
The City That Had Too Much Money - prostoalex
https://www.bloomberg.com/news/features/2018-10-20/vancouver-is-drowning-in-chinese-money
======
sonnyblarney
Canada generally exports natural resources, and not much else besides
assembled cars that we don't design. (We don't have a lot of high valued
exports - highlighted by the odd trading relationship Canada has with China:
they buy natural resources, and we buy finished goods from them, which is the
opposite of most 'wealthy v. upcoming' trading relationships. Of course China
overall is wealthy but per capita it's not)

But what Canada does maybe the best in the world is 'boring, stable
governance' \- which is what so many people want.

If the environmentalists would have it ... and I was King ... I would carve
out an area on Vancouver Island and make it basically like Singapore - an open
city state, that Canada manages, but basically for expats from anywhere.

Anybody can come, keep their homeland citizenships, and live in a super above
bar and stable regime. There'd be a few extra rules here and there, and they
wouldn't be citizens - but they'd get what they want.

This way you avoid the massively disruptive socioeconomic issues, and you can
actually possibly create industry and a new kind of financial sector, and
maybe a few added taxes to boot. Win Win Win all around. All complexities
aside, BC residents would protest it to death merely on environmental grounds.

~~~
iguy
"boring, stable governance" as an export industry is a good observation. I
think this is true of other places too, for example in London both the top-end
property market, and arguably the City, are doing exactly this.

It would be nice if they could figure out how to export this with fewer side
effects. I don't quite know whether a city-state Vancouver is the right
measure though. What does this solve compared to the status quo? Living in
Vancouver is already unaffordable, but other places are not. Would such a
setup lower the barriers for Chinese businessmen to buy a flat there very
much?

~~~
sonnyblarney
" Would such a setup lower the barriers for Chinese businessmen to buy a flat
there very much?"

That's not a concern :)

The issue is to provide 'stable governance' for those who need it, while
protecting regular folks from massive inflation due to external factors.

Vancouver's 'regular' (ie non construction) economy is being hurt by this -
why? Because nobody can afford to live there on regular salaries. Very few
entities would consider opening up an office where the 'prevailing wage'
cannot attract people.

Consider the 'cost' for buying property and who gains from it? The arbitrary
owner. What if that 'cost' could be transferred by way of taxes, instead of
property speculation?

So a 'New Singapore' with land owned by the state and leased out for long
periods, and a series of taxes to make sure the surpluses are mostly derived
by the state and not property speculation. Surely it'd be expensive to live
there, some kind of market function. But a small area could accomodate quite a
few people. 90% of these major expenses are real-estate, and I don't mean
development, I mean speculation.

So this way - Canada can 'export' stable governance and protect local
economies. If ex-pats want to move to Van they can get citizenship etc.. but
that would slow down as it should be easier - and probably more convenient -
to just move to the a new, well managed city state.

A huge financial services sector would immediately pop up and there'd be tons
of jobs there for those who wanted to work in that sector. Major private
wealth management funds, with assets under Canadian domain, not PRC. Safe
investments, safe place for domicile etc.. Great export :)

~~~
iguy
I guess I'm dubious that you can engineer "surpluses are mostly derived by the
state" while maintaining the credibility that makes an apartment in Vancouver
so attractive in the first place.

Those apartments have secure title, under stable property rights, because they
are under the same system as every ordinary Canadian voter's house. That's
what protects them: there would be a revolt if you messed with all the
ordinary voters.

Would you be as keen to buy an apartment that instead fell under some special
laws which are designed to squeeze you, the foreign investor, to the benefit
of the voters? I think you'd be pretty worried that next time there's a
pension crisis, or an oil crisis, they'll be very tempted to squeeze you a bit
harder, and then a bit harder...

I wish there were ways to exploit this export market with less side-effects.
There are smaller ones, like Nestle's roaring trade in trustworthy powdered
milk. But in general it seems hard.

------
projectramo
I just assumed that the tales of “Chinese money” in Vancouver was part
exaggeration and part fear of change and foreigners.

Real estate everywhere is booming in nice cities.

However, I may have been hasty in that assessment because this single number —
the first estimate I have seen — is mind numbingly large:

“of their country’s capital controls. Since mid-2014, capital flight from
China may have totaled as much as $800 billion, according to estimates from
the Institute of International Finance.”

