The thing that you have to really understand about Vancouver BC's housing crisis is the inflation of housing prices was, until very recently, entirely blamed on a standard supply and demand dynamic excited by the city's beauty. Finance was completely out of the picture. And the reason for this is because, in the orthodox economics on which the standard supply and demand dynamic is based, money is neutral. Even the leftist economist Paul Krugman holds this position in the matter of money and debt, which makes sense because that's the kind of training he received as an economist.
At present, Seattle is using these same bad tools—which did not die with the monster they created (the 2004-2007 housing bubble)—to make sense of its housing market. This is why the focus has been on what is exciting local demand: the tech boom and an attractive city. I know of only one local political figure (Cary Moon) who is talking about finance and speculation seriously. Even Kshama Sawant, who is an economist, doesn't meaningfully factor it into her policy prescriptions for housing. Lisa Herbold is totally stuck on the tech boom-demand model and so is Mike McGinn, who might be progressive but is ultimately a fiscal hawk. So, for many, the tech boom, combined with stock shortages, totally explains why "Seattle’s new median price for a single-family house is $729,000, an extra $7,000 from a month ago and up 13.7 percent from a year earlier."
Another big problem is few people understand the nature of financial speculation. It is the dark energy of our local economy. Its power is mysterious because it takes many forms. One is foreign investment, and that does not have to be direct investment—a foreigner buying a property in Bellevue with cash and what have you. It can be complicated by a high-interest rate bank loan. For example, a global investor owns shares in a bank that loans money to developers at a high interest rate. The developer is willing to borrow at these rates because the market is heated and so can expect a quick return on an expensive investment. A cool market cools developers, and this in turn cools a bank's audacity.
Indeed, a local developer recently explained to me that a Seattle developer is lucky if they get a loan for a project that is 12 percent. The normal is 16 percent! Those kinds of rates are bordering on usury (16 percent on, say, a $20-million loan is no fucking joke), and have real effects on the market and the lives of real people. Banks in our age borrow and lend globally, and the reason banks can demand high interest in a period of cheap money is a combination of the politically imposed scarcity of capital and the locally hot market. And there the terrible triangle begins to take shape: high yield drawn from an arbitrage of cheap money and high-interest loans to a market inflated by a demand for high-yield investments. You cannot build affordable housing in these conditions.
If our city's politicians and policy makers continue to ignore the many forms and pressures of finance in their picture of our housing market and investment, we will reach the point that Vancouver BC reached three years ago—the point when the local economy as the imagined source of demand can no longer explain the vertiginous state of home values. My prediction is we will reach that point in a year from now.
