Foreign buyers not the problem in our housing crisis

We don’t need external measures; we just need supply to meet demand

Even before the writ dropped on the upcoming election, there was little question that Canada’s housing supply crisis was poised to get a lot more political.

Housing prices in communities both large and small across Canada have been rising at a rate far outstripping inflation for several years because supply is not keeping up with demand.

That’s a problem — and problems immediately call for people offering solutions, especially if they are politicians in a heated campaign. After all, the co-relation between homeownership and political engagement is long established.

While this sort of politiciza- tion is not new, for the real es- tate, industry it has recently veered into troubling territory: The attacks by all three federal party leaders on the allegedly damaging role that foreign “speculators” are having on Canadian real estate markets and their affordability.

The role of the scapegoat may be a time-honoured part of election rhetoric, but hard facts and figures provide valuable context.

The most obvious target of the proposed bans on foreign investors is the domestic condominium market.

According to our partners at Baker Real Estate Inc., which is the preeminent pre-construction condo marketing firm in Canada, foreign buyers represented less than five per cent of its more than 5,000 sales for the year 2020.

Historically, these buyers have played an important role in the domestic housing ecosystem by purchasing units, accepting the related risks and long timelines, and then renting them out.

So, in terms of housing capacity, foreign buyers account for less than one of every 20 of Baker’s sales in Toronto and Montreal and the assets they do own become part of the urban rental housing stock.

Reinforcing that, a CMHC study issued in May determined that “the share of nonresident ownership in condominium apartments remains low and stable.”

In Toronto it was 2.6 per cent; Montreal 1.8 per cent; Vancouver and Halifax 1.3 per cent. Of 39,000 new home sales by Baker over the past decade, 96.7 per cent (or 37,585) purchasers were residents of Canada.

Looking at the real estate market in its totality, a 2019 CHMC report determined that properties with at least one non-resident owner represented just 6.2 per cent of the B.C. market; 3.3 per cent of Ontario; and 6.2 per cent of Nova Scotia.

Hardly the market-dominating distortion the politicians would have Canadians believe.

It is also worth noting that both China and India, the countries of origin for newcomers and investors alike, have toughened their capital export rules, making it more difficult to get money out of those countries to invest elsewhere.

The other political position worth challenging is the proposed ban on “blind bids.”

“Bidding blind” is a long-established practice governed by clear rules. Each party submits their best offer with no information other than the number of competing bidders.

In other jurisdictions like Australia and New Zealand, where open auctions are the rule, there has been the same rate of house-price appreciation as Canada.

So, this would seem to be a solution in search of a problem that doesn’t actually exist.

In the end, all roads lead back to the lack of housing supply and its impact on affordability.

Before we sign off on promised programs to help people buy homes, it would be worthwhile to consider that Canadian household debt levels are rising monthly and currently hover at around $2.5 trillion, according to Statistics Canada. Mortgage and home equity lines of credit about for almost $42 trillion of that total amount.

In May alone, mortgage debt rose by $16.3 billion, leading the growth in overall household debt. Total mortgage debt was up 1.0 per cent from the previous month, and 8.3 per cent higher than in May 2020, according to Statistics Canada.

Over the first five months of 2021, households added $57.5 billion in mortgage debt, compared with $34.3 billion over the same period in 2020.

These stark facts are all the more relevant in the context of rising inflation and the potential impact that could have on the interest rates attached to all that debt.

Where do those numbers lead us? To strong evidence that housing demand in Canada may have reached an affordability limit — for now.

This view is reinforced by the fact that markets have demonstrated greater stability and less emotion since May. Multiple offers are still a reality, but the volume of sales has gradually declined.

The distortions caused by COVID-19 are abating, and the seasonal rhythms of the market have returned. In short, the housing market shows strong signs of levelling out and normalizing, without any need of or help from external measures.

For example, the traditional lull of July and August is in full swing, with a crisper fall outlook in the cards.

If only the three political parties could say the same.