January 2, 2018

A View on Housing Affordability: It's About Ownership

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Douglas Todd a seasoned writer for the Vancouver Sun calls it directly: if you want to see what is happening in the Vancouver housing market, just take a look at what is happening in China, Australia and New Zealand.  As Douglas Todd observes: “A clutch of real-estate industry and government officials in Canada still want the public to believe foreign capital and immigration policy have little to do with the sky-high housing markets in Vancouver and Toronto. But the evidence is pushing their vested voices to the fringe of the affordability debate. Profits made in China and East Asia, then invested in Canadian real estate, have been responsible for a significant portion of exorbitant housing costs in Canada’s big cities. Yet Australia and New Zealand are doing much more than Canada to face the same challenge. They’re openly reining in the offshore demand that is contributing to housing havoc for locals, many of whom are being forced to leave their cities.”
Douglas Todd then backs this argument with evidence, citing University of British Columbia’s David Ley  and Simon Fraser University’s  Qiyan Wu who observe that as 13 billion dollars has been spent by Chinese investors in Vancouver in one year, this foreign investing is now a “fundamental” in the local real estate market.  Federal policies tightening cash flow in China may be why housing at the top-level of the market has seen prices drop by as much as 20 per cent. Meanwhile condo units have been soaring in value, which may be because of  “smaller buyers get in on the tail-end of a run initially created by high-end investors” typical of a boom-bust cycle.
Increasing supply and adding more density will not work to make housing more affordable according to Douglas Todd’s evidence. “Many Chinese use foreign real-estate purchases as a means to safeguard a portion of their assets,” said a senior immigration manager in China, as reported in the December edition of the newsletter, Lexbase.“It is clear many heads of family have purchased expensive homes in Canada and installed their families there while they continue to work in China.”
While there has been a release of information from Canada Mortgage and Housing Corporation (CMHC) suggesting that 20 per cent of new condo housing is being bought by foreign owners, that data does not look at purchases done by “Canadian real estate through proxies, such as spouses, children, trusts or companies, all of which, along with the tactic of flipping pre-sale purchases first made in East Asia, can shield the identities of real owners. Nor does the CMHC report capture the purchases of well-off immigrants, many of who move their families to Canada and buy their homes with overseas wealth (which is normally not taxed in Canada), a trend outlined in a groundbreaking December study by UBC geographer Daniel Hiebert.”
Identifying that the federal government has not looked at the issues of offshore capital and migration as factors in affordability, Australia and New Zealand are initiating ways to stem foreign nationals buying into their housing markets. The New Zealand government is banning the selling of any housing to foreigners.  What can the Provincial and Federal governments do to ensure that workers in Vancouver who make a fraction of the amount required to own a housing unit here can live here? How can we make housing less of a commodity and more of a necessity for the health of a city? As Douglas Todd surmises “No doubt the B.C. government has other ideas up its sleeve. Whatever the government does in February, however, it’s almost guaranteed 2018 will be another tumultuous year for beleaguered Metro residents, especially the hundreds of thousands who still can’t yet afford to rent or buy a decent place to live.”
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  2. Well, that certainly contradicts everything Alex has been saying. People are letting their emotions over immigration cloud the real issue, which is capital migration.
    Given what Douglas Todd writes about proxy buying, perhaps even a complete ban on foreign ownership would not help. The only thing that would seem to work would be to require a Canadian tax return on all real estate purchases to validate income , and tax incoming capital.

    1. No Bob, it doesn’t contradict anything I have said. Unlike you, I have always cautioned against enacting rash policies based on panicky assumptions, like banning all foreign buyers before all the the data is in and analyzed. You will note that the calculation is still incomplete, though the anecdotal and circumstantial evidence has led people like you and certain journos to arrive at premature conclusions, or make strong implications as such.
      Until we have data that clearly defines the exact level of foreign influence on prices in comparison to all the other influences (land supply, low interest rates, etc.), then this is so much conjecture. Is it 5% or 55%?
      You can opine all you want in these blogs, but some of us (seemingly the minority these days) will defend basing policy on a process involving gathering hard evidence and conducting rational analysis over the next year. If the data indicates half or more of the values today are attributable to foreign wealth, then Bob’s your uncle. Until then, it’s best to hedge your bets in case the evidence does not completely back your assertions.

