He wasn’t joking. I listened with the rapt attention such a grave threat deserves.
The zombies in question are in fact properties that sit vacant, unfinished and otherwise unused. We’ve heard the term used in various real estate contexts since the 2008 recession.
American media in particular has used the term to describe projects put on hold due to economic uncertainty in local real estate markets. In many urban markets across the U.S., the sudden onset of the recession cast the future into doubt for projects already underway. Faced with a sharp decline in market demand, as well as lenders with cold feet, work stopped dead. This left many communities blighted with hordes of “zombies.”
Zombies also include occupant-ready properties that were bought on credit at the height of the credit bubble and then struggled to find tenants. In a 2009 article, the Huffington Post warned of a new economic calamity as loans came due on thousands of properties across the U.S. that were in financial distress because the recession had left them without paying tenants to cover the bills.
Zombies also popped up in the U.S. housing market. This horde numbered in the tens of thousands at one point – homes in the foreclosure process that had been abandoned by distressed homeowners and not yet repossessed by foreclosing lenders. As result, they fell into disrepair, fostered criminal activity, and eroded the value of other homes in their community.
Canada’s zombie menace
But what makes zombies such an enduring fixture of pop culture is their insidious ability to morph and spread. The zombie threat has now reached Canada, with Vancouver serving as its primary beachhead.
But these real estate zombies are a breed apart from those of the U.S. recession.
This breed of zombie isn’t the ungodly spawn of an economic apocalypse, but the offspring of a booming global real estate market. Those of means are looking for real estate opportunities beyond their native borders as safe havens in which to park some of their cash.
The problem is many of these foreign investors are not interested in actually occupying these offshore investment properties, or even in having the properties generate income.
The erosion of affordability
This creates several problems for a local real estate market and those who actually live and work there.
The most obvious is that it artificially inflates market demand, which drives up local real estate prices. That’s great if you are looking to cash out and sell, but less so if you are trying to enter the market. The impact is felt across the board, from individuals trying to purchase a home or even rent in the urban core to avoid long commutes from the ’burbs, to small businesses trying to find affordable lease terms.
Vancouver-raised urban planner Andy Yan is a vocal critic of the threat the rapid rise in foreign ownership poses for that city. In a Vancouver Sun article, he referenced how about one quarter of the condos in one Vancouver neighbourhood, Coal Harbour, are unoccupied. “These ‘non-resident-occupied’ condos fail to contribute to a vibrant community or support businesses,” wrote the Sun’s Douglas Todd.
To which I add, what about the long-term impact?
Setting the stage for a market crash
Vancouver has become the market of choice for Chinese investors due to the city’s large Asian population, its position on the Pacific Rim and its status as what Yan calls a “hedge city.” This means Vancouver also appeals because of its stability, rather than its status as a superstar in any one particular industry, such as high-tech or finance.
But what happens when these foreign investors grow more confident in their home markets, or see a better opportunity in another foreign market, and decide to liquidate their holdings in Vancouver?
We are not talking about a few units being released onto the market, but entire buildings that, in some cases, may contain hundreds of units.
What was a tight market too pricey for many individuals and business owners could suddenly suffer from a surplus of supply that depresses prices and leaves local investors holding the bag.
Yan’s solution to discourage the kind of foreign investment that leads to zombie buildings, if not zombie neighbourhoods, is to tighten existing instruments, such as property-transfer fees, homeowner grants and property taxes.
If Vancouver marks the beginning of a trend for Canadian cities as a result of a booming global real estate market, it’s clear some corrective action must be taken to protect local economies and housing affordability from the zombie menace.
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