Who's Buying Up Canadian Homes?

2017-01-25 | 13:58:55

Almost a decade after Canada's housing market escaped the real-estate meltdown experienced in many parts of the U.S., the risk of a potential housing bubble in Vancouver and in Toronto has become a central preoccupation for policy makers. Some economists say that with no end in sight to ultralow interest rates in Canada due to the impact of sagging commodities prices on the country's resource-dependent economy, the risk is only growing. In Toronto and especially Vancouver, which joined the ranks of the world's most expensive cities, the debate over how to handle soaring home prices has come to center on the role of foreign buyers.

Foreign real-estate investment that is speculative, in addition to helping to push up prices, can pose an additional risk because it may be more mobile and subject to capital flight, leading to increased volatility, Canada's national housing agency has said. But scant data exist on what role foreign buyers are playing, because no such information is collected by authorities.

The benchmark price of a detached Vancouver house more than doubled between 2005 and 2015 to 1,248,600 Canadian dollars ($857,538), according to the Real Estate Board of Greater Vancouver. Based on a housing-price index of the Canadian Real Estate Association, home prices in Vancouver, which include condos, apartments and houses, rose by nearly 19% to C$760,900 in December from a year earlier.

While homeowners may rejoice, soaring prices and a limited rental supply are making it difficult for Vancouver residents to remain in the city, according to Mayor Gregor Robertson. Mr. Robertson has been in contact about this issue with his counterparts in New York, Paris, Hong Kong, London and San Francisco, he said in a recent interview. "The amount of capital flowing into urban real estate in highly desirable cities is enormous. It's taking us some time to assess it and try different strategies. At this point we're among a small number of cities that are seeing unprecedented increases in the value of our housing," Mr. Robertson said. "We need strategies to address that so people who grow up and go to school here have a chance to stay and build a career in their hometown."

The government of British Columbia is expected to bring in measures aimed at addressing the issue of housing costs in its February budget. Not everyone believes foreign investors are having an impact on the overall housing market, or that it is a bad thing if they are. The B.C. Real Estate Association said in June that upward pressure on prices for detached houses is largely driven by land scarcity and densification policies -- rather than foreign investment. "There are data and analyses from a number of sources that point to foreign investment as insufficient to impact a market as large and diverse as Metro Vancouver, save for a small segment of luxury homes," the June report said. The association suggested the provincial government should find a way to monitor the flow of investment into housing to understand the issue better but said it didn't see a need for policy makers to attempt to limit foreign investment at the time the report was published.

Canada Mortgage and Housing Corp. President Evan Siddall, acknowledging the data gap on foreign buyers, suggests foreign buyers may account for a "substantial portion" of demand for luxury single-family homes in Toronto and Vancouver. According to a recent research, based on data pertaining to land titles for a six-month period for three of Vancouver's most expensive neighborhoods, more than half of the 172 homes purchased during that time were bought by people with non-Anglicized Chinese names, which he says indicates that they were more likely to be recent immigrants to Canada. Mr. Siddall said his agency is preparing to collect more data.

Mr. Robertson has proposed a luxury home tax and a tax on speculation, which he said could be applied in cases where homes are bought and sold quickly. He also has suggested that investment properties that have been left vacant be taxed above the residential rate to encourage their owners to rent them out to tenants. Canadian authorities tightened mortgage rules in December, requiring a higher down payment for more expensive homes.

References

Mackrael, K., & Chow, J. "Who's Buying Up Canadian Homes?." Wall Street Journal. 2016, January 20: C1.