Once again we find ourselves amidst another snap election as the Trudeau 2.0 Liberals attempt to take back their majority government. And once again, following another year of rapidly rising housing prices, affordability has risen as a top issue on the short campaign trail.
While my personal opinion is that since 2005, both the federal Conservatives and the federal Liberals have failed miserably at addressing housing policy, I won’t get into a philosophical history lecture here. However, I will admit my political and philosophical bias from the outset. I’m a REALTOR. My livelihood depends more on housing being accessible to as many people as possible rather than as expensive as possible. I am a progressive naturalist capitalist. I believe in a steady state sustainable economy, which likely differentiates me from most traditional capitalists. I am also non-partisan. I have voted for 4 different parties over the last 20 years (I turned 18 in the year 2000).
With that out of the way, I’m going to get pretty real here. I believe that many of the promises made on the campaign trail by most parties are either ironically damaging to housing affordability, are unlikely to be kept, or are outside of the jurisdiction of the federal government. The reality is that outside of a radical or revolutionary change to the banking system, the federal government has very little ability to make housing in Canada more affordable. They can keep playing around with the rules, which usually harms more than it helps, but I believe their role should be in assisting the provinces and municipalities in THEIR massive roles in housing policy.
One last note to mention - the following comments regarding political parties focus solely on housing policy. My vote, likely like your vote, isn't depended on any one issue. There are many others that are equally or maybe even more important to you or I. I may critisize one party on their housing policy but praise them on their environmental policy, or defence, or economic policy. The intention of this article is not to persuade anyone towards or away from their intended vote.
Real Estate is not Walmart
First, let's cover some basic macroeconomic logic here. Real estate is unlike most markets because it is one of the few examples of an almost entirely pure capitalist system. Yes, there are many regulations when it comes to buying and selling of real estate, but the reality is that a vast majority of real estate regulations are on the duty of agency (someone acting on behalf of someone else) as opposed to the act of buying and selling. Additionally, there are many rules about how to lend and borrow money. But if you strip real estate of agency and of mortgages, you are left with a relatively basic transaction between someone who wants to sell a [usually] resale product and someone who want to buy that product, similar to selling a used car on Craigslist. The product is worth what the top buyer is willing to pay and what the seller is willing to let it go for. This is not a big box store or service that can afford to lose money on one product to sell another with higher margins.
There is no evil entity or conspiracy to raise housing prices - there is a pure capitalist system in play that allows buyers (the demand) to pay what they can for a product (the supply). So logic is that when there are more buyers (demand) than sellers (supply), prices rise. Alternatively, when there are more sellers (supply) than buyers (demand), prices fall. Where various levels of governments come into play is how they can tinker with this equation by setting up rules and incentives for either demand or supply. Over the last 16-20 years, with a brief exception following the housing collapse of 2008-09, the federal governments have often focused on incentivizing or regulating the demand side of the market, usually in reaction to the market, but often well after the market has already started correcting itself, which further exaggerates the extremes of the market cycle - making a perpetual pendulum swing of hot and cool markets as opposed to any lengthy balanced market, such as what we saw during much of the 1990s.
Demographics are Driving Housing PricesShoot, I’m getting into history. I can't stop that now. Let’s just say I haven’t been a fan of the federal and provincial governments trying to manage the housing market through manipulation of demand, such as giving money or tax credit to one market segment, which only raises the prices on the backs of other Canadians. I have always been in favour of addressing the supply side. In 1976, when there was a population of 23.45 million, Canadians built 257,802 homes, with 48% of those being single family homes. The 8 million baby boomers were anywhere between their teens to their early thirties. Comparatively, by 2010, while the 8-9 million Millennials were in the same age category, Canada only saw 195,377 housing starts with 47% of them being single family homes. The population of Canada in 2010 was 34 million. So between 1976 and 2010, we experienced an increased population of 45%, but a decrease in housing starts of -24.2%.
