The Globe & Mail, Mary Lynn Young, June 10, 2005

Big money in British Columbia used to mean lumber and mining, such as forestry's giant H.R. MacMillan or the Keevil family of Teck Cominco. More recent fortunes originated in real estate and consumer industries, as in local tycoon Jimmy Pattison's legion of car dealerships and grocery stores.

Today, however, there is a growing class of new urban rich in the province. They are the percentage of income earners in the $100,000-plus category in British Columbia -- about half of B.C.'s population lives in Vancouver -- who over the past decade increased steadily to 6.8 per cent of the total population of income earners in 2003 from 4.1 per cent in 1984.

Some are entrepreneurs who hail from a number of industries (such as high tech and securities), and they hold part of the answer to Vancouver's current million-dollar question: What is fuelling the stratospheric -- and still rising -- prices of residential real estate?

For instance, the average house price in Vancouver is consistently higher than Toronto, its main national competitor, and in the top 10 for North America. And according to the Vancouver real estate board, the average home in Vancouver sold for $683,000 in May, compared with $346,000 in Toronto.

Aside from the obvious -- it is much nicer to gaze at mountains and ocean from the kitchen window than Lake Ontario and the 401 -- traditional economic principles suggest that these prices are a reflection of low interest rates, job growth and pent-up demand. All true, of course. But then again, economics is the last academic discipline clinging to a rational-choice model of human behaviour. And we all know that other factors just may have an impact on consumption.

In this case, the Vancouver real estate market offers an interesting social story about changing demographics that have an impact on price -- particularly the higher-end property market. Other factors affecting the high prices include longer-term trends toward improved housing quality and a scarcity or a decline in the number of high-end view properties, according to University of British Columbia business school professor Stan Hamilton.

The 10-day near sellout of a high-end condominium complex along the city's waterfront at Coal Harbour earlier this month is an example of the purchasing power of the new local urban rich.

Entry into the 71 condos at Two Harbour Green started at $1.7-million, for an average sale price of $2.5-million. The penthouse is selling for a whopping $7.25-million.

The purchasers were largely local B.C. entrepreneurs, about 50 years in age, who live quietly, but who want and can afford to pay for on-site virtual golf, panoramic views of float planes landing in the harbour and European kitchens.

As the size of this group has grown so has its impact on prices. Indeed, there is a precedent for linking rising income with prices in the Vancouver area.

A correlation between increased income and the higher-end Vancouver real estate market was made by a local analyst with Canada Mortgage and Housing Corp., who found a statistically significant relationship between the then-TSE 300 and rising house prices in West Vancouver, one of the most expensive places to live in the province, in 2000.

Another factor affecting these high-end prices is the fact that a small proportion of the very expensive homes and condominiums are being sold to global investors -- not for the traditional purpose of gaining returns on investment, but as recreational property to add to their worldwide real estate portfolios.

Their highest impact is in condominium sales and recreational properties.

For instance, 35 per cent of the total number of condos in downtown Vancouver are owned by residents who live outside of Canada, while 10 per cent of sales for 2004-05 went to international buyers from five main countries, according to Rudy Nielsen, owner of Landcor Data Corp., a Vancouver-based consulting firm specializing in real estate.

Buyers from the United States led the pack by a substantial margin, followed by Hong Kong, Singapore, Britain and Japan. The majority of the purchasers bought condos between 20 and 40 years of age, and approximately 500 to 800 square feet in size. Interestingly, each of the international groups preferred to purchase in a different area. For instance, U.S. buyers are clustered on Alberni Street.

As well, Canadians still spent far more money on downtown Vancouver units in the same time period -- $300-million, compared with $25-million from abroad.

Not only are there more wealthy people in Vancouver and from abroad. Mr. Hamilton believes that the quality of new housing has increased, compared with the fixtures and materials used in the 1970s or 1980s. He adds that there is also a scarcity of prime waterfront in Vancouver. Condominiums started popping up in the city in 1967 and now the towers ringing the downtown core resemble the pillars of the Roman Colosseum. The only place left to build is inside that ring, which offers no view -- and less value.

The question becomes whether there is a lesson in the changing demographics and social trends? Only the most basic: Real estate is always good as a long-term investment.