Mountains and Molehills
Thanks to Frances Bula for this — an analysis of London (UK) and the foreign buyers’ effect on real estate. From the Economist. It’s a good read.
In 2014 foreigners bought one-third of “prime” homes sold in London (ie, those in the top 8-10% of the market), according to Savills, an estate agent. But this does not mean that the capital is being overrun by absentee investors living abroad. The definition of “foreign” is expansive, including Russian billionaires who never visit Britain, but also someone who has lived in London for years and uses her Canadian passport when buying. The high rate of “foreign” ownership is thus a function of the capital’s cosmopolitanism: about one in four Londoners is a foreign citizen.
Foreigners who do not live in Britain make up a smaller chunk of the market for London’s prime homes: perhaps 10%, says Lucian Cook of Savills. And outside the poshest neighbourhoods, non-residents are small beer: in 2013 the Bank of England suggested that they may account for just 3% of all property transactions in London.
The people who make up that 3% are still open to the charge that they push house prices up. If so, it is probably not because they buy properties and then leave them empty (so-called “buy to leave”). There is little evidence that foreigners are more likely than Britons to leave a property empty, suggests a report by the Greater London Authority (GLA).
From my vantage here in the UK, I also offer the perspective of London in the late 1600s and the evolution of the “Town House” favoured by those with substantial estates outside of the City. Many of the great homes around London’s famous squares have always been “temporary accommodation” for the wealthy who regularly came into London for ‘the season’. Not so different today – just a different set of jet set owners. Despite their absence for part of the year, they are an important part of the global city’s social and economic ecosystem.
Yes if they actually live there from time to time. Not so much if they buy 5 to 12 houses to park their cash and pay no income or capital gains taxes on sale, i.e. break the law as we enforce it poorly. Or if affluent, pay no income taxes here as they declare income abroad AND get free education/ESL services for theirs kids AND free healthcare for their parents and spouses.
We ought not to be so naive.
We ought to monetize this rational behavior and tax it more, on acquisition, while holding and on sale ! We also ought to enforce existing laws on taxation on asset sales !
So, if applied to the 3%, that’s going to dramatically lower housing prices across London, is it?
No one will dispute instituting taxation fairness and democracy between residents and new arrivals. But it seems whenever someone actually does the research they just cannot come up the numbers that actually prove housing prices are driven up only by these small numbers of wealthy people, no matter their origin.
Research by observation will show you that 90%+ of the money that drives Vancouver’s absurd pricing of single family homes is Chinese.
==> At least with the new law we can now confirm this, track it and hopefully enforce & potentially amend tax laws.
Or is the money mainly British, Russian or Norwegian in your humble opinion ? Dutch ? US ? Cayman Islands ? Korean ? German ? Egyptian ?
Research by observation …
In other words anecdotal at best.
By all means, let’s encourage real evidence-based research by tracking the actual numbers. Once done, I suggest the influence of “Mainland Chinese” or “foreign” or “corrupt” money investing in Vancouver real estate could easily amount to only a fraction of the increase in prices over the last decade than as claimed.
There are many more factors at play here, like record-level cheap credit, record level demand, a land squeeze, not enough land planning foresight, and a lack of political courage. To ignore these elements while claiming foreigners alone are responsible for Vancouver’s affordability crisis is just plain ignorant.
You are right, of course, that there are many issues also affecting other cities: land supply, excessive levies for newly built units, super low interest rates, conflict worldwide, people seeking 2-4 passports of stable democracies for themselves, their kids and their money, Gen Y folks entering the house/condo market, baby boomers passing their wealth on .. but especially in Vancouver & Richmond & UEL (and now also W-Van and N-Van and Victoria), and especially in single. family houses you have a concentration of Chinese money, both local Chinese-Canadians that have been here a year or 5 or 20+, or recently arrived (to be Canadians or merely here to get a passport aka fake Canadians) or foreign money.
You are absolutely right we need more data, but we cannot pretend we have no idea who the buyers are BECAUSE WE DO, more or less 90%+ Chinese affiliated for high end homes over say $2M+. Pretending otherwise is either willfully blind or ignorant.
Once you look at condos or less pricey homes it is far more mixed all over the region.
Indeed. I am 100% for enforcing our laws on Global Income and on Capital Gains legislation that shelters gains on a principal residence. If there are loopholes, we need to close them to preserve the intent of our policies and ensure that people pay their fair share. Commensurate rights and responsibilities is the guiding principle here.
This is a good one. I hope it resonates for those Vancouverites that seem to be unable to comprehend that property is valuable and prices have jumped up and will continue to rise for all the reasons, safety, investment, low interest rates, good locations, stable democracies, yada…
Directing anger towards any group is despicable.
Town homes, townhouses, row houses, terraced houses, whatever, is what the market wants for local buyers, as well as for others.
We all know of, I know of, people in the construction, teaching, insurance, landscaping, consulting, video production, health-care management and teaching, etc., businesses that take weeks and months off to travel and ‘live’ somewhere else – leaving their Vancouver homes unoccupied. None of the people that come to mind are of Russian or Asian descent.
As I said, directing anger towards any group because they now want to invest, or have a possible home or just a pied-a-terre in Vancouver, now that has become a damned good place to live, is just wrong.
We don’t need “investors” who do this:
http://www.vancouversun.com/business/demolition+century+vancouver+home+worth+million+2012/11757994/story.html?__lsa=04c2-273f
And this…
http://www.vancouversun.com/business/real-estate/vancouver+house+left+deteriorate+market+million/11752938/story.html?__lsa=7fc0-4fd2
Both examples are easily corrected by Vancouver City regulations and rules.
City Hall is where you need to address your complaints.