But Brad, you might argue, 2010 isn’t a fair year to compare: the world had just witnessed a massive collapse in the housing and stock markets. Developers were wary as money just vanished overnight. True. So after two distinctive, prolonged, and successive hot markets in 2015-2018 and 2020-21, you might think that the development industry, relatively free of recent market risk, would be in overdrive, full of incentives from the government to build the necessary supply needed to match the demand of the now 20-40 year olds who are building careers and raising families with greater purchasing power.
With a population of now over 38 millions, an increase of 11.8% since 2010 and 62% since 1976, housing starts reached 212,843 in 2018 (most of which are just seeing completion in 2021) and 2021 is projected to reach a record setting 293,500 units.
Great, so we’ve finally overcome the annual number of housing starts set by our parents in the 1970’s - yet our population has vastly outgrown this number. Between 1972 and 1979, there were 867,868 single family homes built, with an additional 275,919 duplexes & townhomes and 685,317 apartments built, for a total of 1,829,104 homes in 8 years, or average of 228,638 homes. Between 2011 and 2018, there were 284,997 single family homes built, plus 266,192 duplexes & townhomes and 748,302 apartment units for a total of 1,299,491 homes in 8 years, for an average of 162,436 homes built per year - 29% less than two decades ago, despite our +60% more population. In 1971, the Canadian government announced a policy of multiculturalism and proactively sought out increased immigration from countries such as China. It also tabled the Immigration Bill in 1976 and enacted it in 1978, identifying a specific program to increase immigration. Our population grew by 1,980,000 between 1972 and 1979, with a total immigration count of 1,175,300 (146,913 per annum - keep in mind that death rate is not taken into account here). Meanwhile, our population grew by 2,720,000 (340,000 per annum) between 2011 and 2018 with an immigration count of 2,165,990. With life expectancy steadily rising, we need homes to not just to house new Canadians, whether born here or immigrated, but also the past generations.
Populist Campaigns = No SolutionsWith all of this data and economic theory at the fingertips of our politicians, what are they promising us if they get elected? Does any party recognize that it is the increase of the population over the past half century, alongside record low mortgage rates, combined with a decrease in annual building units that is almost entirely responsible for the rise of housing prices across the continent?
Liberal Party: "A Home. For Everyone."
The Liberal Party’s housing platform is called “A Home. For Everyone”. Yet, the Canadian populace must consider the facts: since the Liberals have been back in power (elected in 2015 with a majority government), housing affordability has deteriorated at the fastest rate in modern history - or perhaps ever. So the question is, what can they do to reverse or at least stall the trend? The LPC has come up with a 3 part plan:
Unlock Home Ownership
Build More Homes
Protect Your Rights
Like any numeric plan with catchy titles, it sounds good. But what are they actually promising?
In the first point, the federal Liberals are promising to dole out $1 billion in rent-to-own projects, hoping to provide a new way to homeownership for renters. They are also promising to create a First Home Buyer Savings Account that would be tax free up to $40,000… if you’re under 40 years old - sorry Gen X, if you missed out, you’re SOL. Additionally, the federal Liberals want to make the already implemented First Time Home Buyer Incentive more flexible by allowing for deferred mortgage loans as opposed to the somewhat unpopular shared equity model. Further assistance to first time home buyers will be made possible by doubling the First Time Home Buyers Tax Credit from $5,000 to $10,000, which should put $1,500 back in the pockets of buyers. The final big promise is to reduce CMHC premiums by 25%, which, according to the Liberals, will put $6,100 back into the pocket of Canadians (over the lifespan of the premium).
So how does this affect Canadians? This is all great for individual first time home buyers (and REALTORS), since it’s all about diverting savings from taxes to home ownership. What about supply and demand? Does this help supply? Obviously not. This is about driving the demand of the market up, but nothing about the supply. First time home buyers are actually the drivers of the market. Established home owners can upsize, downsize and make lateral moves, but they don’t directly put further pressure on the market. The Liberal Party is actually promising to add fuel to the flames of the hot market, putting additional pressure on the limited supply. If you give every homeowner in a marketplace $30,000, where you can leverage that money to compete for a $500,000 home, all you’ve done is increase the purchasing power of everyone vying for it, and therefore, increasing the price of the home. The buyers therefore haven’t accessed anymore home - but the sellers and the REALTORS have made more money.
