Foreign ownership of houses comprises only small % of the housing market [1]. The measures promised (but all political parties, not just Trudeau) have been applied in New Zealand and their housing market still remain white hot. The root cause is low supply of houses in Canada, the red tape around land / property development keeps construction of housing slow and costly.
> Canada will try absolutely anything to lower the price of housing
This is absolutely not true. Canadian policymakers are willing to do almost nothing that could reduce housing prices– instead they try to induce prospective buyers to take on even more debt under the guise of "making housing affordable". Just look at every major party's housing platform in the current election– besides some very hand-wavy notions of bringing on more supply, and the LPC's plan to eliminate blind bidding, the "solutions" are almost universally focused on further stoking demand
It's even worse than that. Developers are building huge skyscrapers full of housing. Problem is, it's all luxury housing, well above average prices for comparable square footage. Then, people who don't want that luxury will end up stretching their budgets to buy it due to a lack of options in their price range. Developers have huge influence on local politics, so I don't really see a way to escape this.
> Problem is, it's all luxury housing, well above average prices for comparable square footage
but that's fine right? The people rich people moving into the "luxury" apartments will free up the "nice" apartments for middle class people to move into, who will subsequently free up the "okay" apartments. Building $30k cars also doesn't help the college student/single parent who has a budget of <$3000, yet we don't try to outlaw those cars or mandate "affordable" cars because "people who don't want that luxury will end up stretching their budgets to buy it due to a lack of options in their price range".
> Foreign ownership of houses comprises only small % of the housing mark
So a key part of the picture this kind of argument misses out is that price appreciation is primarily an effect of *marginal* demand and supply, not inventory. To put it another way as long as there's even a little bit of demand exceeding supply, prices will go up till sufficient marginal buyers drop out of the market. A very small imbalance is enough to push prices up. To begin appreciating how and why this happens, you may want to analyze a granular item level time series dataset of a market or auction (I once looked deep into a course auction at my alma matter) - it's quite eye opening.
In this case, there's presumably fairly price in-elastic foreign buyers and/or corporate structures like REITs buying into the residential buying market. Note that at any time, the entire market is never at play as most families wouldn't want to sell and move or change their lives - personal risk plays a factor - if we sell now & prices keep rising, how will we afford a house in the future etc. So prices keep rising.
Note that interestingly housing market is asymmetric in the sense that prices don't fall quite as much when marginal supply out-strips demand. Potential sellers who occupy their own houses generally prefer to stay in their homes and simply go out of the market. That's why prices drop in a big way only during major economic crises when people lose jobs, are unable to fund their mortgage and are forced to sell or let the banks foreclose.
In terms of fixes, creating additional supply by easing restrictions will definitely help. An additional way would be to disallow or disincentivize non-resident ownership. Eg. By banning price inelastic absentee overseas owners and investment companies from residential properties, taxing second and third home purchases by individuals with high duties etc but the key thing is to codify regulation at the "intent" level rather than at execution level so parties exploiting loopholes can be prosecuted and enforcing them.
Percentage of the total market is not the issue. The issue would be percentage of sales. If a large chunk of them are foreign cash offers, this would have a massive impact.
Assuming they don’t work around it through straw purchasers…
It's a more nuanced problem than that. This is how I've understood the problem when discussing foreign ownership specifically (don't shoot the messenger please!):
Our housing prices are wildly high, partially or even significantly, because of very wealthy foreign purchasers who often don't even live in the homes they buy. They jack the price up and sell them to other very wealthy people from their respective home countries. Rinse and repeat. It affects the prices of homes all around the property in tandem.
Basically those wealthy people who aren't contributing to the economy outside the house they bought, are making housing outrageously expensive for the people who do live here, because regular people can't financially compete with the wealthy purchasers that see the home as nothing more than a money maker to trade in overseas properties stacking.
Correct. Due to the pandemic and these restrictions, foreign buyer presence in NZ is slim to nil, yet appreciation this year is 30%+.
Supply is coming, but slowly due to supply chain constraints and lack of labor due to border restrictions. The relaxed interest rate environment due to pandemic support has no doubt contributed also.
Having few skyhigh priced McMansions on property listing just to fish out these 4% of rich foreign buyers definitely makes most realtors to put extra efforts to cater to them, and hold out on locals.
