LET’S TAKE STOCK OF HOUSING
Foreign influence still met with denial
To understand Metro Vancouver’s housing market in 2017, and how B.C.’s politicians could ease the affordability crisis, it’s necessary to look offshore — to China, Australia and New Zealand.
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 contributing to housing havoc for locals, many of whom are being forced to leave their cities.
UBC geographer David Ley, author of Millionaire Migrants, joins SFU’s Qiyan Wu in maintaining Chinese investment has become “a fundamental” of Metro Vancouver’s real estate market, up there with interest rates. National Bank of Canada economists estimate “almost $13 billion was spent by Chinese investors in Vancouver” in one year alone.
Indeed, this year’s move by China’s authoritarian leaders to severely restrict how much money they will allow to leave their populous country appears to be a key reason prices on highend detached houses in Metro have this fall been dropping by 15 to 20 per cent, even if most of the public hasn’t noticed.
This year has been an especially confusing time for Metro’s globalized real estate market since, unlike detached home prices, condo valuations rose sharply this year, as offshore and domestic buyers and investors tried to anxiously get in on what they thought was a generally soaring market.
Stephen Punwasi, a real estate analyst at Better Dwelling, says this year’s rush to buy Metro condos may reflect a common phenomenon that happens during a financial boom-and-bust cycle; smaller buyers get in on the tail-end of a run initially created by high-end investors.
The new B.C. NDP government, which this summer defeated Christy Clark’s Liberals in part because of Metro’s housing crisis, has been largely quiet on the housing front since it has been in office, but promised to bring in “comprehensive” new legislation in February.
The NDP would be smart to study what politicians are doing in Oceania. The cities of Sydney, Australia, and Auckland, New Zealand, now join Metro Vancouver and Hong Kong as the four most unaffordable cities out of more than 400 surveyed globally by Demographia.
INCREASING SUPPLY IS NOT ENOUGH
The evidence overwhelmingly refutes those in the real estate industry and former B.C. Liberal government who argue foreign capital and migration have only had a trivial influence on the Vancouver and Toronto housing markets — and all that is needed to solve the problem is more supply, to build more housing more quickly and more densely.
An internal Canadian immigration department report from Shanghai is the latest to expose the vast amounts of foreign capital creating housing demand in the city, a factor Vancouver Mayor Gregor Robertson publicly acknowledged this fall was hitting Vancouver “like a ton of bricks” after years of playing down the phenomenon.
“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.”
In late December, Canada Mortgage and Housing Corporation released data showing roughly 20 per cent of newly built condos in Metro Vancouver were sold to people who lived outside Canada — adding foreign nationals concentrate on buying the country’s most expensive dwellings.
But the CMHC data revealed only the tip of the foreign-capital iceberg.
CMHC did not explore how easy it is for those making millions outside Canada to buy into 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 whom 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.
High in-migration is a key factor de-coupling the housing market from Metro Vancouver’s local labour market, which new census data revealed in 2017 to offer the 15th-lowest average wages of any major Canadian city.
While the federal government largely ignores the issue of offshore capital and migration in regards to housing costs, and the B.C. NDP government has so far been muted on it, Australia and New Zealand are stepping up to the plate.
The Economist magazine reported Australia and New Zealand’s elected officials are recognizing problems most Canadian politicians feel they must deny, including that “immigration has stoked housing prices.”
Australia long ago tried to respond by allowing foreign nationals to buy only new housing, not existing housing. More recently it has tried to reduce housing demand by tightening immigration rules. It has also moved dramatically to stop attempts by foreign governments, especially the People’s Republic of China, to illicitly influence the country’s corporate, real estate and political systems.
New Zealand this fall is proving more bold than Australia, not to mention timid Canada. After a left-wing party topped the polls in September, it formed a coalition government that has banned selling any kind of housing to foreigners.
Crucially, the New Zealand government (unlike Australia) is also forbidding home sales to foreign trusts, foreign corporations and temporary residents, such as foreign students.
B.C.’S NEXT STEP?
What will the B.C. government do to increase affordability in Metro Vancouver?
When they were in opposition, Attorney General David Eby and Selina Robinson, the minister now responsible for housing, hammered the Liberals’ approach to housing costs, which Postmedia News reporter Sam Cooper recently found included Christy Clark flying across the Pacific Ocean to tell Asian billionaires the government was eager to permit foreigners “to own a significant portion of Vancouver.”
Now the pressure is on the two NDP cabinet ministers to come through in 2018. They face a topsy-turvy situation in Metro, where prices are declining for high-end detached homes after having shot up for condos.
Will Victoria increase the 15 per cent tax on foreign ownership? The B.C. Liberals turned the surtax into the housing story of 2016, even while it had limited effect because of its many loopholes. The NDP in office hasn’t show much public interest in banning foreign purchases.
The NDP, however, has instituted modest measures to ease rent-gouging and make it harder for foreign owners to pretend they’re residents of Canada so they can avoid paying capital gains on houses they don’t live in. The centre-left party has also ended foreign, corporate and union donations to political parties, which might reduce the power of B.C.’s property-development industry.
Will B.C.’s municipalities respond in any way at all? The City of Vancouver in 2017 made moves to tax empty homes, while promising further housing measures. Meanwhile, most municipal politicians, in suburbs such as Richmond, Burnaby and the North Shore, are saying and doing virtually nothing.
One housing policy recommendation that seems to get serious air time in B.C. these days indirectly targets non-resident owners. It would require all homeowners to pay higher property taxes, but would preference domestic owners by lowering the rate for those who have long paid income taxes in the country.
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 afford to rent or buy a decent place to live.
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.