Perhaps the most hilarious part of point 1 is that in the preamble of point 2, the Liberals admit: “Even when more Canadians can afford a downpayment, without a greater supply of middle class homes, there will be more people lining up to purchase every available home.”
Onto the Liberal Housing Plan Point 2: "Building Homes."
Now you’re talking my language. The Liberal Plan promises to build, preserve, or repair 1.4 million homes over 4 years (350,000 per year). This is a peculiar statement. The sentence doesn’t actually promise 1.4 million housing starts, since it includes “preserving” and “repairing” homes. While wonderful, this doesn’t actually help housing numbers. The plan does not actually state either how many new units will be built or what the federal government’s role actually is.
Recognizing that municipalities, which have very limited revenue ability but with increasing fiscal responsibility, the Liberals are promising to “Give cities the tools to speed up housing construction through a Housing Accelerator Fund, which will make $4 billion available to challenge the country’s largest cities to accelerate their housing plans, creating a target of 100,000 new middle-class homes by 2024-25. Help cities enforce use it or lose it: that core urban land should be available for new housing, not held vacant by speculators.”
It doesn’t sound like there’s much in it for the fastest growing suburbs, which will probably receive pittance - but a slow clap for Vancouver, Calgary, Toronto and Montreal. Even then, what does this actually mean? What is the Housing Accelerator Fund and how will it work? Personally, I would like to remain optimistic on this, but the 1.4 million number is not exciting me, nor is any program that merely incentivizes cheaply built homes in communities that streamline poorly designed neighbourhoods. We are on par for achieving 300,000 units per annum by 2022, which means that even without any new promises, we should be achieving 1.2 million new housing starts in the next 4 years anyway. If you add in whatever “preserving” and repairing” homes means, this isn’t nearly enough homes.
Finally, the Liberals are promising to “protect your rights” by chasing red herrings and infringing on your rights as a consumer and homeowner. Under this section, the Liberals plan to potentially force other homebuyers to know your financial position, not allow sellers to take the best offer, and override provincial legislation. There is also the proposed ban on new foreign home ownership, strengthening enforcement on flipping, and de-incentivizing builders who make too much profit on rental housing.
Yes, my bias is glaring. My main comment about upending the entire resale real estate market and banning “blind bidding” is to encourage everyone to check out a Sotheby’s Auction House and tell me if open bids reduces prices. The only thing this will do is lead every buyer in a typical small or medium market to know the financial position of the other buyers. There are so many privacy pitfalls with this, its unbelievable. The majority of the plans in this section are actually already implemented in one way or another. There is plenty of transparency on prices of homes. The reason that home prices are hidden prior to completion is because the deal actually isn’t done until the registration of title.
The tax on flipping homes doesn’t seem like anything new. Currently, if you flip a property within the first 12 months, you are already likely subject to capital gains tax, on top of other transfer taxes. It’s the fact that this would be on your principal residence, which has usually been exempted from capital gains tax. The vast majority of people who sell in the first 12 months will likely fall under the exceptions to the rule that are already excised from capital gains. So I imagine the only people this is really targeting are a very small segment of renovators who buy and sell one property at a time or the occasional amateur investor who registers their investment as a principal residence?
The two-year ban on foreign home buyers won’t do anything other than likely promote retaliation by other countries. In BC, we’ve had a foreign buyer tax of 15-20% for years. This means that for a home valued at $1,000,000, a foreign buyer actually has to pay $1,200,000 (plus property transfer tax). Yet the value of the home is still $1,000,000. That buyer is instantly losing money on his or her investment and has to wait for appreciation. Meanwhile, the BC taxpayers gain $200,000. The federal Liberals plan to take this away. Additionally, what does a foreign buyer actually do? First, they are taking money from their economy and putting it into our economy, plus they often rent out the home to Canadian residents. While the property itself is out of the homeownership pool for a resident, it is still in the rental pool, helping alleviate rental prices. The continued rise of housing prices following the foreign buyer tax in BC provides further evidence that foreign ownership has never been a significant factor in deteriorating housing affordability.