Having foreign buyers buy very so-so, if not shitty for the price houses with 20% 30% premiums is a story which many realtors in Vancouver can talk about.
Although, I admit, the root cause is still the understudy of housing in big, fast growing cities.
Nice, this will curb the unacceptably high 4% of home buyers who are foreign who are definitely responsible for driving the market prices up.
It certainly couldn't be driven up by the fact that if you ask virtually any person under 40 if they will purchase a home once they can afford one they will say yes.
If only there was a way you could put more than one home on a single lot so you could actually meet demand without building $300m apartment buildings.
I'm not saying the ban on foreign ownership will fix the housing problems, nor am I really disagreeing that the primary issue is just a lack of housing, and of course banning foreign ownership is an easy political target because foreigners don't vote.
But just because foreign ownership is only 4% doesn't mean it can't have a sizable impact on home prices. Prices are always set at the margins, and since foreign ownership, especially in Vancouver, is really treated as a "safe place for cash" from foreign buyers, it can cause prices that are out of whack with the intended purpose of a home as being place to live.
Also, when your primary use of a house is simply a store of value to park your cash, you're likely going to want to put it into areas that are already supply constrained, because that means the risk of prices falling is lower.
> is really treated as a "safe place for cash" from foreign buyers, it can cause prices that are out of whack with the intended purpose of a home as being place to live.
> you're likely going to want to put it into areas that are already supply constrained
These are the primary arguments for building more. Build enough and you will drive prices down, and with it the reputation of Vancouver's housing market as a safe store of value.
Housing can be cheap and not seen as a substantially valuable investment if we simply build to meet demand. Densely of course - something other than 20+ floor apartment buildings would be nice.
And this is where the NIMBYs come in; people who bought in years or even decades ago, who want to see prices rise to astronomical levels so they can retire off of their home's equity. Any proposal to do this will absolutely be shot down, until the voting public outnumbers the homeowners - which may never happen, given current voting trends.
Four percent can have a larger effect when combined with scarcity from other factors. This is just one constituency that comes last due to their lack of voice. And probably working as it should.
> Nice, this will curb the unacceptably high 4% of home buyers who are foreign who are definitely responsible for driving the market prices up.
These 4% are driving up prices of the most elite real estate, and crowding out rich elite upper-middle-class Canadians, who invest in real estate, and live in big cities (read Toronto, and Vancouver.) That's the real problem for them.
So, these unacceptably high 4% is mostly visible on West Georgia, and Cambie, and then DT Vancouver, and Toronto.
Most people unhappy about it are rich recent immigrants wanting to buy a house themselves. Please make a distinction in between migrants with Canadian passport, or PR, and foreign buyers without any relationship to the country.
My whole post was being sarcastic. None of those groups are responsible for the vast majority of demand in this country, it is people who have been living here their whole lives like myself who are priced out simply because there isn't supply for them. The population has grown but the housing has not. And we're doing nothing to meet that demand with additional supply, just slightly cutting down the demand, which doesn't do anything to address the underlying problem.
Seems like he's scrambling, and probably thought his odds were good enough going in without having to bring this up, even though it's probably even a more contentious issue than the pandemic response. With a single-bedroom condo costing between 550 and 750k in the suburbs of Vancouver, people who work locally are leaving for the more affordable pastures of the prairies and taking the work with them if they can.
This is the wrong approach, solving a superficial symptom of a deeper root cause.
The problem is that housing is a commodity, not that foreign persons are purchasing the commodity. I guarantee you that if he follows through on this we'll see enterprising Canadian "entrepreneurs" buying the homes and creating securities to hide the ownership details and then selling those securities abroad.
If the market exists, wealthy folks will find a way to play in that market.
Immigration is likely a much larger driver of housing price increases than foreign ownership. Canada admits 300k immigrants per year, 2/3 of those are economic/skilled entrants who will be looking to buy property 3-5 years after arrival.
First, how is this still an issue given affordable housing was his platform in 2015?
October 5, 2015
Infrastructure:
The Liberals want to invest $20 billion in public transit over 10 years, almost $20 billion more over 10 years for affordable housing, seniors’ facilities, early learning and recreational facilities; and $6 billion for green infrastructure over four years. They would also create various tax incentives and other programs to encourage the construction of both rental market and social housing.
