FOREIGN OWNERS AND HOMES IN TORONTO AND VANCOUVER: THE REAL STORY.
Non-resident does not equal foreigner
Statistics Canada has answered questions about housing markets that no one asked.
In a recent release, Canada’s national statistics agency revealed that nonresidents owned only a small percentage of homes in Toronto and Vancouver. Also, the data showed, nonresidents were more likely to own condominiums than any other type of housing.
As housing prices escalated rapidly in Toronto and Vancouver, many suspected that foreign homebuyers were responsible for price escalation. However, without robust data, the extent of homebuying by foreigners was not known for certain.
A $40-million federal government initiative, Canadian Housing Statistics Program ( CHSP), was supposed to fill the information gap in housing markets. The initial release of CHSP data and analysis has done little to fill the information gap on who has been buying residential real estate as of late. Instead, it describes who owns housing in Canada.
In this case, homebuyers and homeowners are not necessarily the same. Let us explain.
At any given point in time, only a subset of existing homes is bought and sold. Similarly, only a fraction of the population is busy buying and selling. The informa- tion gap in housing markets is about homes being bought (a flow variable) and not the entire housing stock; and about those active in buying and selling and not necessarily about passive owners.
Furthermore, Statistics Canada has concentrated on non- residents instead of foreign buyers. Again, they are not necessarily the same. For instance, a Canadian citizen living abroad is a nonresident. At the same time, a non- Canadian citizen could be a permanent resident.
What markets r e al l y wanted to know is the share of the residential real estate being purchased by foreigners with no real connection to Canada, i.e., those who are neither Canadian citizens nor permanent residents. Instead, we got a breakdown of home ownership (not necessarily homebuying) by residency status, irrespective of citizenship.
Why we insist on differentiating between buyers and owners matters. In relative terms, non- resident homeowners might constitute a much smaller fraction of all homeowners than foreign homebuyers as a percentage of recent homebuyers. By focusing on home ownership, Statistics Canada’s fig- ures did little to clear up our understanding of homebuying by foreign individuals.
Even with these caveats, we find interesting differences in home ownership between residents and non- residents. First, nonresidents owned only 3.4 per cent of all residential properties in Toronto Census Metropolitan Area ( CMA) and 4.8 per cent of properties in Vancouver CMA.
The average assessed value of residential properties owned by non-residents in Vancouver was $ 80,500 higher than that of residents. The same was not true for Toronto, where the assessed value of properties owned by non- residents was on average $83,200 less than that of residents.
StatCan explained that the assessed value of homes owned by non- residents in Toronto was lower because they owned proportionately more condominiums, which are usually cheaper than low-rise housing.
We suspect a smaller number of very expensive housing units owned by non-residents might have skewed the averages in Vancouver. Therefore, instead of comparing averages, we may want to compare the difference in median values, which are less affected by outliers.
This time we get a different picture where the median assessed value of homes owned by non-residents was lower even in Vancouver. The same applied to Toronto.
Non- residents are indeed a distinct cohort from the rest in their housing preferences since they prefer condominiums over other types of housing. In Vancouver, for instance, two- thirds of the properties owned by non- residents were condominiums. Almost half of the properties owned by nonresidents in Toronto were also condominiums.
A breakdown of housing sales by citizenship status is urgently needed to evaluate the efficacy of foreign homebuyer taxes imposed in Toronto and Vancouver.
The Ontario government filled in part of that picture on Tuesday, when it reported that, in Toronto, the percentage of sales to buyers who were neither citizens nor residents declined from 5.6 per cent in the May- to- July period to 3.8 per cent in the subsequent three months, suggesting that government efforts were indeed having some effect.
At the same time, it will be helpful to know who resides in properties owned by nonresidents. Are these units being kept empty and therefore contributing to a shortage of available dwellings or are these units being rented out and thus providing a useful service?
While we are grateful to Statistics Canada for shining more light on housing markets, we hope that in future releases, the agency will cast further light on segments of the housing market that need illumination.