Finally, I am deeply concerned about the plan to de-incentivize builders from amassing too many profits in the rental market. While I can understand and appreciate the socialist perspective, I’m also concerned that within the parameters of a capitalist society where governments do not build the majority of homes, that this will lead to a reversal of housing starts for the rental market. My own local community has seen a huge increase in much needed rental-only units over the last few years, but most of these buildings would not have been started if there were further regulations meant to de-incentivize them. If the government chooses to make it harder on these companies, the builders will instead choose to build other product, which would dramatically reduce the number of available rental units and therefore keep rents high.
The Liberal Plan sounds good, as they always do, but it treats Canadians as reactionary simpletons chasing incendiary and poorly researched media opinions, meanwhile doing very little to address housing supply or addressing the mortgage system that continues to reward the banks for their part in the vicious cycle of increased housing values. The Liberal Plan gets a solid “F” from me, as the majority of the plan will lead to high home ownership and rental costs, while experimenting with Canada’s privacy laws, while also promising some minor positives that are mostly out of their jurisdiction or are vague in nature.
Conservative Policy: "A Detailed Plan to Tackle Home Prices"
The Conservatives open up their housing policy with a statement I can’t agree more with:
“The primary cause is that supply simply isn’t keeping up with demand. Governments have not let Canadians build enough housing to keep up with our growing population. We need action - from all levels of government. We need to treat this like the crisis it is. Years of study and delay will just leave more and more Canadians and newcomers trapped in inadequate or insecure housing. We need shovels in the ground building enough housing not just to keep up with butto get ahead of population growth.”
Putting housing supply at the forefront of their policy is a great start. So how would a Conservative federal government address this? Their first promise is to “swiftly increase supply” with a “plan to build 1 million homes in the next three years” - or 333,333 per annum. Although the federal Liberals claim that their 1.4 million homes in 4 years is 30% more than the Conservative plan, their 350,000 homes per year is not 30% more per year, nor does the CPC plan include any reference to “preserving” or “repairing” homes as part of their figure. While I still believe 1 million homes in 3 years is still under what is needed, the promise does seem more solid and detailed than the Liberal plan.
However, similar criticism must be applied: with housing stock primarily in the hands of municipalities and provinces, how can the federal government boost national housing numbers? The Conservatives plans to
“• Leverage federal infrastructure investments to increase housing supply. We will:
° Build public transit infrastructure that connects homes and jobs by bringing public transit to where people are buying homes; and
° Require municipalities receiving federal funding for public transit to increase density near the funded transit;”
This promise will promote more housing accessibility and sustainable development patterns, incentivizing densification in areas where public transit is oriented. I wholeheartedly agree with this - except there is no number provided. The federal Liberals have been implementing this fairly consistently over the past 5 years in government, with regular increases to infrastructure. In 2016, they released the Investing in Canada Plan infrastructure plan that committed $180 billion over 12 years. I’m not sure on the details of the execution of this plan, but anecdotally, it seems on track. To fairly compare the level of investment the Liberals are making to the Conservative platform, we would need to see the challenger’s actual dollar commitment.
The Conservative’s also promise to release 15% of over 37,000 federally-owned buildings for conversion to housing. This is a unique proposition that I can get behind, assuming it pans out.
The CPC also plans to incentivize building by “encouraging Canadians to invest in rental housing by extending the ability to defer capital gains tax when selling a rental property and reinvesting in rental housing… and “exploring converting unneeded office space to housing”. These are both relatively minor details, but could lead to positives for the rental market. Anecdotally, it has become increasingly difficult to be an investor/landlord in BC and Canada, which is one reason that the rental market is becoming overwhelmingly dependent on large corporate rental management companies as opposed to small investors.
