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The Sorry State Of Canadian Housing

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CANADA HOUSING
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In the wake of very disturbing news out of B.C. 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Have these outright discriminatory and deplorable bank practices, since rescinded fearing the public outcry, been condoned, and encouraged by our government, which previously voiced concern over foreign ownership?

How else could Ottawa's (only) recently introduced measures in closing loopholes related to capital gain taxes and mortgage qualifying criteria, be explained? Why so late and only after The Globe's reporting?

Mayors of major Canadian cities recently urged federal and provincial governments to address problems facing social housing and supply of affordable rental housing in general. Vancouver's Mayor, Gregor Robertson, took the opportunity to voice his own thoughts on the B.C.'s 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 over into six figure to afford the carrying cost of an average home in those cities.

Speaking of B.C.'s tax on foreign buyers, the alarm bells were sounding the threat of a crash. Year over year, Vancouver home sales were down 39 per cent in September (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 have been picking up the slack, in fact, so much so that it experienced 21.1 per cent year-over-year rise in prices, which according to BMO economist Douglas Porter, is not normal -- a sentiment shared by any other sane person, I might add. And, this is all happening while our household debt is now worth more than the entire economy.

Notwithstanding foreign buyers, surcharges and tightening qualification measures, it is 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 the land transfer taxes have been the main source of income in B.C.

The Globe's article "Canada's Economy is on life support", speaks for itself. 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.

China has so far issued 81.4 million passports to its citizens with many more expected to be issued in the coming years. 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 one of their favourite destinations.

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 superior finances. Experience shows that such individuals do not contribute to the growth of our economy the way traditionally selected immigrants do.

Time has come for the federal government to make housing policies its top priority.
Leasing out available government-owned plots to developers would enable building less expensive traditional mid-rises, not only for social housing but for the huge number of middle-class Canadians faced with affordability issues. The mostly suburban sprawl of such new developments would help mitigate a much needed rental affordability.

As for foreign buyers, 15% surcharge is simply not enough. Our dollar is at least that much, and often lesser than its American counterpart. Foreign invasion on our residential homes will continue for years to come. In order to dampen demand and bring the housing prices to the levels Canadians can afford, we should implement a surcharge of at least 50 per cent or more, to foreign buyers.

Most importantly, if our badly needed housing correction finally does come to pass, we should prohibit foreign buying altogether just as the opposition to the government of New Zealand is contemplating. Otherwise, foreign buyers will just be back to gobble more of our homes after depreciation.

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