~~~
tomcam
Those tales are not exaggerated. The $800 billion feels very right, and
possibly even conservative, to me. Source of anecdata: many investments in
China, Asian family, frequent visitor to Vancouver. Few high net worth Chinese
nationals expect to be able to keep their money from the government in the
long haul.

Racism/fear of change aren't factors. Locals would fear "these people" moving
in and jacking up real estate prices if they were German, Swedish, or Danish.
The problems are quite practical: as with older property owners in Silicon
Valley, locals love seeing their own house values skyrocket, but no one thinks
about the fact that once they sell they won't be able to remain.

~~~
johnchristopher
> but no one thinks about the fact that once they sell they won't be able to
> remain

Wouldn't it be hard to stay anyway once real estate price go up for the sheer
fact that rich people are coming and so prices for everything will go up
anyway ? Is my simplistic reasoning flawed ?

~~~
techsupporter
I've asked this question to a person I know who is an academic in economics
(not a world-renowned economist, just someone who does economics at
university), for what it's worth, and what she told me is--in my paraphrased
understanding--that if a market goes up "naturally," or by the usual forces
people regularly expect (usually around jobs), then wages tend to also go up
so housing and other goods remain mostly affordable relative to local wages
being paid.

The issue in cities and areas like Vancouver and Seattle and San Francisco--
ones that aren't just hubs for high-paying technology jobs but also ones where
overseas capital has made inrushes--is that wages haven't been able to keep up
with the outside capital. So property of all types (it's just that most people
only directly care about residential property, but commercial property also
goes up and that increases the cost of other things in the local economy)
rises in price while wages don't, so a major disconnect starts to happen.

This is a two-paragraph summary of a nearly three-hour conversation we had, so
there's a lot of nuance I've left out. Zoning, development, density, and all
of the rest around property use _also_ affect prices and, according to her,
probably more than inbound foreign money, but the added money has an
influence.

~~~
api
Non-local residential property should be taxed at a significantly higher rate
than owner occupied or locally owned properties. That would both solve the
problem and provide much needed revenue.

~~~
stevenwoo
There a number floated at 57 million for 2018? value of Vancouver property
purchased by local students with zero income - so this only tallied the ones
not clever enough to use shell companies or lawyers as described as the other
money laundering techniques to purchase homes, though the casino cash to chips
to cash might be most brazen. I think just like the UK hsd recently done -
stricter anti money laundering rules, income transparency are needed.

~~~
TheCoelacanth
So at Vancouver prices, something like 20 houses? That seems like a number
that could easily hit just with students from super wealthy families who
legitimately live there. I don't see any reason to believe that involves money
laundering.

------
Invictus0
> About 500,000 people in greater Vancouver have Chinese heritage,
> representing roughly 20 percent of the population, according to Canada’s
> latest census. The proportion is highest in Richmond, just south of
> Vancouver proper, which is more than 50 percent Chinese. The suburb’s main
> commercial drag is No. 3 Road, a boulevard lined with big-box stores and
> shopping centers fronted by Chinese signage. The most elaborate is the
> Aberdeen Centre, a curvy mall sheathed in a colorful grid of translucent
> glass. It was built in 1989.

> Over a lunch of steaming soup at Chef Hung Taiwanese Beef Noodle, a bustling
> second-floor restaurant, the mall’s developer, Thomas Fung, explains how he
> arrived at the idea. Fung, 67, is slim, with spiky black hair and delicate
> features. The son of a prominent Hong Kong financier, he arrived in
> Vancouver in the 1980s and did everything from running bakeries to film
> production. He soon grasped that the city was about to change dramatically.
> “I believed that in the coming 10 years, because of the 1997 issue in Hong
> Kong, there would be a lot of new immigrants coming over here,” Fung says.
> He knew they’d want the comforts of home, which led him to conceive of a
> shopping center that would stock the same goods as the megamalls of Hong
> Kong’s Causeway Bay.

This capital influx problem has been decades in the making. I'm curious: what
social problems are brewing today that we won't see the effects of until 10,
20 years down the line? How do you identify these trends? In Fung's case, it
seems he identified the trend correctly by living directly in the midst of it.
Is it possible for an observer to find these trends as well?

------
tomcam
tl;dr Vancouver is undergoing wrenching changes due to unfathomable amounts of
Chinese money. This is inflamed by British Columbia's surprisingly lax
approach to financial transparency in foreign investment and liberal
immigration laws. It has priced locals right out of the market, though recent
changes in tax structure are cooling down real estate investment.

Article doesn't do a good job of covering "little thirds", mistresses who are
settled there with an apartment and allowance, or of unaccompanied "college
students" who spend way more time vlogging than studying. Anecdotally a
shitload of people following those descriptions have been shipped in, an
influx that has slowed drastically with real estate taxes meant to punish this
behavior.

The city of Richmond just south of Vancouver is mentioned but its import is
arguably understated by the article. It's a fascinating place, and Richomond's
"night market" (sort of a combination fair midway/flea market) is an electric
experience soon to be imported to Silicon Valley, where it will be a huge hit.

Westerners generally speaking have absolutely no clue about the importance of
a stable currency, which implies a stable political system, a nation that
respects rule of law, and a notion of property rights. This leaves only a few
countries, namely the US, the UK, and a couple of Western European nations.
Wealthy Chinese absolutely do, and they are scared out of their minds that the
tyrannical regime there will separate them from their assets. These people
remember the Cultural Revolution. So the West is the first resort for
relatively safe storage of their often questionably-gotten cash. (More
adventurous/volatile places to invest, like Africa, are riskier but often have
a higher upside.)

Because I apparently hate good karma I will observe that we used to love going
to Vancouver, especially the weeklong jazz festival, but we don't any longer.
Like Seattle, the fun places to walk have largely been overrun by street
people who use hard drugs and leave needles around. None appear to be Asian.

