In 2008 a financial crash in the United States was quickly followed by the most severe global economic contraction since the Great Depression. Despite an eventual recovery from what local real-estate executives termed the “recession for sissies,” Vancouver was deeply effected by the crash. By late 2008, condo sales and construction — a signpost of economic health in Vancouver’s real-estate dominated economy — stooped to record lows. The purpose of this article is to show that although the local economy experienced a brief recovery in the years straddling the Olympic Games (2009-2011), it is is far from certain that the city can continue to withstand the ongoing effects of the global recession. The article anticipates the need for a struggle against austerity measures and budget cuts in the potential wake of new rounds of developer bailouts and financial crisis. Continued real-estate speculation, stagnant wages and relentless upward pressures on housing affordability show that the lessons of this century’s “Great Financial Crisis” have yet to be learned in Vancouver.
From Recession to Uncertainty
To understand the underlying instabilities of our housing dominated economy it serves to look back to the beginning of the current wave of recession. By late 2008, before the extent of the crash could even be measured, local and federal governments set themselves the task of restoring pre-crash housing prices, primarily through stimulus and bailouts. Federally, the Harper government stepped in to approve a massive bailout of housing finance, while local political parties — left and right — rushed in to the defense of real-estate capital, seeking to re-inflate the local real-estate bubble by any means necessary. With sudden asset deflation in the housing market, banks stopped lending to developers, leaving the public sector to step in as a new ‘lender of last resort.’
By 2009, the local financial markets were beginning to regain stability as a result of local and federal intervention. Despite long-term global forecasts, Vancouver investors found renewed confidence, weathering the storm and gaining from perceptions of a favorable position within global financial networks. In elite and policy circles the idea took hold that Vancouver’s financial anomaly was real in a city positioned as a global financial landing pad. By 2009, condo marketer Bob Rennie was confident that shell-shocked capital in the US would start to “come from the sidelines.”
Canada, primed to receive funds held back by crisis elsewhere, was contrasted rather than compared with the US. In a post-recession speech to the Urban Development Institute, Bob Rennie gloated, “not one Canadian bank has faced a failure or government intervention.” This view was widely circulated in local and international press, casting Vancouver as “a very safe place to invest and park money.” Confidence was shored up but facts were briskly ignored. The reality was that Canadian banks were bailed out a total of $125 billion in 2008 alone, with the Canada Mortgage and Housing Corporation’s (CMHC) massive purchase of unstable mortgages and other toxic paper held by the private banks. Since the time of that bailout, debt has continued to multiply in an environment of low interest rates. Easy lending and CMHC mortgage insurance have only helped create new cycles of credit instability, with household debt-to-income ratio reaching 153 per cent.
Despite these figures, the view has persisted that in the midst of global crisis Vancouver can ride to the top. Not only does this boosterist narrative paint Vancouver as a golden city, blissfully exempt from the effects of the global crisis, it also frames the city as poised to benefit from the continued downturn. The hope is that geographic differences between Vancouver and the US can help restrict the spread of asset devalorization and economic decline, and policy-makers north of the 49th parallel have indeed tried to steal American dreams in a net-zero game of chance, in which one side’s loss is the other’s gain. But as global financial markets continue to plummet, we should ask: what happens in the case of another global crash? Where does Vancouver sit today in the midst of a second slump?
Those who believed that the world economy would fully recover once financial markets were stabilized have been doubly disappointed. The sovereign debt crisis of the Eurozone is a slow-motion train wreck still threatening to derail financial markets. Meanwhile, all of the world’s major economies are either slowing down, stagnating, or contracting. Mohamed El-Erian, chief executive of the global bond asset manager Pimco, recently told the Financial Times, “we are in the midst of a synchronized global slowdown.” Europe’s economy has begun contracting as the pain inflicted on southern Europe through austerity has rebounded north to Germany and France.
The Eurozone economy is now expected to contract by 0.5% this year. Virtual depression in Southern Europe combined with the slowdown in the north has already cramped growth around the world. Meanwhile unsold goods, according to data published in The New York Times, are piling up in China at a faster rate than during the Great Recession. China is now in its sixth consecutive quarter of declining growth. Japanese exports to the EU plunged a shocking 25.1% in July compared to last year, contributing to Japan’s 8.1% contraction of exports. The UK’s economy contracted 0.5% in the second quarter of this year — the third quarter of contraction in a row.
