put at least part of their assets abroad, sort of like an escape hatch or a plan B is what a lot of people talk about. What do we know about how far reaching the influence of Chinese money is on the real estate market in particular in Vancouver? I think most people living in Vancouver would say that for a long time, the signs were all there, you know, bidding wars, open houses, where obviously, clearly a huge portion of the buyers were Chinese or Asian buyers paying in cash. You know, clients coming over from the mainland or Hong Kong on 24-hour buying trips, they'd get off the plane, go buy a couple properties, get back on the plane and fly back. Right. It's like this massive anecdotal evidence.

But then you ask, okay, so then where's the evidence? And that becomes a lot trickier because if you want hard, irrefutable numbers about the influence of Asian money in Vancouver's real estate market, the data simply wasn't there for a long time, and it's still not completely there. The BC government was the first, then in 2016, began actually collecting citizenship data. And one telling figure, the first time they actually publicized the first batch of foreign buyer data in the middle of 2016, it showed that in a five-week period, $1 billion of foreign money flowed into Vancouver real estate. Wow.

That was the first and last time the BC government ever gave a breakdown by citizenship of those foreign money flows. I'd go back that $1 billion, the largest proportion of that money came from Chinese buyers. These issues that you brought up in relation to Chinese money that have to do with foreign ownership, these are things that people can get really emotional about. What's the impact on how people get along in Vancouver, especially given how large the Chinese Canadian population is there? You know, it's really tricky. And I would actually say because it can be such an emotional issue, that's what made it so difficult to talk about this for a long time. I mean, I arrived in Vancouver two years ago.

difficult to talk about this for a long time. I mean, I arrived in Vancouver two years ago, and at the time, anyone who tried to talk about Asian capital in the real estate market was being called a racist, and that has the effect of stifling debate. I think that has evolved as the pricing pressures have gotten worse and the tensions have gotten higher. I think probably the latest municipal election says it all. It's become a problem that you can't deny anymore, and that's why it was the biggest issue in the latest election that we had. Right, these elections are becoming a referendum on real estate. And on housing, how do you get affordable housing in?

Everyone in this campaign is talking about building more housing. There is so much that we can do immediately to create the housing we need. Everybody here is working hard. They're making money. They deserve a fair shot in the market, and you're not giving it to them. How are you going to ensure that you're not going to be taxing the homeowners across Vancouver to death? And if that is the issue, we can ignore the impact of Chinese money. Exactly. So not only has there been this historical connection to Vancouver that has facilitated Chinese people coming and moving their money to Vancouver, there's also a system that has made it very easy for it to happen.

That's absolutely true. So there's a new mayor and a provincial government that's trying to deal with the not so desirable parts of that impact. We can start spending time with each other doing something other than talking about how high our rents are. So thank you, Vancouver. Let's get to work. What do we know about what they're doing about it? work. What do we know about what they're doing about it? So, you know, as you mentioned, a new mayor has just been voted in. And I would say that the election was all about housing, housing, housing. What Kennedy Stewart has said is that housing, affordable housing is top priority. He's ran on a campaign to build 85,000 new homes over the next 10 years. And tellingly, he said that he wanted to protect half of that from foreign speculation. It's not entirely clear

how he plans to do that. But he's also said he wants to triple Vancouver's empty homes tax. I know that it's working. Homes are starting to fill up because those speculators are saying, okay, well, I don't want this tax. So I think any policy that's working, we should make it more effective. And that tax obviously was one that was sort of interpreted as being targeting foreign investors who buy properties, park their wealth there, and then don't rent them out and leave the lights off the whole time. Ultimately, you know, a lot of the tools lie at the hands of the federal government. And what could the federal government do, hypothetically? So one thing that they have actually already done is that they've agreed to share tax info

with China. So if they begin, you know, the premise is that when Canada and China begins sharing tax information, it will make it much more difficult for those who are seeking to sort of place anonymous wealth in Canada and not pay tax in either jurisdiction. You know, they might. It's no longer going to be that easy. One question I have, which I'm grappling with, is if these different levels of government succeeded in stopping the flow of this money, what would happen to the city if the cash dried up? to the city if the cash dried up. Vancouver isn't known for being an economic powerhouse in terms of industry. It's not the center of banking in this country. But it does seem to be driven by this money that has also made it the city that it is. So what happens if this money goes away? And I think that's precisely it, Jamie. I mean, that's why we're talking about Vancouver and maybe not necessarily San Francisco or Sydney or some of these other gateway cities. Vancouver does not have as deep an economy as some of these other places.

We've also seen similar influxes of cash. I think one of the things that struck me when I moved to Vancouver was in some ways, you kind of feel like the real estate is the only game in town when you first arrive. And the other question is, so if you wanted to diversify the economy in Vancouver, how would you do that in a city where no one can really afford to live in it? And I think that's the catch that we're sort of facing right now. You know, there's this recognition that the city needs to diversify and it needs to attract more well-paying jobs. How do you do that when it's already become so unaffordable? And I think it could be a double edged sword that it's also turning out to be a bit of a tech hub because that's the one industry that has been sort of accused of doing the same thing

to other cities as what foreign money might have done to Vancouver, you know, inflate housing prices. Right. San Francisco is a perfect example of that. Or Seattle. So what's next for Vancouver? Where do you see this going? I think it's really, it's such a tough issue because you talk about what the different levels of government can do. But when you come down to it, what is this issue about? It's about Asia's rise and it's about where economies are growing the fastest in the world and where wealth is being created. And that goes beyond probably the ability of any government to control. We talked to Chip Wilson, the founder of Lululemon, for this story. And he said, because he has a lot of experience going back and forth between Asia and Vancouver, and he says

every time he comes back to Vancouver, he thinks to himself, buy land, buy land, buy land, because this flow of funds is not going to stop. You can try and control it. You can try and maybe temper a little bit, but it's not going to go away. Natalie, thank you so much for taking the time to chat with us today. Thanks for having me. As I mentioned at the top of the show, Kennedy Stewart takes over as mayor of Vancouver today. Affordable housing was his main campaign issue, and the city just announced a plan to build up to 650 affordable rental units. If your household makes more than $80,000 a year, though, you won't qualify for one. The plan is to build these units in False Creek. Once again, that strip of land could represent a new stage in the city's transformation, just like it did when Lika Sheng

bought it all those years ago. Thanks for listening to FrontBurner. I'm Jamie Poisson. See you tomorrow. For more CBC Podcasts, go to cbc.ca slash podcasts. It's 2011 and the Arab Spring is raging. A lesbian activist in Syria starts a blog. She names it Gay Girl in Damascus. Am I crazy? Maybe.

As her profile grows, so does the danger. The object of the email was, please read this while sitting down. It's like a genie came out of the bottle and you can't put it back.