~~~
psergeant
> the UK

Probably not for much longer, given the rather interesting
[https://en.wikipedia.org/wiki/Unexplained_wealth_order](https://en.wikipedia.org/wiki/Unexplained_wealth_order)

~~~
wincy
Wow, so much for "innocent until proven guilty".

~~~
coughupalung
I imagine it's like most money laundering laws where the circumstantial
evidence that prompted the investigation is enough to convict if you don't
provide a verifiable explanation.

------
mthoms
Sitting here in my (Chip Wilson owned) $2000/month one bedroom East Vancouver
apartment, I'd say this article really hit close to home.

Literally.

While I support the conclusions drawn in the article, there is one important
factor that wasn't emphasized - weather. People from all over Canada come here
for the (relatively) mild temperatures and snow-free winters.Thus you have a
market where demand already exceeds supply before even factoring in foreign
ownership.

~~~
dawhizkid
Is $2000/mo a lot or a little? Sorry being in SF I seriously can't tell.

~~~
eafkuor
Damn. I live in Poland and pay around 500USD for a comfy apartment in one of
the best neighbourhoods in the city, close to nice parks and to every store
you need. I definitely recommend making the move if you are willing to learn
Polish (not needed at all for a job in IT, but useful if you want to live here
long term). Worst case scenario you can always move back. That's what I was
thinking when I moved, but in the end I decided to stay.

~~~
dawhizkid
You can find that too in the US, just not in major coastal metros.

~~~
olvo
Can you? I would have thought that most US cities are either too small or too
expensive for that. Or are you talking about the amount of rent specifically?

~~~
TomMarius
The USA is a huge place where cities are sometimes spread among vast
distances, that has lead to creation of extensive urban centers like you
described that are somewhat distant and thus cheap. You can find dozens of
cities like that, but of course, the wage is also considerably lower. There is
a phenomenon of US digital nomads - people who work remotely but move only
across the USA, instead of going to e.g. Asia.

------
jorblumesea
The same is true for most of the West coast to a certain extent. But with
liberal Canadian immigration policies and lax financial restrictions,
Vancouver is an easy target.

Westerns have forgotten or do not understand how stable and safe the West is
compared to most of the world. Chinese have never forgotten that they live
under an authoritarian regime.

------
bparsons
One thing that gets overlooked by many when discussing Vancouver real estate-
it is a very tiny municipality.

Unlike most other North American urban centres, Vancouver resisted
amalgamation with all of it's connecting cities.

The result is a geographically constrained area (Vancouver proper) surrounded
by cities that are effectively it's suburbs (greater Vancouver).

Homes and rents are _somewhat_ more affordable when you look at these suburbs,
although they have increasingly gotten worse.

The residential data from tiny Vancouver has increasingly become absurd, as
people focus on this small handful of luxury neighborhoods in the centre of a
large metropolitan area.

------
stuxnet79
Now that BC is cracking down on the money laundering in Vancouver, the exact
same story is playing out in Toronto and to a smaller extent, Montreal.
Canadian cities have been hard hit generally speaking, because it's a lot
harder to do this kind of shady stuff in American cities. Also Canadian dollar
is cheap.