The ethnic origin of the present owners is, and should be, irrelevant.
For once Eric, I’m in complete agreement with you.
Only it’s not Eric and quite frankly I’m a little disappointed in you for taking the favoured tack of those in the real estate/development industry.
We all know where the money is coming from. If it was Russians or Saudis would you be so squeamish in identifying it (ever notice how the money always seems to be flowing from corrupt states with abysmal human rights records)? Because of the awful history of treatment of Asians in Vancouver’s past some are just terrified of being labelled this or that for identifying the massive amount of poorly regulated Chinese money flowing into Vancouver as the root of the affordability issue.
Just because I have an issue when one ethnic group is singled out and blamed, and a related ssue with the lack of real cold, hard numbers — that’s spelled p-r-o-o-f — doesn’t mean I am defending or have any connection to the real estate industry. Far from it.
Only it’s not Eric …
Are “Eric” and “Bob” the same person then?
MB. given that I criticized Eric it is hardly likely we are the same person, is it? Hitting reply now put the post directly under the preceding one. And my criticism of Eric’s attitude goes to yours as well. The evidence of who is driving up housing prices is right before your eyes, unless you think there is some gigantic Palinesque lamestream media conspiracy to stir up resentment agianst the Mainland Chinese. LOL.
No we are not the same person.
Bob, since China recently opened up there are many people that have become wealthy, simply because of the unprecedented large size of the market and the latent hunger for previously unobtainable consumer items, as well as a choice of ordinary things like shoes. Some of the nouveau riche are likely to be banditos but many are rich by honest time and place happenstance. Some of the buyers of Vancouver property are certainly banditos from gangs and tough guys from all over the show, including some from every ethnic group. Our RCMP are those who investigate these possible bad guys, with limited funds to traipse around the world and try and figure these things out. Even if we have a pretty good gut feeling about someone being a suspicious dude we must remember that the overwhelming broad civilized freedom of, innocent until proven guilty, that we have is special, valuable and better preserved at all costs.
Throughout the history of the human, and probably other animals, are stories if migrations and invasions. We are experiencing one of these events because we have a good place. A good location and we run a decent operation. The police should monitor and act where appropriate, the federal government, with some imput from the province, decides in who is allowed the privilege of living here and how they are taxed, the city has their powers over buildings.
If we suddenly see a massive influx from The Netherlands then we should probably raise our eyebrows but any increase in immigrants from repressive and/or repulsive jurisdictions can only be expected. Of course people are going to come here from nasty places!
I do not defend the development industry, of which I am not a part of either. If our ideas coincide it is only by coincidence.
I do believe we must insist that our local municipalities to enforce style, size and orderliness on buildings in our public realm. I cannot conceive how we could demand occupancy.
Travel is so prevalent now, by all classes, that it has become the norm. Monitoring occupancy by municipal employees is repulsive in concept. In an era of internet based technology it would also be easy to simulate occupancy and energy usage, which is counter to some objectives.
Perhaps we are moving towards conceiving a new model of building? The investment-box building. Only to by built as an investment. A sculpture. Built on the fringe of the city, away from the populated areas, these buildings need only be shells, no interior finishing at the investment stage would be required. Perhaps they should be portable, or floating, only to be moored permanently or bolted down on a piece of land if really needed for habitation.
Nevertheless, were my surroundings to become either devoid of people and the buildings empty, or all the buildings populated by one ethnic group that are complete strangers to me and that rigidly stick to themselves, then I would quite probably be extremely uncomfortable and I’d likely move on, as all my ancestors have before.
Eric, statistically even the most law abiding Mainland Chinese millionaire has likely made their millions by polluting the planet to a degree inconceivable to us. (Yes, I’m sure there is the odd starlet or pop singer who is the exception). I hardly think an appropriate reward is allowing them to escape with their funds to our less polluted shores. I think you’re very optimistic if you think FINTRAC has been able to monitor the sources of money flowing into real estate.
You characterize this as an invasion, if so, isn’t the first responsibility of all levels of government to protect us from the invaders?
I’ve visited China, deep inland China. I know it’s polluted.
There are good and bad people everywhere, we cannot tar them all …we must all be innocent until proven guilty in a court of law.
Only the federal government has any powers in the area dealing with foreign behaviour. The Liberals have certainly not made even vague hints that they intend to restrict immigration.
I’ve suggested the existence of ‘building futures’ (in the same way as you can buy futures in many/most commodities) … this would allow investment, it would enable the future to be traded ‘called’ immediately (or almost so) for a living unit of X spec, or to be sold as the piece of paper it is. There would have to be a certain number of spare units created to allow the trading in of these futures, but just like there isn’t enough money in a bank for everyone to withdraw their cash, there wouldn’t need to be enough spare units to cover each building future.
These futures could finance the building of places for people to actually live in, and would allow the almost literal creation of safe-deposit-boxes in the sky … except in this case, the safe deposit boxes wouldn’t count against the built FSR of construction, and wouldn’t act to displace people who might live there (save for the few units which would need to stay vacant).
There would even be a benefit to this kind of future, because just like when you lease a car, you always get whatever is the new model, you would always get a new or essentially new unit .. you wouldn’t have a 20 year old unit that now requires reno and de-tacky-ing … once the units got Y years old, they would go onto the market and be replaced with a new unit somewhere.
There are of course complexities in this to assuring the futures buyer of a unit of sufficient size/spec/location, but there are stipulations on the quality of all futures, and this certainly isn’t an insurmountable issue.
Anyone the broker world know why this wouldn’t work? I see House Price Futures exist, but not exactly the same thing … http://www.investopedia.com/articles/optioninvestor/11/an-introduction-to-real-estate-futures.asp