Brazil is forecast to grow a mere 1.5% in 2012, and India is growing at the slowest rate in nine years. In the second quarter of this year US GDP growth also slowed to 1.5% while unemployment is still double what it was in 2007. The International Monetary Fund considers the US to be perched on a “fiscal cliff,” an “intense financial risk” for global stability. “If no policy action is taken,” the IMF reported in July, “the fiscal cliff could result in a fiscal tightening equivalent to more than 4 percent of GDP.” All of this means that Canada’s four largest export markets — the US, Japan, the UK, and China — are all in contraction mode.
Vancouver Real Estate Market: Turning Sour?
In the midst of global recession, Vancouver’s blazing hot housing market also seems to be running out of fuel. It is important to grasp that local prices began to take off in Vancouver in 2003, the same year that the U.S. housing bubble began.
Similar to the U.S. bubble, real estate, finance and insurance (together known as FIRE) are now accounting for an unusually large portion of the province’s gross domestic product (GDP) and employment growth (see Charts 2 and 3). Additionally, Canadian banks are “quite exposed to a housing-induced recession,” according to analyst Ben Rabidoux. This means that any disturbance in the property market will certainly have powerful reverberations throughout B.C.’s economy, with effects felt on employment, investment, and government finances.
Recent data is in fact ominous: real estate sales for May were 21 percent below the 10-year May sales average. “Total inventory is at all-time highs for the month,” writes Rabidoux. June sales were down 27.6% from the previous year while the number of sales in July was the lowest for that month since 2000, according to the Real Estate Board of Greater Vancouver.
All of this amounts to the fact that we may very well be facing an alarming scenario: the onset of a global economic slowdown combined with the bursting of the Vancouver property bubble. At this point it is highly unlikely that incoming investment dollars and state intervention will be able to prop up the bubble once again, since Vancouver residents simply can not afford higher housing prices.
The point to be made is not that a local recession is imminent, though it does seem likely. There have been other moments since the official end of the Great Recession when global financial crises seemed moments away — such as August of last year when stock markets around the world took “an absolute blood-bath,” as the Wall Street Journal and anyone looking for what to look for when buying stock had put it. The point is that global capitalism is in a deep, systemic crisis that cannot be compared to ‘regular’ cycles of growth and recession. Real recovery is nowhere in sight and Vancouver is not exempt from these global trends.
Recession and the Politics of Austerity
Since the crisis of 2008, record private debts have become record-breaking public debts. Governments are posting deficits that must now — according to the logic of austerity budgeting — be tackled by reduced budgets, restrained in line with the chorus of ‘fiscal tightening.’ This month the Japanese government is considering a bill to “suspend state spending” to avoid a fiscal cliff, and the provincial government of British Columbia has been escalating an equally aggressive rhetoric of austerity and cutbacks.
In British Columbia, former Finance Minister Kevin Falcon has characterized workers as undeserving of wage stability in times of crisis. Public sector workers as a threat rather than an aid to economic recovery, according to Falcon. Despite the fact that government workers are today requesting a modest increase at less than the rate of inflation, Falcon has relied on a rhetoric of crisis to denounce workers as irresponsible in their demand for security, since “the global economic situation continues to put pressure on the B.C. budget.” In other provinces the attack on workers by governments, corporations and much of the mainstream media is escalating in tandem.
Since 2008, the federal government has set to the tone for the provinces, proving themselves eager to disregard basic labor rights, including the right to strike. This past Spring Air Canada workers were legislated back to work before even entering the streets, with Harper’s Conservatives building on its previous record of anti-worker legislation — a legacy that includes the back-to-work legislation for Canada’s postal workers.
The most important lesson from recent history is that when financial crisis arrives in the dark of night, it is the rich who are best positioned to make use it, swinging public disorientation in their favor. In her book on disaster capitalism, Naomi Klein referred to the ability for neoliberal governments to capitalize on instability in the wake of crisis. When Vancouver’s Olympic Village project entered financial tumult, Vision councillors used fear and a rhetoric of crisis to win the public over to an austerity agenda. Vancouver councillor Geoff Meggs declared “the worst financial setback in [our] history.”