Regarding “corrupt activities that drive up real estate prices”, the Conservatives offer similar verbiage as the Liberals in stepping up attacks on money laundering, establishing a Beneficial Ownership Registry and mimicking the two year ban on foreign buyers.
Again, these are non-issues that have been inflamed by the media because they are easier scapegoats than dealing with the problematic mortgage industry and lack of supply. The BC money laundering investigation did not actually investigate actual money laundering - it merely made assumptions based on global statistics as opposed to actually investigating the reality of the local situation. I fully support the federal government’s push for a truly competent commission into the reality of money laundering, as long as it is a genuine investigation.
Now, whereas the Liberals put fuel on the fire of buyer demand on the top of their list, the Conservatives also have a section on “making mortgages more affordable”. We all know that in truth the only way to really make mortgages more affordable is to make them smaller or to make rates even lower than they are (which only makes the cost of homes higher). But let’s see what the CPC is actually promising:
• Encourage a new market in seven- to ten-year mortgages to provide stability both for first-time home buyers and lenders, opening another secure path to homeownership for Canadians, and reducing the need for mortgage stress tests.
• Remove the requirement to conduct a stress test when a homeowner renews a mortgage with another lender instead of only when staying with their current lender, as is the case today. This will increase competition and help homeowners access more affordable options.
• Increase the limit on eligibility for mortgage insurance and index it to home price inflation, allowing those in high-priced real estate markets with less than a 20% down-payment an opportunity at home-ownership.
• Fix the mortgage stress test to stop discriminating against small business owners, contractors and other non-permanent employees including casual workers.
From my perspective, these are all relatively minor adjustments or improvements to current policy that will have little affect on the housing market either way. These are items that I could see either the LPC or CPC implement and tinker with from year to year. If anything, these programs will likely add a bit more purchasing power to the majority of incoming buyers, likely increasing housing prices overall.
The Conservative Party concludes it’s housing section with a shot at the LPC: “Canada’s Conservatives will never tax Canadians’ capital gains on the sale of their principal residence, something many within the Liberal party are threatening to do.”
This could be a bit of a straw man… or it could not. Whenever you are dealing with a large political organization, you’re going to have a range of opinions. Suggesting that “something many within x party” is the course of the organization is not a fair argument, but it is politics. Another party could similarly blast the Conservatives for many things based on some socially regressive ideas within the party.
However, the CPC does, in fact, have a point. The Liberals did sneak in an “anti-flipping tax” on principal residences in their platform, of an unspecified amount, but also doesn’t seem like it is really an effective tool for anything.
Overall, the Conservatives have pivoted the direction of their platform to address the supply issue without fanning the flames of demand too much. I still feel that their 1,000,000 homes in 3 years number is lower than what we need and I don’t see enough detail on how they will be involved in achieving even that number, I give the Conservatives a passing grade of C+ for simply not promising plans that will overtly continue the trend of exponentially increased housing values.
NDP Policy: "Making sure everyone can afford a place to call home"
I don’t watch much tv, so I don’t see many television ads, so I don’t know what’s going on there. But when it comes to online and social media, the LPC and CPC came out strong and early with their housing platforms, showing their campaign readiness. The NDP, on the other hand, has either been quiet or drowned out. Of course, this is just anecdotal - I’m curious if the average non-politico has heard much about NDP responses to the two other party’s housing policy?
In my search for their housing policy, I found their 2021 platform relatively light of details, to be honest. Their housing affordability section was more about the situation Canadians are in and that the Liberals are to blame and less on concrete solutions. There is a greater focus on “affordable housing” as opposed to “housing affordability” in the NDP platform. A “New Democrat government will create at least 500,000 units of quality, affordable housing in the next ten years, with half of that done within five years. This will be achieved with the right mix of effective measures that work in partnership with provinces and municipalities, build capacity for social, community, and affordable housing providers, to provide rental support for co-ops, and meet environmental energy efficiency goals.” Additionally, the NDP would “[waive] the federal portion of the GST/HST on the construction of new affordable rental units.”