~~~
superseeplus
It does happen in American cities too. Many of the very expensive apartments
on Billionaires Row were bought by rich foreigners trying to park or launder
money.

------
dqpb
> Much of the money coming in has been legitimately earned, if sometimes
> extricated by gray-market means. But officials say that a substantial
> proportion is the proceeds of corruption or crime, including the illegal
> sale of opiates such as fentanyl.

This is how you gently and quietly wage war against a society. Sell drugs to
the youth and then buy up all their property with the proceeds.

~~~
pmorici
Do youth typically own property now days? Maybe things have changed since I
was young but I was a renter and had few possessions in my youth.

~~~
closeparen
No. That's why spiking asset prices hurts them. (It's great news for people
who already own homes).

------
tw1010
Has this happened before? How can we learn more about this phenomenon by
looking at history? To me this is an entirely new phenomenon.

~~~
Alex3917
Well you've got cities like Miami and Providence which were built with cocaine
money, cities like Havana and pretty much all of the Netherlands that were
built with money from the slave trade, etc. Not really new. And then you've
got places like New York where a large percentage of the money coming in has
always been from illicit or semi-licit activities, but never so much that it
was the overwhelming majority of the economy at any given point.

~~~
selimthegrim
Miami I get but Providence? I thought the Italian mob wasn’t into cocaine?

~~~
Alex3917
Not sure, here is a NYT article on it though:

[https://www.nytimes.com/1985/08/25/us/rhode-island-a-
crossro...](https://www.nytimes.com/1985/08/25/us/rhode-island-a-crossroads-
for-cocaine.html)

------
tomcam
> It’s not the business capital of western Canada—that’s Calgary

Can someone explain what this means? It seems like Vancouver is most
definitely the de facto business capital of Western Canada but I base this
solely on my observations as a tourist from Seattle and friendship with
Chinese real estate broker.

~~~
refurb
A few of my business school classmates fell in love with Vancouver and wanted
to move their after graduation.

They found out pretty quickly there aren’t as many jobs in Vancouver as one
would expect. As others have mentioned, lots of regional office, but not many
headquarters.

You’d have a much easier time finding a job in Calgary or Toronto than
Vancouver.

It’s a big, well known city, but has fewer professional jobs than you’d
expect.

~~~
sonnyblarney
"lots of regional office, but not many headquarters."

You could say this about Canada in it's entirety.

~~~
refurb
True! I was speaking more around Canadian companies.

I believe Calgary has the highest number of corporate HQs in Canada.

~~~
sonnyblarney
Toronto has the highest number of HQs.

Calgary may have a higher number per capita - or - they may 'technically' have
more HQs because of the vast number of shell companies that exist for complex
resource extraction events. Kind of like Delaware in the US.

~~~
refurb
Half as many as Toronto, but twice as much on a per capita basis.[1]

[1][https://www.calgaryeconomicdevelopment.com/dmsdocument/133](https://www.calgaryeconomicdevelopment.com/dmsdocument/133)

------
pm24601
A follow on problem: If there is a problem at a property Vancouver needs to
track the beneficial owner to handle liability and maintenance issues.

Vancouver has a problem of determining responsibility for poorly maintained
buildings, fire code violations, etc.

------
rb808
The interesting thing to me is - do the Chinese politicians and business
leaders see the money laundering as a problem that needs fixing. Or is it
those same people that are doing it? IE are all powerful Chinese people doing
this or a minority.

~~~
Latteland
I think it's probably both. Many of them are doing it, and they have to make
filial piety towards the government rules. Since China has been trying to
kidnap ex-pats who complain about the government, it's becoming harder and
harder for people to have the guts to come forward.

------
daneyh
Sydney and Melbourne, Australia have seen this exact same problem

------
Tsubasachan
Ah Canada. The Civilized State of America.

Its not the Chinese you should fear, its the fifth columnists from your
Southern neighbour. The Chinese immigrants don't vote and they don't really
hate Canada.

------
mcny
Once again, I think it absolutely is racism and bigotry when they talk about
Chinese money.

Canada knows the solution to this "problem": higher property taxes for
everyone. No, not just got absent owners. Use this money to fund
infrastructure spending. Help increase supply of housing. The Chinese don't
have unlimited monies. They can't print the US dollar...

Of course, home owners don't want to pay higher taxes. They don't want
property process to fall. A bunch of hypocrites if you ask me.

