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Why the ‘Housing Crisis’ Is Really About Globalization

Free-flowing capital breaks the link between prices and local incomes — and most of us are shut out.

By William E. Rees 18 Jan 2018 | TheTyee.ca

William E. Rees is professor emeritus of human ecology and ecological economics at the University of British Columbia.

Complex problems are called complex for a reason. They may be several layers deep; people may mistake mere symptoms for the real problem; we confuse causes and effects; there are lags and thresholds and positive and negative “feedbacks” are in play that we cannot even detect.

Unfortunately, all the significant issues confronting the contemporary world — climate change, spreading marine dead zones, land degradation, biodiversity loss, human population growth, economic uncertainty, egregious inequality, etc. — are complex problems. Even trained experts don’t often truly understand them so we can hardly be surprised if sometimes policy solutions are ill-conceived, misdirected and ineffective.

Consider something as basic as housing. It is commonly assumed that parts of Canada, including Metro Vancouver and the Toronto region, are suffering a housing crisis. But this merely confuses a painful symptom for a deeper disease. Increasing numbers of inadequately housed people do not necessarily imply a deficiency of suitable housing. What if what we are experiencing is not a really a “housing” problem at all?

It is true that everyone needs a roof over his and her head. But does that mean everyone has a housing problem? Not really. I — along with most of you reading this article — am quite happily housed. The difference between us and the growing numbers of truly homeless folks, and even between us and the thousands of people who can’t find a place that satisfies their needs, is largely a matter of timing or income; those of us with comfortable homes either “got in” before the housing market went ballistic, or we have sufficient income to pay the going price.

It is worth noting here that there is no physical housing shortage — for example, there are 25,000 empty houses and condominiums in Vancouver; 11,195 more in Surrey, 5,829 in Burnaby and 4,021 in Richmond. This gives whole new meaning to “empty nest” syndrome. Clump just these units together, and the resultant ghost town would be one of the largest in the province. (At the Canadian average of 2.5 occupants each, these units could house virtually the entire population of Kelowna.)

And even as demand for decent housing increases, the number of physically empty nests is ballooning. There were 98 per cent more unoccupied units in Vancouver in 2017 than in 2001 when “only” 12,895 houses stared vacantly onto the street.

It’s not that these houses have been abandoned but rather that their owners, domestic or foreign, can afford a second dwelling or investment property whatever the going rate and leave it unoccupied most of the time. Indeed, it is increasingly being accepted that speculation and foreign investment have bid up the cost of housing above the price points that average citizens who actually need a house can afford.

From this perspective, we see the housing crisis as a symptom of the growing mismatch between the wages and salaries generated in the local economy and prices demanded in the local housing market.

Of course, the reason for the wage-price gap is that the Vancouver housing market is no longer strictly local — already an unprecedented 20 per cent of high-end condominiums in Vancouver are foreign owned. The world sees Canada as a safe, economically secure and politically stable country, and Vancouver as a particularly attractive city. (Indeed, Canada is among the “happiest” countries and Vancouver, with Toronto, rank among the 10 most livable cities on the planet.)

This makes the Vancouver property market highly attractive to foreign investors, legitimate and otherwise, so local housing prices now reflect global realities. Vancouver is not a high-income city, but local wage-earners must now compete with the world’s growing millions of super-rich for a piece of their own city.

By now it should be clear the so-called housing crisis has little to do with housing per se. We could as easily assert that we have an income crisis — if Vancouver residents had (very) significantly higher average incomes, the “housing crisis” would disappear.

But neither is this the complete picture. We’ve already shown that the income-price crunch is a byproduct of globalization and footloose capital in a competitive market, so it is worth trying to understand the structural effects of competition.

Competition is actually a universal dynamic of complex living systems. In ecosystems, structural change is driven in part by competition among various species for essential resources. For example, when species “A” is better at acquiring food or shelter in a particular ecosystem than competing species “B,” then “A” may competitively displace “B” from the latter’s preferred habitat.

Humans are part of every ecosystem on Earth and, as it turns out, high intelligence and technology have given us a competitive leg up in the global competition for just about everything. Humans have “competitively displaced” hundreds of other species from their ecological niches, colonized all suitable habitat on the planet, appropriate the largest share of global primary production (the products of photosynthesis), are rapidly using up many other essential resources and, in the process, we have polluted or degraded every major ecosystem on Earth.

But this inexorable process is now entering a particularly ominous phase — with the persistent growth of population and per capita consumption, Earth has become ecologically “full,” and resource competition is intensifying. More than ever, privileged people are displacing not just other species, but also other humans from their habitats and future food sources, and doing it in novel ways.

