Don’t blame foreign buyers for Vancouver’s real estate mess: CMHC boss
“When a white person buys a house, we don’t know. When a person of a different colour does, we do, and that’s not good economics”
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Foreign buyers are not to blame for skyrocketing real estate, the CEO of Canada Mortgage and Housing Corporation told a Vancouver audience on Nov. 30.
“The evidence tells us that the origin of investor activity in Canadian real estate is primarily domestic,” Siddall said.
He indicated that B.C.’s foreign buyer tax was poor economics, and has a disturbing racial quality.
“When a white person buys a house, we don’t know. When a person of a different colour does, we do, and that’s not good economics.”
A new CMHC report released Nov. 30 shows that foreign buyers own just 2.2 per cent of condominium units in Vancouver and 2.3 per cent in Toronto.
Data collected by the B.C. government between June and October shows that foreign buyers represented 10 per cent of total transactions in June, rising to 19 per cent in July, the same month a 15 per cent property transfer tax on foreign buyers of Metro Vancouver real estate was announced. It fell to 0.5 per cent of transactions in August (the tax took effect on August 1) and was just 3.6 and 1.7 per cent of total transactions in September and October.
While some have taken the sharp rise and fall of transactions to be proof that foreign buyers were playing a large part in the Vancouver market, Siddall said that wasn’t the case: the market had started to slow before the tax was introduced, and he described the July spike as a “pull-forward of demand.”
Siddall suggested the local real estate market response has more to do with psychology than actual reduced demand: people believed the tax would work, and that reduced the expectation that real estate would continue to rise.
Overall, a combination of low interest rates, various government tax credits and incentives that encourage home ownership, the growing use of housing as an investment, and economic and population growth are behind the steep rise in real estate prices, Sidall said. But that’s led to a dangerous increase in household debt levels and a larger share of incomes being devoted to housing, which can reduce consumer spending in other parts of the economy.
“Housing has started to nibble away at our economy,” he said. “Real estate conditions and transfer costs now dwarf spending in research and development.”
Siddall believes demand will continue to remain strong in Metro Vancouver, and the only real solution is to increase supply through speeding up the building process and increasing density.
Sidall also pushed for a faster supply of new rental, which is badly needed throughout the region: CMHC’s rental survey, released earlier this week, showed that vacancy rates in several Metro Vancouver municipalities are at or near zero, while rents increased 6.4 per cent, the highest year-over-year increase ever tracked by the agency.