After some very disturbing news from British Columbia this summer, where a Globe and Mail investigation discovered that our major banks were favouring foreign buyers by turning a blind eye to a prudent approval process when granting them uninsured mortgages, one has to wonder about the future of housing in this country. Have these deplorable bank practices, since rescinded, fearing the public outcry, been condoned and encouraged by our government, which previously voiced concern about foreign ownership? How else could Ottawa’s (only) recently introduced measures in closing loopholes related to capital gains taxes and mortgage qualifying criteria, be explained? Why so late and only after such reporting?
Ottawa needs to make housing its top priority
The mayors of major Canadian cities recently urged federal and provincial governments to address problems of social housing and supply of affordable rental housing, in general. Vancouver Mayor Gregor Robertson took the opportunity to voice his own thoughts on the B.C. foreign buyers’ situation by saying that the province’s 15-per-cent tax on foreign buyers was too little, too late – the days when middle-class Canadians could buy a home in Vancouver or Toronto have probably passed. Not surprising, given that median family income in those cities is about $76,000, but due to enormously inflated prices, it takes well into six figures to afford the carrying cost of an average home in those cities.
Speaking of the B.C. tax on foreign buyers, alarm bells were sounding the threat of a crash. Year over year, Vancouver housing sales were down 39 per cent in October (they were down 15 per cent even before the tax’s introduction) and prices were down 7.5 per cent as of August. But whatever slowdown Vancouver experienced, Toronto and a few other cities have been picking up the slack.
Notwithstanding surcharges and tightening mortgage-qualification measures, it’s quite evident that Ottawa has been complacent in allowing foreign buyers to buy up the roofs over our heads. Indeed, with little else to sell, our economy has depended on it. A recent study suggests that land-transfer taxes will become the main source of income in British Columbia this year. Recent openings of visa centres across China and other countries suggest that we are set to encourage the arrival of even more foreign buyers, who will drive prices higher still.
A sombre thought that comes to mind is what may happen if this comes to make housing completely unaffordable for Canadian citizens. As I’ve suggested on my blog, many of us would likely be forced to become renters.
There are now more millionaires in China than in the United States. Facing uncertain political and economic circumstances at home, many of them are desperate to move their money abroad, and Canada is a popular destination. The National Bank of Canada estimates that Chinese buyers were responsible for about one-third of Vancouver sales in 2015. Many such purchases are made through the children of wealthy Chinese, who are sent to study here and later qualify for permanent resident status, acquire jobs and the right to sponsor their parents.
In the long run, a 15-per-cent tax on foreign buying will not serve as a deterrent. We are at the crossroads of a major global demographic shift in which our aging population is being replenished and enhanced by newcomers, mostly from Asian countries. Canada offers an exceptional opportunity because of its large size and relatively small population. And while it is natural and prudent to enhance our population with qualified immigrants (Chinese included), it is highly unfair to lean on new arrivals who, as a class, arrive with such superior finances. Experience shows that such individuals do not contribute to the growth of our economy the way traditionally selected immigrants do.
The time has come for the federal government to make housing policies its top priority.
Leasing out available government plots to developers would enable the construction of less expensive mid-rises to address social housing and affordability issues.
As for foreign buyers, a 15-per-cent surcharge is simply not enough, with the dollar trading at a discount. In order to dampen demand and bring the housing prices down to the levels Canadians can afford, a surcharge of 50 per cent or more would be appropriate.
If our badly needed housing correction finally does come to pass, we should prohibit foreign buying altogether, as opposition leaders have been calling for in New Zealand. Otherwise, foreign buyers will just be back to gobble up more Canadian housing after its depreciation.