The case of the Olympic Village is illustrative, if nothing else. In the city with the lowest corporate taxes in the world, Vancouverites were told that social housing at the Olympic Village needs to be cut in half in order to save the drowning taxpayer. In reality the cuts were to save the greedy developer, hitched on to a whopping $100m bailout. Some estimates put the bailout as high as $400m, and today the developer is as active as ever with a new development on Hastings, adding their money to the overall gentrification of the East Hastings Corridor. Private debt was turned into public debt and now, with rock-bottom corporate taxes firmly in place, the public is called on to fund new rounds of austerity.
Conclusion: Resistance and Alternatives to Austerity
Vancouver’s economy highlights the imminent link between housing crash and fiscal austerity. Today a large portion of Vancouver’s municipal budget is derived from the real-estate industry in an irrational system that makes public finances dependent on the very sector that dispossesses the greatest number of people. Housing and real-estate — now the recipients of public-backed loans — extract a greater portion of wages and incomes than any other sector. A decline in housing prices will bring immediate affordability, but will also shift the class struggle towards austerity and deep cuts to public services.
While recessions cause government revenues to decrease, austerity measures — cuts to essential services, reduced wages and benefits, and overall privatization — are by no means inevitable. They are the result of government priorities, and we have seen that while Canadian banks were bailed out to the tune of $125 billion, schools, universities, public housing, welfare, healthcare and social services continue to be put under the gun. The question is always: austerity for whom? When governments act as “crisis managers” their priorities remain profitability and social control rather than human well-being. When fiscal crisis arrives there is never a shortage of money for the military, prisons and the security apparatus — unless people fight back.
Finding money to pay for schools and other essential services won’t require magic. Tax cuts for corporations and the wealthy over the past decade have starved public revenues in the province of British Columbia. Compared to fiscal 2000/1, BC’s Budget and Fiscal Plan, 2012/13 – 2014/15 reports an expected revenue loss of $6.1 billion for this fiscal year alone. The only way to reverse these losses is to fight austerity and tax the wealthy for their own crisis. In the United States, racialized groups, the poor, and public sector workers are on the front lines of the fight against austerity. Their experience in places like Wisconsin and Chicago provide important lessons. In Wisconsin the Right is intent on isolating public sector workers from the rest of the working class by calling them privileged, protected, and greedy. Of course the most “protected” class is the ruling class, but these attacks will only be resisted successfully by finding new ways to build and practice solidarity between unions, non-union workers, and the communities most affected by austerity. The Chicago Teachers Union’s recent victory against Mayor Rahm Emanuel’s corporate-backed education reforms demonstrates at least this much.
These struggles reveal the necessity of challenging established ways of running unions, as well as building alliances with social movements, unemployed workers and non-unionized labour. Only vibrant, militant, creative, rank-and-file led unions will have the energy and power to survive and revitalize the labour movement. As Michael Hurley and Sam Gindin write, “The crucial question is not how far the attacks on the public sector will go. The real question is how far we will let them go? How will working-class activists inside and outside the unions respond? Do we have a counter-plan? Are we preparing one? Can we act as decisively as those attacking us?”
 Bob Rennie, UDI Speech 2009
 Barbara Gunn, “Let the property games begin, Bob Rennie encourages brokers,” The Vancouver Sun, March 27, 2010 (visit this site for more details)
 Ralph Surette, “Canadian banks: Even the Americans are agog at our fiscal virtue,” rabble.ca June 21, 2010; see also David Macdonald, The Big Banks’ Big Secret: Estimating Government Support for Canadian Banks During the Financial Crisis, Canadian Centre for Policy Alternatives, April 2012
 David McNally, Global Slump (PM Press: 2011); David Harvey, The Enigma of Capital and the Crises of Capitalism (Oxford University Press: 2010); Robert Brenner, The Economics of Global Turbulence (Verso: 2006)
Note: All Charts from Rabidoux, 2012
Photo by eyeye