Last week a friend of mine sent me a really fascinating article from The Economist talking about the role of foreign investors in Vancouver’s housing market. If you subscribe to The Economist, you can click here to read the article. If you don’t subscribe, you’ll have to rely solely on what I’m about to say.

In case you weren’t aware, Vancouver is an incredibly expensive city when it comes to real estate. The average price for a single-family detached house is now around C$1 million. By some measures, that makes it the most expensive housing market in North America. Here’s a chart that looks at house prices as they relate to household income:

According to The Economist, the median household income in Vancouver is $68,970. This places them 23rd out of 28 in terms of Canada’s major cities. So how is it that homes are, on average, selling for $1 million? The locals don’t seem to be able to afford them.

Well, it’s a well known fact that Chinese buyers continue to be an integral part of Vancouver’s housing market. In fact, up until this year, Canada offered a fast track option for citizenship applications if you brought at least $800,000 into the country.

So we know that foreign buyers are having an impact. It’s a phenomenon we’re seeing in many other cities around the world, such as London. But to what extent is hard to measure–which has forced analysts to get creative.

To try and figure out what percentage of homes are going to foreign buyers, analysts have been looking at macro data, filing through sales records, and even monitoring utility bills to see which homes might be sitting empty.

What they found is that there’s a fairly significant correlation between economic activity in China, and Vancouver’s housing market. When the Chinese economy does well, so do Vancouver homes. Interesting. Still, that doesn’t quantify impact.

When analysts looked for utility bills that would suggest an empty home, they found that only about 8% of high end downtown condos were likely sitting empty. That’s a relatively small amount. It could be vacancy rate.

But when they looked for “mainland Chinese-sounding names” on sales records, they found that for homes priced $3M and up, almost ¾ of the buyers could be from mainland China. Now that’s a significant number!

I found this all rather fascinating and I thought you all might as well. It yet again reminds me of how much opacity there is in real estate markets. We’re all craving better data. Why else would people be scouring utility bills?

Toronto Life recently published an interesting article called Stuck in Condoland. A lot of people have mentioned it to me, so there seems to be a lot of interest in the topic. It basically profiles the lives of a few young families who live downtown and are trying to raise young children in relatively small condos (think 700 square feet).

I thought it was interesting because I like the idea of small and efficient living. The average post-war bungalow in Toronto was probably less than 1,000 square feet. And so this modern notion that you need a big house in order to properly raise a family is a relatively recent phenomenon. Although we’re a richer city today and that’s what happens when people become wealthier: they consume more.

But the article also makes it seem that developers only want to build small condos and that larger condos and single-family homes just aren’t profitable enough. Thus the reason all these families are being forced to into tiny shoeboxes in the sky. But that’s not really true.

Look, just like every other for-profit business on the planet, developers are concerned with making money. And so they will always look for ways to increase efficiency, drive down costs, and so on. But there are certain realities of the market that developers don’t have control over.

First, developers aren’t building new single family homes in the city (at any sort of meaningful scale) because there’s no land to do so. And because the land use policies in place and the current thinking around how we can more sustainably build our cities for the future dictate that we should be building more intensely. In other words, building up. So it’s not a question of developers not wanting to build single family homes; it’s a question of not being able to.

Second, trust me when I say that if the market wanted large 3 bedroom family units, developers would build them. Mandating them is a useless exercise if people don’t want them or are unable to afford them.

The challenge we face is that a reinforced concrete condo tower is more expensive to build than a wood-framed single family house. So until land values get to a point where single family homes become the more expensive option (compared to condos), I don’t think we’ll see a huge rush towards 3+ bedroom suites.

This is my hypothesis at least. Because when you buy house, you’re really buying two things: the house itself and the land. If the house itself (wood) is cheaper to build on a per square foot basis than a condo (concrete), then the variable that will make a difference is the land. And as people like to say: “buy land, they ain’t making any more of it.”

So what I’m saying is that I just don’t think the situation is as simple as: “developers are bad, all they want to do is build tiny condos and make lots of money.” It’s more complicated than that. But I do believe the question of how families are going to live in the city is an important one.

I have a friend in town visiting me from New York this weekend. And since today was such a beautiful day in Toronto, we decided to spend the afternoon on the Toronto Islands–Ward’s Island to be exact. The islands are such an incredible amenity in the city. I try and go as often as I can during the summer. It’s my Central Park.

But in addition to parks and beaches, many people also live on the islands. There are 262 residential properties across the archipelago. Below is what a residential street looks like. There are no cars allowed. It’s a gorgeous place.

But if you want a house on the Toronto Islands you have to get on a waiting list. There only 500 spots and it’ll probably take you about 30 years before you get to a meaningful position on that list. But even then, you’re only buying the house. The land itself is on lease.

But if we didn’t regulate, the islands would be a very different place. 262 homes is not a lot of housing. In fact, it’s less than most of the new condo buildings going up downtown. So it’ll probably always be a heavily regulated market.