The latest example of Canadian politicians’ (in)action in regard to real estate prices getting out of control is the recent decision by the B.C. Premier Christy Clark, to reject the idea of raising taxes for overseas investors — despite a petition from her constituents that attracted some 25,000 signatures. “By moving foreign owners out of the market, housing prices will drop,” she reasoned, voicing her concern about the (possible) loss of present homeowners’ equity.
Short-Sighted Politicians Are Fuelling Canada’s Housing Crisis
Many homeowners in Vancouver and Toronto have become “equity-millionaires” in the last few years due to unusually high appreciation of their homes thanks to persistently strong demand by foreign investors, mostly from China. In their haste to park their money overseas in a hurry, most of them don’t even bother to make a trip to view their investments. The Wall Street Journal article, “The Mechanics of Moving Cash Out of China,” reveals the clandestine, if not outright illegal ways that wealthy mainland Chinese are bringing their funds to Hong Kong, and from there on to other parts of the world. Most of it ends up invested in their favourite foreign destinations — the US, Australia, and Canada. It is a crime for any mainland Chinese to bring more than $50,000 out of the country, but many wealthy Chinese are, nonetheless, smuggling out billions.
Transfer of money from Hong Kong to Canada is legal, but no one is really paying attention to its origin. It seems that for the B.C. Premier, our Federal Finance Minister Joe Oliver, and our Prime Minister Stephen Harper, the influx of dubiously obtained money from China is of little concern. In fact, judging from their latest comments, they seem to be quite content with it. A CTV News report from May 14 quoted Prime Minister Harper as saying that limiting foreign investment in housing is not something he is “contemplating at the current time.”
One should wonder aloud if our Prime Minister knows that Canada’s households now owe a staggering record 1.8 trillion! That in 1990, Canadians owed 85 cents per every dollar of annual disposable income, and today, that number has grown to a record $1.63. Canadians are financially stretched to the limit, barely able to cover their mortgage payments!
In stark contrast to our own politicians, Australians imposed stiff fees and, in some cases, restrictions to foreign investors buying their residential real estate.
UBC professor Paul Kershaw’s recent study shows it now takes 25 to 34-year-old Canadians making median full-time earnings ten years to save for a down payment. In the 1970s, it was five years. This fact should be an eye opener to all our leaders, waking them up to the fact that encouraging foreign high bidders to buy our residential real estate is like putting out the fire with gasoline on our already overvalued homes.
Global migration trends are changing demographics on a large scale, so if we do not employ the right political safeguards right now, many middle-class Canadians may find themselves unable to equally co-exist with wealthy newcomers. All true citizens of Canada — regardless of their colour, race, creed, gender or ethnic identity — should become proactive. We should insist on getting the assurances of politicians running for any offices that looking after the interest of the traditional Canadian citizen must be the first and foremost thing on their agendas. Assuring our common well-being, and preserving our tradition, culture and heritage, should be of paramount importance for the years to come.
As for the concern about the equity of the owners that became “equity-millionaires” due to foreign demand and local speculation, those owners should realize that their paper equities will start vanishing at the next real estate slowdown or crash, so the only true beneficiaries of foreign monies coming through to buy real estate are mostly developers and to a lesser degree, the construction industry.
Developers in this country are not reinvesting their profits into building more affordable houses. In fact, seeing that ordinary rentals have gone up due to the depletion of traditional apartment buildings, and realizing that the pool of “suckers” buying 400 foot micro condos for several hundred thousand dollars is drying out and fast, some of them have already switched from building ownership-structure-challenged condos to expensive rental apartments. Ordinary Canadians may soon find out that they are not only unable to buy real estate, but they may soon have trouble being able to afford renting apartments.
Instead of assuming a passive role, our leaders should design housing policies that would severely restrict or outright forbid the sale of residential homes to foreigners. Instead of condos, building permits should be granted to developers building more affordable real estate and rental buildings. Their profit margins would not be two or three fold but ten to twenty thousand dollars per unit, a traditional norm. Some “fat cats” amongst them may not be enticed to stay in business but that would be a plus as they could be replaced by new developers and construction companies building on less expensive sites and/or lease-back government owned plots that have still not been sold out. Such new developers would make less profits but remain able to sustain their existence in the long run, maintain the construction industry going, and bring back affordable housing to Canadians.