Next, all this will do is encourage the use of "numbered corporations" to do the buying. How many homes in Canada are already owned this way?
use the existing anti-money laundering laws and stop the using Canada as a means to launder ill gotten gains.
Justin Trudeau has been in power for 6 years and now he finally wants to address a problem that contributes to a percentage as large as 4% of the real estate market. This man will seriously say whatever feel good crap people wanna hear but don’t actually address problems just to hold onto power.
And yet the amount of support he somehow still has in Canada makes me feel reassured it was a good decision to leave, people in this country will vote for whoever’s most woke even if their actions tell the exact opposite of what they said they stand for.
It’s so crazy, the government just has to get out of the way of developers and then the problem will just sort of solve itself. We are sitting on the biggest economic opportunity thinkable because there is 30+ years of pent up construction demand. Simply letting that happen would unlock so much prosperity for decades.
the blame-the-foreigners narrative has always sounded too convenient to be entirely true. People used to love saying this in California, when there clearly are so many other problems with housing like Prop 13 and zoning. Is there any data from reputable sources that actually quantifies this effect?
“Using new data from the Canadian Housing Statistics Program (CHSP), this paper provides a basis for an integrated account of the Canadian housing market in the last two decades. It shows how the housing markets in Vancouver and, to a lesser extent, Toronto have become de-coupled from local incomes due to significant flows of foreign capital.”
Regardless, is there a case to be made why a country should allow its housing supply to be treated as an investment vehicle, instead of the more beneficial purpose of housing its citizens? In cases like this, where a state’s obligation to the welfare of its people seems self-evident, the burden of proof is on you to to show that the massive and widespread foreign investment in real estate leading up to a housing affordability crisis somehow was not a factor.
Prop 13 protects existing long-term home owners. Ive seen no solid report that it has impact on current prices. I’d wager CEQ and zoning laws have done more harm than prop 13.
Government backed lending is a primary cause. Just like how student loans enabled university costs to skyrocket.
"protecting existing long-term home owners" is another way of saying "reducing available supply" which is absolutely going to have an impact on prices.
I understand that this is the narrative, but show me what markets specifically. Even if ownership is 10%. That means 90% of homes that are bought and sold are NOT to foreigners.
The fact is that inflation has eroded away the value of $$ and houses that should cost $50,000 now cost $700k.
> The fact is that inflation has eroded away the value of $$ and houses that should cost $50,000 now cost $700k.
There's a particular problem with that hypothesis:
> Over the past 5 years, single-family home prices are up 150% in London-St. Thomas [Ontario], but down in Regina. They've barely budged in Edmonton. Monetary policy provides no explanation for that phenomenon.
>There's a particular problem with that hypothesis:
>> Over the past 5 years, single-family home prices are up 150% in London-St. Thomas [Ontario], but down in Regina. They've barely budged in Edmonton. Monetary policy provides no explanation for that phenomenon.
In the short term effects other than those caused by monetary policy can be overwhelming (e.g., London-St.Thomas, has had a huge influx of people from Toronto over the last 5 years that would have driven up prices regardless of whatever the monetary policy may be). But this doesn't change the fact that the dollar has lost 95% of its purchasing power and that the average house price in the 1930s used to be 1X the average yearly salary, whereas now it's 12x.
A temporary ban seems like it won't be very impactful in the long term.
Have these sorts of policies, even when permanent, had much of an impact on places where they're implemented? From what I've heard it doesn't seem to have cooled off the market in places like New Zealand
It didn't have measurable impact in NZ. NZ has many other, bigger, problems w.r.t. housing affordability though. I think it's a policy worth doing even if it doesn't actually reduce house prices because it removes an obvious scapegoat, and shifts the discussion to other, hopefully more effective solutions.
Maybe I don't know enough about how this works in Canada in particular, but will this do anything? I thought a lot of the issue was from housing as an investment vehicle, and not specifically foreign investment. And are foreign investors really buying the real estate directly, or are they purchasing REITs and the trusts are buying them on their behalf (laundering the "foreignness" of the investment)?
And, as always, what does this do to address housing supply? Are foreigners also restricted from investing in new construction which might actually lower or slow housing costs?