      1. Alex, the figures below are not circumstantial but came from the BC government:
        “…The share of sales volume involving foreign buyers plunged from 16.5 per cent in Metro Vancouver in June 2016 to four per cent in January 2017.
        In Richmond, 27.2 per cent of total sales involved foreign buyers in June 2016. The figure plunged to 1.3 per cent in August 2016 and bounced back to about 10 per cent per month through most of 2017. From June 2016 to May 2017, the cumulative value of all property purchases in Richmond involving offshore buyers was 12.6 per cent, about $610 million….”
        http://vancouversun.com/news/local-news/foreign-buyers-still-investing-in-metro-vancouver-real-estate-despite-b-c-tax

  3. New Zealand’s supposed “ban” on foreign ownership only extends to existing buildings. Unbuilt and reconstructed properties are exempt, as are residents and Australians. It’s pure political sop with no economic significance whatsoever. But it seems to be a successful rallying cry for our hyper-rationalized xenophobia.

    1. I hope the NZ action is backed by an analysis of its effects by neutral economists and planners. The last time I saw numbers on Sydney’s foreign ownership limiting / banning policy they indicated only a slight temporary dip.
      Sound familiar?

      1. Unfortunately, who it’s backed up by is immaterial. Legislation is rarely based on the inputs of “neutral” economists and planners. It’s targeted reaction to appease the loudest complainers. And if the Vancouver Sun keeps drumbeating the confident ramblings of ‘seasoned writers’ who parrot sophomoric treatises overheard at dinner parties, we”ll soon see some “important announcements” come out of Victoria and Ottawa to appease the chattering classes.

  4. CMHC/Stats Canada did not say 20% of homes were bought by foreigners. It said 3.2% of single detached homes in Metro Vancouver are owned by non-residents. In the City of Vancouver, 4.8% of all properties are owned by non-residents. This includes Americans and some BC snowbirds. Most Vancouver non-residents own higher-end, newer condos downtown where many work or have business relations. A large number are under 1000 ft.². New downtown condos are a minority of total condo sales, but of those, 20% were to non-residents. This article seems to say Stats Canada researchers and CMHC economists are ‘vested’ in promoting an agenda. This is a religion writer quoting non-economists. It is easy and popular to blame foreigners for problems even though there are no statistics to back this up. With no numbers we are told foreigners are there but they are hiding. Stats Canada is now researching this claim and will release numbers soon. Economists suggest looking elsewhere. We might consider why many Vancouver neighbourhoods have less people today than the 1970s.

    1. Thank you Anon for an accurate read of what was actually published by the agencies actually doing the math. We have to remember that their work is far from complete.

  5. Ask yourself why the Canadian government is unable to provide the data beyond the basic level they provided. Nothing on corporations or trusts buying, shell companies, Chinese students and housewives, nothing. WHY WHY WHY? They have data on all kinds of other statistics but not housing? I call BS. What are they hiding?

    1. You seemed to miss the fact that several federal agencies, including the CRA, are now collaborating on data gathering and analysis. They have been lax for a long time, probably because it was mixed in with immigration policy. But with millions in unpaid income taxes potentially going unreported, and with an affordability crisis now manifested in several cities (the GTA is #2 behind Vancouver), they were spurred into action.
      On top of that we have a new government here in BC that published their proposed action on housing affordability in several interviews during the last campaign. I was very impressed with David Eby’s grasp on the need to root out income and family trusts using foreign wealth. He is now BC’s attorney general in a government that will be releasing its housing policy soon.
      2018 will be a good year to see real data on the effects of foreign ownership. My guess is that it will prove the media and blogging narrative implying that foreigners alone are to blame is largely off base and relative to all the other influences.

      1. Here’s how its done my friend:
        “The judgment sets out the method through which Hong Jie “Anita” Wang, an executive in Shandong, China, transferred money for the purpose of buying a five-acre Port Coquitlam property with a B.C.-based partner.
        The B.C. realtor who acted as the buying agent on the 2011 deal, Ravi Panwar, told Postmedia that such land deals — where offshore investors partner with B.C.-based counterparts — are “quite common,” though he didn’t know how often they involve money shipments like those outlined in this case.”
        http://vancouversun.com/news/local-news/illegally-shipping-money-from-china-into-b-c-real-estate-as-laid-out-in-b-c-court-case

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