Consider the phenomenon of “land-grabbing.” This term usually refers to the long-term acquisition by lease or outright purchase of large tracts of arable or otherwise productive rural land, mostly in poorer countries, by agents of rich countries — private investors (banks, corporations, investment funds) or public investors (state-owned enterprises, government institutions, sovereign wealth funds). Wealthy countries and organizations now legally acquire by formal agreement (involving land markets or political corruption) what used to require territorial occupation.

The major goals of such investments are food production and fibre or oilseed production (for biofuels) for consumption “back home” (and, of course, long-term capital gains). About 60 million hectares were the subject of such transactions between 2000 and 2014 — just the top five acquisitor countries (the United States, Malaysia, Singapore, United Arab Emirates and the United Kingdom) accumulated a total of 20 million hectares beyond their borders.

Even Canada has acquired two million hectares of extra-territorial land, primarily in Africa and Latin America. Now concern is growing that arable land in this country — including the B.C. interior — has become the target of foreign capital. This not only casts a shadow over future food security but, with the corporatization of farmland, “... families move out, businesses which need a critical mass of clients also close and, in a domino effect, the smaller communities die off.”

Indeed, a significant impact of land grabbing everywhere is “...large scale displacement of the rural poor without proper compensation and the destruction of the local ecology” along with community and social relationships. Analysts believe that “investors actively target countries with weak governance in order to maximize profits and minimize red tape.”

All of which points to a significant land-based conflict between the increasingly global wealthy consumer class who sit atop humanity’s literal food chain, and the interests of the majority of the world’s people. It also suggests a parallel with the foreign acquisition of land and housing in Vancouver, Toronto and other cities, right down to the potential hollowing out of neighbourhoods and rising number of business failures resulting from simultaneously skyrocketing rents and taxes and the critical loss of customers.

In fact, to the extent that the “housing” crisis in Vancouver is driven by foreign investment, it is the urban analogue of rural land grabbing and raises similar concerns about sovereignty, social justice and weak local governance.

Astute observers might have anticipated land grabbing, whatever its forms. In most respects, the market-driven acquisition of local land by foreign capital is a late stage in the destruction of traditional place-based economic relations as detailed by Karl Polanyi in his classic 1944 work The Great Transformation.

The rise to dominance of industrial capitalism in the 19th century had the effect of separating domestic economies and governance from the communities they had evolved to serve. People no longer live in economies that reflect local conditions and serve basic needs, but must now adapt their lives and communities to global economic realities and the rule of capital. With globalization, workers in Canada and other “advanced” economies have had to compete with impoverished foreign workers for their jobs; they are now being forced to compete with wealthy foreign elites for their housing. The evolving global equilibrium is further bad news for average Canadians. (Please see the above sidebar.) For one thing, it implies that external demand is likely to keep up with any reasonable increase in local supply.

So where does all this take us?

First, it should be clear that the “housing” crisis cannot be solved if we approach it as a question of housing per se. Nor can we count on economic growth and the hope of higher incomes to fix the problem. While Canadians with good jobs have enjoyed increasing purchasing power since the 2007 downturn, “this masks a longer-term trend of stagnation and declining real wages across Canada; in fact, inflation adjusted wages in 2013 were almost identical to wages in 1975 — just over $10/hr in 2013 dollars.”

Not so with housing — since 1975, housing costs in problem communities have ballooned, and by 2017 they had increased four- or five-fold in real terms. Meanwhile, the scandalous income gap is increasing, and 14 per cent of Canadians (18.5 per cent of children) still live in poverty even as GDP swells and the country enjoys lowest levels of unemployment in decades.

Compete? In the circumstances, it is unlikely that most local residents will even be able to enter the race with cash-flush offshore buyers any time soon.

What might work are strong policy initiatives to re-localize land and housing markets. Massive taxes on foreign buyers or empty house taxes might help fix market inequities, but an outright ban on foreign ownership would be more honest and effective. In the absence of serious civil unrest, however, such “extreme” measures are unlikely to be implemented. Money talks — indeed, somewhat ironically, major resistance comes from thousands of local resident property-owners whose houses have made them millionaires and who are loath to give up their unearned bounty.

In effect, globalization has widened the local wealth gap, exacerbating tensions between two segments of the resident population with vastly different stakes in the real estate game.

It is entirely possible, then, that Vancouver’s housing/income/globalization problem is — like many “wicked” problems — essentially unsolvable. Whether we are discussing housing, climate change, biodiversity loss or inequality (all of which are actually symptoms of deeper disfunction), politically feasible policies are ineffective, and policies that might be effective are politically infeasible. In a world of converging crises, where markets have been declared the arbiters of social justice, the die is cast for the continuing erosion of living standards and material expectations for the majority of citizens.

As for the wealthy minority, they need not worry — at least in the short term. We have created a global system governed by an allegedly free market with built-in dynamics that favour the already rich. So as long as market values and accumulated wealth remain the measure of personal worth, this will remain a world in which she or he who dies with the most money wins.  [Tyee]

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