This is great for homes that fall under the category of “affordable housing”, which is considered to be units where housing costs less than 30% of the household’s before-tax income but does not address affordability of market housing, which is what drives more people to more subsidized housing, which has an increasing social and economic cost.
The NDP seems to understand that the problem cannot be solved merely by addressing affordable housing, so they make another campaign promise that they think might help housing affordability: “we will re-introduce 30-year terms to CMHC insured mortgages on entry-level homes for first time home buyers. This will allow for smaller monthly payments, freeing up funds to help make ends meet for young families. We’ll also give people a hand with closing costs by doubling the Home Buyer’s Tax Credit to $1,500.”
Canadians with longer memories will recall that it was the federal Conservatives under Stephen Harper that introduced 30, 35, and 40-year 0-down mortgages back in 2005-06. Back then, it gassed an already hot market and made it much hotter, as buyers were able to buy more house with less monthly payments, but stretching their debt longer. This pushed prices up, and more people ended up with homes that they eventually owed more on than they were worth by 2009-10.
The NDP is taking a more tepid approach than the CPC did 15 years ago, promising a similar plan for the most vulnerable market segment that was more likely to take advantage of longer amortization rates, which end up paying more interest to the banks over the long term. This is not a good solution. Yes, longer amortizations can allow for lower payments, but spread across a market segment, it raises the values of homes, while enslaving the home buyer to increased debt for longer.
The NDP concludes its housing affordability platform with a few sentences that the other parties provided much more information on: “To help put an end to speculation that’s fuelling high housing prices, we’ll put in place a 20% Foreign Buyer’s tax on the sale of homes to individuals who aren’t Canadian citizens or permanent residents. New Democrats will also fight money laundering, which fuels organized crime and drives up housing prices. We will work with the provinces to create a public beneficial ownership registry to increase transparency about who owns properties, and require reporting of suspicious transactions in order to help find and stop money laundering.”
Unlike the CPC and LPC, both which plan to place a moratorium on foreign buyers altogether, the NDP plans to extend what we already have in BC across the country. While I believe this is marginally better than the former two, especially since Canadians will benefit from the revenue, I still look at how the 20% tax in our hottest markets hasn’t prevented rapid increases in prices. The fact that all three parties still put such a draconian measure at the top of their list even during covid, which has seen very few people coming and going in and out of the country and very few foreign buyers.
The NDP’s platform is simply too sparse to really give it a grade on the same level as the first two parties. They seem to ignore building market homes altogether and endorse a buyer demand incentive that proved to make housing less affordable in a previous market cycle. If I have to give the NDP a rating, I would say it isn’t as bad as the Liberal Party’s commitment to putting more pressure on the supply, but nor do they have the Conservative’s understanding of the supply and demand equation - so let’s give them a C-, since they are at least endorsing the alleviation of problems on the lowest end of the housing spectrum without a complete dependence on throwing money at it.
Green Party: "Housing is a human right."
To be frank, the Green Party hasn’t looked this disorganized and weak for many years. They are coming into this election following major internal strife and an attempt to remove their new leader. While the party is rarely ready for elections as it is, this one will be even tougher on them. As I drove through the island the other week, I even wondered if party stalwart and former leader Elizabeth May would be able to hold on to her seat.
The lack of campaign readiness is proven through the lack of a platform to be found anywhere on their website. There is a “Our Vision” page that has some links to some of what I suppose comes close to a platform. In the “Affordability” section, there are a few references to housing:
Implement a National Housing Strategy to provide every Canadian with a place to call home.
Create a culturally sensitive Housing First approach to provide immediate support for those experiencing chronic homelessness.
Increase access to social housing for Indigenous peoples living on and off reserve.
Invest in the co-operative housing sector to invigorate the new, affordable housing market and sustain existing co-ops facing liquidation.
That’s literally the extent of it other than, on their home page, a call to action: “Tell Trudeau to declare a national housing affordability & homelessness emergency and provide support now.”
There is no doubt in my mind that the Greens likely have a similar position as the NDP on affordable housing and care to address struggling segments of the population, but they aren’t making an attempt to look like a government-in-waiting or even a proper opposition party.
