What do the cities of Hong Kong, Vancouver, and Sydney all have in common? Horrible housing markets, in fact these three cities rank as the most unaffordable cities on the planet. The city of Vancouver has even created a nice game back in 2010 called Crackshack or Mansion, in which the goal is to see if you can tell the difference between houses selling for over a million dollars, and actual crack homes. Things haven’t been getting any better for the average Vancouver resident since then either, as just last year the median home price in Vancouver was nearly twelve times the median household income, and that’s nothing compared to Hong Kong which had median home prices eighteen times that of the median household income there.
The reason these cities are so unaffordable, and in fact why global housing prices are rising even, is China. No really, over the last few years China has been experiencing a millionaire migration with $225 billion dollars leaving the nation just last year. All that foreign money is flowing into cities like Sydney, and Vancouver, so despite what some in the real estate market might tell you, this is a problem. As often Chinese investors use these properties as a way to secure their wealth, meaning that if a property near you has been purchased by a Chinese investor there’s a really good chance that it’s empty. These purchased properties aren’t even being rented out sometimes, and this causes an artificial scarcity, that coupled with the near infinite Chinese money and demand ensures places like Sydney or Vancouver will have housing costs increase by insane numbers like 20%-50% while the total population of the city is actually decreasing. New York isn’t safe from unchecked investments either, as Brooklyn in specific has been seeing a lot of Chinese money coming in, and inflating housing costs certainly won’t help fix the homelessness problem the city is experiencing either.
We’ve all had experience with housing bubbles before as well. So I find it especially disconcerting when I see headlines saying that the Chinese housing bubble might be the biggest bubble in history. You see the thing with bubbles is that in the end they always, without fail, pop. In fact with China experiencing its slowest growth rates in 25 years in 2015 however the most damming evidence is that housing crashes are most often preceded by increasing interest rates, and we are heading into a time where nearly every central bank is going to be gradually increasing interest rates. The Fed is planning to raise interest rates this December, and the likely hood of a Chinese interest rate increase increases the further we get into next year. So if you have a lot of money in housing, you need to keep an eye on China.
What do you think? Be sure to leave a comment below.
By Connor Sherman