FOREIGN INVESTMENT IN HOUSING HURTS US
The Liberals' housing strategy is privileging foreign investors and directing billions to Canada's politically powerful development lobby at the same time it's drastically undermining local families who have been waiting for an opening into owning. Douglas Todd
Canadians can be grateful Ottawa's parliamentary secretary for housing isn't afraid of saying what's on his mind in front of a microphone.
Liberal apparatchiks must be going squirrely after loquacious MP Adam Vaughan inadvertently outed what has been the party's real scheme on housing for six years — pushing a policy that only worsens extreme unaffordability in cities like Toronto and Vancouver.
Vaughan, who is also the Liberal MP for Spadina-fort York, acknowledged in a rare display of federal government candour that Canada has become “a very safe market for foreign investment.”
But, Vaughan added, it is “not a great market for Canadians looking for choices around housing.”
Without blinking, Vaughan went on to tell TV Ontario host Steve Paikin that attracting foreign capital is the key to building more housing supply in Canada.
“We have a very good system of foreign investment creating a lot of new housing in Canada as we add immigrants and grow the population,” said Vaughan, a former Toronto city councillor who is now parliamentary secretary for families, children, social development and housing.
Whatever is going on in Vaughn's heart, the reality is the Liberals' housing strategy is privileging foreign investors and directing billions to Canada's politically powerful development lobby at the same time it's drastically undermining local families who have been waiting for an opening into owning.
Ron Butler, a prominent Canadian mortgage provider and real estate analyst, says a few housing-policy observers have been complaining about this unspoken Liberal policy for years. Developers and their allies have often shut them down by labelling them xenophobic.
“The influx of foreign money started small, then grew. At first the government denied it, calling anyone who pointed it out as racist. By the time it was ridiculously obvious, it was easier to turn it into a policy,” said Butler, who has been spoken highly of by Evan Siddall, who was until recently head of the Canada Mortgage and Housing Corporation.
Fuelled by the way Ottawa has been printing money, handing out pandemic benefits at a globally record rate and offering extremely low interest rates, house prices in Greater Toronto, Metro Vancouver and the Fraser Valley have gone up 20 to 25 per cent since COVID-19 hit a year ago.
Last fall, Vancouver ranked as the second most unaffordable city out of 100 major metropolises in the English-speaking world and beyond, according to Demographia. Toronto is fifth worst.
Given the parliamentary secretary's talkative frame of mind during his extended interview, Vaughan did express concern for renters who want to get into what he called middle-class security through owning a home.
But it seemed Vaughan, and by extension the minister responsible for housing, Jean-yves Duclos, and Prime Minister Justin Trudeau himself, are far more worried about not alienating those who already own homes.
Vaughan argued it would be terrible to bring in any policy that could cause current homeowners to see “ten per cent of the equity in their home suddenly disappear overnight.”
Host Paikin couldn't hide his shock at Vaughan's priorities, as he tried to explain people outside the market need to see drops of 20 to 30 per cent.
Real estate analyst John Pasalis said Vaughan's admission that Canada's housing market better serves foreign investors than locals flows from Ottawa's own inflationary policies, which are designed to push housing prices higher to drive the economy.
When Vaughan admitted that Canada's housing market is “driven by speculation” and that “it gets very tricky to curb speculation,” Pasalis said the housing secretary was ignoring what other countries have already done.
“I really don't know what to say when our federal government admits that it has made housing in Canada better for foreign investors than for Canadians. Who are they serving? Clearly not Canadians,” said Pasalis, who was also recently praised by Siddall.
To take just one regional example, the price of a typical house on Vancouver's west side has soared by more than $300,000 since early last year, largely due to Ottawa's policies. The average price is $3.3 million.
Realtor David Hutchinson said high-end homes “are completely out of reach of even some of highest paid locals on the west side of Vancouver,” where SFU housing analyst Andy Yan has said the only ones who can afford to buy are families with access to offshore wealth.
“I currently have four sets of buyers — three of them are highly paid professional couples and one is a local business owner, all with very good incomes — and these prices are even out of reach for them. Two of these have given up looking at all,” Hutchinson said.
It's hard to figure out whether money going into Vancouver housing is foreign-sourced or not, Hutchinson said, especially since a buyer who is not a citizen, but is simply in Canada on permanent resident status, is not subject to B.C.'S 20 per cent foreign-buyers tax. “And foreign investors can easily purchase through a permanent resident.”
It's important to keep in mind SFU policy analyst Josh Gordon's definition of foreign ownership, which is “housing purchased primarily with income or wealth earned abroad and not taxed as income in Canada.” Gordon's recent peer-reviewed paper says lack of connection between soaring housing prices and tepid local wages in Metro Vancouver is caused in large part by hidden foreign ownership.
The B.C. NDP has attempted to deal with foreign ownership by bringing in a non-resident buyers' tax and the vacancy and speculation tax, which targets so-called “satellite” families in which the breadwinner earns most of their money outside Canada. They're better than nothing, even with this current pandemic run-up in prices.
But don't expect anything at all from the federal Liberals. Trudeau, during a 2019 campaign stop in B.C., promised to bring in a one per cent tax on all property purchases by “non-resident, non-canadian” buyers. But not a peep has been raised since then about Trudeau's promise to “ensure foreign speculation doesn't make housing less affordable for Canadians.”
For that matter, we're not getting policy updates on a similar campaign promise by the NDP'S Jagmeet Singh, who also two years ago said he wants to impose a nationwide 15 per cent tax on foreign ownership.
Many North Americans these days applaud New Zealand Prime Minister Jacinda Ardern for her leadership, including on housing. She banned foreign ownership in 2018. And, to reduce speculation, she has cut immigration and required new home buyers to have large down payments.
Ardern is politician who has shown there are many things governments can do to rein in speculation in housing, particularly for young people. All it requires is the will.