~~~
api
It has nothing to do with racism. If this were a flood of German or British
money distorting the market it would be the same.

~~~
mcny
But if they're buying houses and paying property taxes but not using any of
the services their taxes pay for, aren't they doing us a service?

It sounds like property taxes are unsustainably low the more I hear arguments
against the Chinese money.

Disclaimer: I'm not of Chinese descent and I'm definitely poor so none of this
benefits me. I'm just trying to understand what people are saying because it
all sounds like a bunch of dog whistling where people say something but mean
something else. I just want us to be open and honest with our bigotry if it is
bigotry or greed if it is greed.

~~~
Latteland
The expense of housing comes from the people outside buying up all the open
supply at high prices, so it's hard to afford a house. Also the supply of
houses is lower, making apartments even more dear. Next many of the houses
aren't lived in, so local area businesses don't have enough customers and
close (grocery, clothing, restaurants).

~~~
mcny
> Also the supply of houses is lower, making apartments even more dear.

Please don't buy into this nonsense. Your sibling comment brought in some
actual numbers:
[https://news.ycombinator.com/item?id=18269257](https://news.ycombinator.com/item?id=18269257)

BC has relatively low property taxes for the area. But you can't raise them
now or all the current homeowners would revolt as their taxes goes to
unsustainable levels. Nearby seattle's king county has a tax rate of %1, texas
has rates around %2, while saanich is %0.4. The UK doesn't even really have
property taxes, just council taxes which charge flat rates for things like
garbage collection AFAIK.
[http://www.saanich.ca/assets/Community/Documents/Property~Ta...](http://www.saanich.ca/assets/Community/Documents/Property~Tax/Tax%20Rate%20Chart%20-%202018.pdf)

The property taxes are too low to be sustainable. Progress always causes some
problem for some people but we must go forward with it. Raise property taxes
for everyone.

> Also the supply of houses is lower, making apartments even more dear. Next
> many of the houses aren't lived in, so local area businesses don't have
> enough customers and close (grocery, clothing, restaurants).

What kind of hot garbage is this? Isn't the whole point of a market economy
that we don't have to centrally manage grocery stores (and indeed that it
asserts we cannot do this efficiently in the long run)?

Of course, planning has its place. Higher taxes in itself does not solve any
problem. We still need to plan city expansion and not just build new suburbs
because "ZOMG the Chinese will pay for it". That's not what I am saying but I
am saying that existing home owners have been benefiting in a manner that I
consider unsustainable and we should thank the Chinese elite for exposing our
double standards.

We live in a democracy and as such we have an obligation to think beyond our
immediate short term benefit when we vote. Vote for sustainable tax
structures. I am not saying property taxes should be 50% of appraisal value.
In fact, I think we should aggressively cut salaries and wages in the public
sector (especially at the top). But lets not delude ourselves by pretending we
can think "smart". The extra money raised from increased property taxes (which
should damper home prices somewhat already) must be spent in a very
disciplined and planned way to increase capacity (which will further decrease
home prices). I think we can do it but we can only do it if we want to do it.
There will be a little pain but there's simply no way around it I can think of
that leaves our moral fiber not too frayed.

~~~
Latteland
I think it's basic economics that when there is increasing demand and an
increasing shortage, that the cost of the decreasing housing will go up in
price, and I think that is what happened in Vancouver. This article suggests
that it's very likely decreasing house prices has been pushing apartment
prices down, because housing is more available b/c it's cheaper [1] "he's
willing to suggest that declining property sales could be leading many real
estate speculators to rent their properties out rather than put them up for
sale." which is connected to more houses available and thus less demand on
apartment. That seems pretty clear.

I'm not pushing an agenda for the government to intervene, I'm just reporting
on the basic economics - demand went up, supply went down (more people moving
there, and also houses bought but not on the market) led to higher prices.

Also, on my second point about neighborhoods losing their commercial
infrastructure because of empty houses, isn't that obvious too? I honestly
feel like you were replying to another post and accidentally used mine.

[1] [https://www.cbc.ca/news/canada/british-columbia/are-
vancouve...](https://www.cbc.ca/news/canada/british-columbia/are-vancouver-s-
sky-high-rents-finally-falling-1.4735345)

