Douglas Todd: Trudeau's crackdown on real-estate investors won't work. Here's why.
April 15 2022
Re-printed without permission
Justin Trudeau’s government snagged the headlines it wanted last week when it was widely reported the budget would impose a temporary ban on foreign investors snapping up more of Canada’s over-priced real-estate.
The headlines made the federal Liberals look aggressive, and even a bit patriotic, in their apparent determination to combat offshore speculation in Canadian housing.
But the government’s legislative moves were as vacuous as Finance Minister Chrystia Freeland’s trendy-sounding rhetoric this week, when she said the inability of young Canadians to afford a home today is an “intergenerational injustice.” That’s before she reverted to industry platitudes about building more supply.
When it comes to the other side of the housing equation, reducing demand, there are so many holes in Liberal plans, especially the two-year ban on foreign buyers (an idea blatantly stolen from the Conservatives) that skeptics have astutely suggested the bill is actually being designed to signal how to stick-handle around it.
I’ll explain the proposed bill’s gaping loopholes in a moment, after looking at the way it has distracted the public from more important developments.
They include the Statistics Canada release this week that more than one in six Canadian homes are owned by individual investors, people who own multiple dwellings. Corporations, which often hide the real names of owners, control another five to 10 per cent.
In B.C. and Ontario, an alarming 30 per cent of ‘homes’ are owned by individual investors. What’s worse is the richest 10 per cent of them hold around 25 per cent of the total housing wealth in New Brunswick, Nova Scotia, Ontario and B.C.
“It’s really about hoarding,” Andy Yan, head of SFU’s City Program, said Thursday. “You can grow the housing pie with more supply, but too many people are already on their third and fourth helping.”
How can first-time buyers squeeze into such a market?
There’s another political problem – of potential conflict of interest. Last month I reported Housing Minister Ahmed Hussen, who wants to protect “mom and pop investors,” is one of those bringing in extra income by renting out an apartment.
Global News reporter Amanda Connolly helpfully went further this week and revealed that roughly one third of federal Liberal cabinet ministers, including Freeland, own investment properties.
What, then, is their interest? It’s not unreasonable to believe this powerful group would be inclined, subconsciously or consciously, to want to protect their “mom-and-pop” investments.
Are they really ready to make personal financial sacrifices to help young Canadian buyers enter the market, where prices have doubled since Trudeau was elected in 2015?
You’d be forgiven for wondering if the ministers’ first instinct would be to keep rents high and property-values increasing, even as cities like Vancouver and Toronto now have among the most unaffordable “homes” in the world.
To illustrate how easy it is for Canada’s federal politicians to divert the public from such serious problems, let’s analyze some of the reporting on the splashy announcement of a ban on foreign buying.
First, many media outlets ignored the incredible loopholes, which would allow foreign students to buy Canadian property, a well-known practice that has lead to so-called students buying $30 million mansions. Some journalists also overlooked how the proposed ban would exempt “recreational property,” a category one could manipulate to pretty well apply to any dwelling.
Some journalists even went to a constitutional specialist, who incorrectly suggested Ottawa will not be able to discriminate against buyers on the basis of their nationality. There seemed no awareness of how a B.C. Appeal Court decision on B.C.’s foreign-buyers tax had blown that argument out of the water.
Liberal politicians would also have been super-pleased to see media outlets make beelines for academics who have a way of behaving like shills for the housing industry, who can be counted on to intone that the only solution to unaffordability is increasing housing supply.
No wonder the Bank of Montreal’s chief economist, Douglas Porter, this week felt compelled to write a piece titled, “Could We PLEASE Stop With This Supply Myth?
At least some media, cited SFU adjunct professor Josh Gordon, whose research shows demand from people outside of Canada has indeed made housing less affordable in cities such as Vancouver and Toronto.
What is extremely valuable about Gordon’s work is it also reveals that many purchases are made by residents of Canada acting as proxies for those overseas. Gordon’s superior definition of foreign ownership is “housing purchased primarily with income or wealth earned abroad and not taxed as income in Canada.”
The B.C. NDP have tried to target this hidden foreign ownership by identifying so-called “satellite families.”
The trouble is, whatever form Trudeau’s short-term ban on foreign buyers takes, it will not block this transfer of trans-national riches into our housing.
I have not even mentioned how the Liberal budget proposes an anti-flipping tax, to allegedly penalize people who buy and sell properties within a year: As Yan points out, such a tax is already in place, it’s just rarely imposed.
And there is little talk of cracking down on the tens of thousands of investors, domestic and foreign, who buy pre-sale condo contracts in Canada and then “assign” them to others, with no paper trail. Authentic anti-flipping legislation, Yan said, should extend for three years and actually be widely enforced. What a concept.
Meanwhile, while Trudeau’s Liberals shut their eyes to how Singapore and New Zealand are boldly slowly down investors with special surcharges, our government mostly pours more gas on demand. They especially do so by shooting for record immigration levels, along with unprecedented volumes of temporary workers and foreign students. Virtually every real-estate analyst now acknowledges the obvious: Migration-fueled population growth heightens demand, which increases prices.
With the federal government more or less sitting on the housing sidelines, Trudeau now seems content to simply watch the work of the quasi-independent Bank of Canada, which this week brought in the biggest interest rate hike in decades. Less-cheap mortgage costs could ease crazed speculation and, let’s hope, soften the market. Should we see some relative housing calm, expect the Liberals to take credit for it.
As we’ve come to expect from Trudeau, who taught theatre and acting before entering politics, his party is much more skilled at optics, rhetoric, micro-marketing and virtue-signalling than it is at nuts-and-bolts legislating.
We see the Liberal fixation on appearance over substance in other spheres, including in the party’s tragically weak follow up on grand promises to support the beleaguered people of both Afghanistan and Ukraine.