Written by Jim Adair
With average detached home prices soaring above $1 million in Vancouver and Toronto, politicians are now being urged to do something to make homes more affordable. In both cities, online petitions demand that restrictions be placed on real estate investors and foreign ownership.
A petition started by a Richmond Hill, Ont. resident says it “is meant to protect current Canadian citizens, including recent immigrants, from the overwhelming amount of foreign investment taking over the GTA’s residential real estate market. This wealthy foreign investment strategy is driving up prices and lowering our standard of living as a result, as it is making it impossible for Canadians to buy homes in their own country.”
The petition says that “as more and more real estate is being bought by wealthy foreign parties, such as the Chinese, housing prices are on the constant rise.” It’s calling on the government to allow foreign investors to buy only new real estate developments but no existing residential property.
In Vancouver, Mayor Gregor Robertson is expressing similar concerns. He recently wrote in a letter to B.C. Premier Christy Clark: “The escalation in housing prices coincides with increasing reports of Vancouver’s housing market being treated as a commodity for the world’s wealthiest citizens, with people parking their money in Vancouver real estate simply for profit. I firmly believe that housing should not be treated solely as an investment commodity.”
Foreign investment in Canadian real estate is controversial because there’s little reliable data on how many properties are foreign-owned. In December 2014, Canada Mortgage and Housing Corp. surveyed condominium apartment owners and property managers and determined that the share of foreign ownership of condos was 2.3 per cent in Vancouver and 2.4 per cent in Toronto. Many were shocked at the low numbers and few seemed to believe the research.
CIBC World Markets economist Benjamin Tal told the Toronto Star that the numbers didn’t surprise him. “I think there is a lot of confusion here because so many immigrants are buying condos. But the fact people have a foreign accent doesn’t mean they are foreign investors.”
In Vancouver, real estate marketer Bob Rennie told reporters that “the Asian purchaser that we see buying a condo or townhouse, they’re local…44 per cent of our population is of Asian origin and I think we’re mixing it up.”
The British Columbia Real Estate Association (BCREA) says, “There are data and analyses from a number of sources that point to foreign investment as insufficient to impact a market as large and diverse as Metro Vancouver, save for a small segment of luxury homes.
“While no hard number on foreign buyers in the Metro Vancouver housing market exists, the available data and analysis on the housing stock and flow of residential transactions in the region suggest that foreign ownership of housing is considerably less than five per cent of the housing stock and not more than five per cent of sales activity.”
An open letter by Real Estate Board of Greater Vancouver president J. Darcy McLeod acknowledges that local home prices have increased by nearly 80 per cent since 2005, but says a foreign buyer’s tax would not make homes more affordable.
“A little mentioned fact is that we already have tax disincentives for foreign owners,” he says. “If a foreign owner wants to sell a property in Canada, they are unable to receive a capital gains exemption.”
Rennie is also opposed to a tax on foreign buyers, but he surprised many by joining Mayor Robertson in calling for new taxes to help curb real estate speculation.
In Robertson’s letter to the premier, he calls for an increased transfer tax on the most expensive properties, and “taxation measures to discourage the quick resale or ‘flipping’ of new housing, which would reduce speculation and help level the playing field for first-time buyers.
But in her reply, Clark said, “Any method of new taxation with the goal of driving down the price of housing could have the unintended effect of hurting current homeowners across the region. Driving down the cost of housing by just 10 per cent would mean a family with a home currently worth $800,000 could lose $80,000 in equity in their home. That could put some homeowners with large mortgages into negative territory.”
She also said that according to research by the Ministry of Finance and the BCREA, “local investors are three to four times more active in the region’s housing market than foreign investors. For many individuals and small business, this is a source of investment income.” She suggested that one way Vancouver could help with affordability is by lowering its civic fees and levies, which she says “add $76,144 to the price of a new condo worth roughly $450,000.”
The BCREA says the government should monitor the flow of foreign investment in housing by attaching a residency declaration in the land transfer process. This would “provide an opportunity to gain further insight into this market segment,” says the association.
“Despite the headlines, the majority of home sales in Metro Vancouver are not $1 million and beyond,” says McLeod. “Based on our MLS statistics, nearly 70 per cent of all sales in the region last year were below $800,000.
“Affordability challenges exist,” he says. “But there are also more options and aspects to the story than is typically discussed in the media. Certainly more than the mayor is putting forward.”