We had this in New Zealand a few years ago too. Prices kept climbing regardless (in my area, prices have doubled in the 3 years since the ban). The real problem is normal owner-occupier homebuyers since they do most of the buying. But they're also the common people and the "victims" so they can't easily blame themselves for their own greed and need a scapegoat like foreigners or investors.
I feel that normal people just don't have anywhere to invest. People are scared of inflation. Don't trust other financial investments, like stocks. They're putting money into buying 2nd, 3rd and 4th homes to rent out.
Not entirely. In NZ, people really favor single family homes near or in big cities. That just doesn't scale because of finite land. Nobody wants to settle for a duplex or worse, an apartment. Perhaps eventually prices for those high density homes will be stable and single-family-home owners will be super rich.
I don't know if the "most people want a single family home" thing is entirely accurate. Hobsonville Point is mostly terraced housing, duplexes and apartments and prices there are well above the surrounding mostly-single-family-home suburbs. I realize there are other reasons for high prices, like local schools, age of housing, etc, but I think it shows that the demand for medium density is there. It's just no one has been building any medium density housing in the last 50 years, and until the recent changes to the Auckland Unitary Plan, it was very difficult to re-develop existing single-family lots.
Perhaps Auckland has already reached the point where people have stopped caring and downgraded their expectations. Actually, Wellington too seems to recently have prices for attached townhouses approaching those of SFHs. A couple of years ago, the ratio of the two types of prices was greater.
I guess I wasn't clear that the popular outrage over prices is about prices of SFHs. People aren't accepting the possibility of having to buy an apartment like people in big cities all over the world do. Expectations haven't caught up with demographic changes.
Buying expensive apartments and letting them sit vacant for money laundering purposes is a well-known phenomenon by now. This has significant effects on prices from increased demand, while also a detriment to resulting empty neighborhoods.
Foreign investment of construction is a thing but I’ve not seen any studies on the net effect.
Don’t need data to prove basic economics at this point. The question left is, does it happen with enough frequency to be a major factor?
I’m not that familiar with the market in Vancouver, however they did pass a law regarding vacancy I believe. Perhaps a local could chime in on efficacy.
As an economist, I would strongly object to the idea that data isn't needed to prove points. I've heard about the particular case of the Vancouver market being popular with overseas buyers, but that doesn't absolve anyone from quantifying it.
And according to Vancouver again, while the tax did cause a drop in empty houses declared, in every neighborhood except West End they represent less than 1% of total housing supply )https://vancouver.ca/news-calendar/more-vancouver-homes-occu...) and in most cases less than 0.5% of housing supply.
So while this may be an issue, it doesn't appear to be the issue and it seems that the basic economics here suggest that the issue in Vancouver was not limited to foreign investment. It would appear that in the Vancouver case, this ban on foreign homes would in fact be ineffective since it represents such a small share of housing.
Looking at the similar moves by politicians in the US (e.g, a package of bills to incentivize housing development by eliminating single-family zoning passed in California), Hong Kong (some measures to help people afford property by increasing land supply) and elsewhere, I can't help but think that the millennials are finally coming into their own as a political constituency.
My understanding is that the foreign buyers use the real estate as an investment, so they wouldn't be deterred if they couldn't visit their property in person.
The same thing is happening here in Australia (foreign investment). Frankly, this might backfire for Trudeau, as yes housing prices are insane, but a lot of voters also own houses. Anything that could now cause prices to drop is seen as a negative and therefore will find voter backlash. Labor in Australia tried something similar at the last election with IIRC removal of negative gearing (tax cuts for investment properties), they lost.
As someone that's been a moderately successful transplant in many cities, I have seen local populations point the fingers at very arbitrary reasons or people for why people can't afford anything.
The commonalities between these populations is that they seems to neglect general macroeconomic trends, as well as local zoning gaffs.
Makes it almost impossible for me to empathize if everyone is so far off the mark.
Fortunately, being a melanin-infused minority I get to blend in to the left side of the inequality bell curve. So, that's a nice privilege in the populist uprising. "Gotta watch out for those gentrifiers I'll let you know if I see any! I can't believe anyone would have the audacity to pay the listed prices or leases set by landlords already here."
[1] https://www150.statcan.gc.ca/n1/pub/11-626-x/11-626-x2017078...