[Update: On October 8, the Green Party released their full platform, including multiple references to housing… I will update if I have the time]
Making a Bad Problem Worse: An Analogy
Let’s pretend there is such a thing as a micro-market of 6 homes. You have 10 buyers who want to purchase these 6 homes. Each are able and willing to pay a maximum of $1,000,000 for the homes. Whether or not the property is listed for $900,000 or $1.1m, the homes are worth $1m and that’s what the 6 sell for. Instead of providing 4 additional homes when they were ready, a benefactor gives the remaining 4 buyers another $100,000 through various mean - some down payment money, some tax breaks, and some increased mortgage leverage, both through lower rates and extended payment plans. Then, 1 by 1, an additional home of equal “value” as the 6 previous homes are slowly added to the supply pool. What do you think happens to the price? It jumps by 10%.
Each additional home purchase is not more affordable, despite the home buyer being able and willing to pay more. Additionally, each new home that enters the pool will not be “worth” $1.1m. The banks recognize this, and appraise them, allowing for larger mortgages. The larger mortgages, even at low rates, makes the banks more money. Should any of the 6 initial home buyers want to sell, their home is also now “worth” $1.1m in the marketplace. They can now use their $100,000 of equity (yes, less fees, taxes, etc, but bear with me) to “upgrade” - further increasing the value of homes in the higher price bracket. Or, alternatively, they “downsize” and use their increased purchasing power to increase the prices of homes that other buyers with less purchasing power would have bought.
This system of “printing money” to ease housing affordability is what the Liberal Party of Canada has been doing since 2015 and what their 2021 platform promises to do more of. While other parties have some similar programs, their plans don’t aggravate the situation to the same extent.
Today’s population growth rate is not the growth rate that we are struggling with. Yes, immigration plays a significant factor in the immediate population projections, but it is the population boom of the late 1970s and through the 1980s that we must address. The babies of that time are now adults with careers and childrens and significant home purchasing power. Increasing the purchasing power of this group has, while great for banks and REALTORS, have only increased the home values and manufactured a program of life-long indebtedness to the banks.
The Perpetual Red Herring: Why Banning or Taxing Foreign Buyers Doesn’t Work
The “big news”, according to the binary media sources in our country, has been the commitment to put a moratorium on foreign buyers. Based on what I’ve read, it was the Conservatives who initiated the promise with the Liberals matching them. As mentioned above, the NDP has promised a 20% foreign buyer tax (not sure if this would be 20% on top BC’s foreign buyer tax, or a replacement of).
If you’re a politician looking for someone to blame, but someone that won’t lose you any votes, foreign buyers are the easiest target, regardless of the reality. BC’s hottest markets were slapped with a foreign buyer tax of 15% in 2016 and then later increased to 20% and expanded to other areas. Compared to other markets without this throughout the country or in the United States, this only slowed prices very briefly before rapidly escalating again.
The inconvenient reality are two details that politicians and media are ignoring. First, I doubt very much many foreign buyers are actually paying the 20% here nor would be affected by a “ban”. Many, if not most, foreign buyers have local contacts and interests that allow them to skirt any of these regulations. The problem is that we can’t know what we don’t know. I know this anecdotally, working as a REALTOR in Metro Vancouver, that many foreign buyers simply buy property through a local conduit to avoid the 20% tax. While I’m sure that the BC government is tracking some buyers who actually pay this tax, I doubt it is even the majority of foreign buyers actually buying property.
Second, there are no official statistics. The statistics that the media provided were based on surveys and very unprofessional studies that used racial profiling to come up with an exaggerated number.
The only way to accurately gauge how many purchasers are foreign buyers would be to collect a significant number of FINTRAC forms from real estate brokerages and compile the data. However, the government does not collect any of these forms unless they are auditing the brokerage - and even in this case, they are looking for compliance, not statistics.
The closest number that I’ve ever been able to find is CMHC’s statistic of 4.3% of Greater Vancouver real estate is owned by foreign buyers (this would not include the Fraser Valley).
