Why don’t we have real estate data?

No excuse: Let’s follow Australia’s example rather than rely on a stew of anecdote and urban folklore

‘Data!” cry Vancouver’s beleaguered house poor. “Give us data!” Their shouting has yet to pierce the stone-deaf resolve of our senior governments’ refusal to do so.

In the meantime, the debate on the effect of offshore investment on Metro Vancouver house prices festers in a stew of anecdote and urban folklore.

The result leaves a bad taste in the mouth. It has set generation against generation, and fed antiimmigration and anti-Chinese resentment. Meanwhile, our governments and our real-estate industries offer up figures and arguments that are at best vague and at worst deflections.

As their excuses pile up about the difficulty of gathering data, or that the effect of offshore investment is negligible, or that rising house prices are the fault of municipal governments, they have begun to look not just feckless but complicit. What is it they do not wish us to know? What is it they themselves actively avoid knowing? Why not gather data, if just to calm the public and bring evidence to dispel the myths?

Australia went through this debate decades ago. Its Foreign Acquisitions & Takeovers Act is 40 years old. The original means of data collection, however, was spotty, and the rules governing offshore investment in residential real estate were so porous they could be easily skirted.

Last year, the Australian government held an inquiry into foreign residential real estate buying, and the inquiry committee was aghast to learn that between 2007 and 2014, the Foreign Investment Review Board, which regulates the act, failed to prosecute a single illegal foreign real-estate transaction.

It “defies belief,” the committee report stated, that there was universal compliance to the act for seven years. This gave rise to tougher new rules on compliance, higher fines and better co-ordination of data collection between government ministries.

( Since the new rules were enacted in May, the FIRB has begun investigations into 195 property purchases that could lead to prosecution. Whether those new efforts and rules will have any effect on house prices is still to be seen.)

But as porous as Australia’s data collection system was, at least there was some data, especially data collected by the Foreign Investment Review Board and the Ministry of Immigration. Using those bodies’ figures, and extrapolating from buyer trends, a team of Credit Suisse research analysts published reports on Chinese investment into Australian residential property last year and this. This year’s report was released on May 6, and while the report’s authors “bemoaned the poor data quality in Australia,” they still believed it to be “the best in the world” of its type.

“For example,” the report stated, “in New Zealand, where Chinese demand for housing is reputed to be strong, there isn’t a body even attempting to record these flows.” (Nor for that matter, they could have added, is there such a body in Canada.) Some of t he r eport’s highlights:

• The Chinese property boom in Australia will only accelerate. They predict an additional $60-billion demand for housing from Chinese offshore investors and new Chinese immigrants over the next six years to 2020. That will be more than double the $28 billion spent over the last six years. There is an aspect of inevitability to this, the authors conclude, since China is undergoing the greatest wealth creation in history, and Australia is on China’s doorstep.

• The stricter FIRB regulations, reporting requirements and increased fines, the authors feel, will have only a “marginal” effect on demand.

• In 2013-14, the authors calculated that investors based in China or new Chinese immigrants spent $8.7 billion on residential real estate, which was up 60 per cent from the year before and equivalent to 15 per cent of the new national housing supply. (Offshore investors are restricted mostly to buying new housing.) This figure, the authors admit, was “considerably larger” than what they had forecast.

• As in Canada, purchases were concentrated in Australia’s two largest cities, Sydney and Melbourne (both with populations between four and five million), where Chinese demand was the “equivalent of 23 per cent and 20 per cent of new supply, respectively.” That was an increase from the year before of 18 per cent in Sydney and 14 per cent in Melbourne.

“If Chinese buyers are on the verge of snapping up the equivalent of a quarter of new supply,” the study’s authors wrote, “we can see why house prices in both cities have outpaced income growth.” Their suggested remedy? “While we are forecasting big demand from Chinese buyers over the next six years, the impact on Australian house prices will largely depend on the level of supply.

“Without a structural increase in supply to match the structural increase in Chinese demand, there will unfortunately be strong property price inflation for many years to come.”

It should be said that there are academics and real estate experts who disagree with the Credit Suisse study. Some feel that domestic buyers are the biggest influence behind real estate prices, that cheap mortgage money and an ingrained culture of investing in housing rather than other equities are the main drivers behind the price rises.

But the difference between Australia and Canada is, they have a data set — however poor its quality — to inform the country’s debate on the issue. They also have a government that would rather inform that debate than ignore it.