However, the problem with this statistic is that there was no source provided on how this number was calculated and it included all “Non Residents”. 25% of my original immediate family are Canadian-born non residents. 25% of my aunts are Canadian-born non residents. There are 300,000 Canadian citizens living in Hong Kong. Over 9% of Canadian citizens live outside of Canada. For tax purposes, these are “foreign buyers”, but they are not new Canadians. They are often Canadian-born people living abroad who also hold property. Even before a vacancy tax, it was not very profitable to leave your property unattended. These homes often create rental housing for friends and family members at highly subsidized rents. Most of these Canadians abroad who own property are included in the 4.3% non resident property statistic.
Campaign promises by all parties seem to be nationalizing anti-money laundering and anti-corruption policies already instituted in the province of BC. The problem is that these are all smoke and mirrors. Real estate agents don’t have their client’s financial information, yet they are on the front lines for identifying money launderers and terrorists? There is no way for a real estate licensee to know where their client’s money is coming from. Many foreign buyers are “cash deals” so they don’t go through regular lenders, which means the only way to counter any corruption is to hold the banking system to a much higher standard.
Many of the media reports on the hawkish side that attack foreign buyers tend to use research that is based on racial profiling (ie. Chinese last names on title), or is simply statistically laughable (ie. how many homes in an ultra wealthy neighbourhood were purchased by non-residents). While these make for great stories and even better scapegoats, it isn’t what is driving the market. Of the 44,834 transactions in Greater Vancouver, only 380 homes were over $5 million and 53% of sales were under $1.5 million. Of the Fraser Valley’s 27,526 sales over the last 12 months, 65 homes were in the ultra luxury $5+ range (and probably most of those were development properties), and over 62% were under $1.5 million. The primary drivers of the market are residents in “typical” homes.
Banning foreign buyers doesn’t work because the loopholes are so massive you can drive a freight train through them and there simply aren't enough foreign buyers to drive the market. BC’s 20% tax was essentially a ban. As I implied earlier, how many buyers are willing to pay $1.2 million for a property valued at $1 million the moment they bought it?
Conclusion: Tough Choices Don’t = Votes, So Politicians Avoid ThemIn conclusion, it is simply my lone perspective that if Canadians are hoping for a party that will actually address the issue of housing affordability, they are going to be sorely disappointed. The housing market will continue to escalate, with very minor corrections, such as what we saw in 2019 (and what we will likely see in the near future), as a result of emotion-based over valuation of the market, until the supply catches up with the demand or until a massive economic market crash saps purchasing power from everyday Canadians (personally, I wouldn’t be surprised if crypto-currency is involved, but hey, that’s just me).
I’m not an economist. I don’t know how many more homes per annum we would need to build to see some sort of stability in the market. I do know that if building starts remain more or less on par with the 1970’s, but with an increased population of 62% or more, the housing crisis will only become more severe. Neither of these options are going to benefit the Canadian economy overall and are unlikely to happen. It’s very interesting how politically faux paus it is to talk about the fact that the majority of our increased population, and therefore demand, comes from immigration. Although I didn’t cover their platform, I imagine the only party that would likely address this head on would be the People’s Party of Canada, who have promoted anti-immigration policy in the past (to be honest, I can’t bring myself to bother with looking if this is still their thing).
I also do know that if money is given out, whether through rebates, incentives, or tax breaks, this will only raise prices - the more purchasing power you give to home buyers, the more money you are putting into the market, which is further exacerbated by the fact that every dollar in real estate can be highly leveraged by mortgages. Alternatively, if taxes are added on to housing, this may reduce house values, but not make housing affordable (there will simply be more money going to the government as opposed to the seller).
There are only two options to cure the housing crisis. We can reduce the demand by vastly limiting immigration, which has other economic consequences, or by making mortgages less attainable by requiring more money down on purchases. Alternatively, we can increase the supply of homes by incentivizing builders across all housing types and market segments and streamlining the development process with investments in new home building technology as opposed to simply handing out money or deregulating the industry.