Industry expert shares insight into foreign buyer taxes and where the next real estate hot spots are
The Real Estate Therapist radio show on Roundhouse Radio 98.3FM, hosted by REW.ca editor Joannah Connolly, offers information and advice on the Lower Mainland real estate market every week, drawing on the expertise of an industry guest.
This week, the April 29 edition’s guest, Don Campbell, senior analyst at the Real Estate Investment Network, offers his expert insight into the outcome of foreign buyer taxes, Vancouver’s vacant home tax, and where the next investment hot spots are.
To listen to the full interview, click here– and for the audio clips on each of the buyer tips below, use the slider to scroll to the minute-mark cited.
1. Greater Toronto foreign buyer tax is “about optics”.The Ontario government has just changed 16 different housing rules and regulations because they are, let’s face it, trying to get re-voted in again, because their approval rating is so low. And when I talk to the Ontario government, they are saying, ‘Frankly, Don, we won’t say this publicly, but foreign buyers don’t vote. And [new tax] has a really good ring to it because it’s protecting fellow Ontarians, and Ontarians vote.”
Campbell says that a foreign buyer tax has the effect of bringing down average home prices by cutting out sales or lowering prices at the high end, while not affecting entry-level homes. “You still have a really hot market. But [politicians] get to walk around in their Superman capes saying, ‘See, we’re looking after the middle class. We’re going to tax those darn foreigners.’”
He adds, “It’s about optics. The Ontario government is as excited as heck about their new housing policies because it means nobody is asking them about the big hydro debacle, with prices up 60 or 70 per cent. It isn’t about math. We asked the Ontario government how many foreign buyers were in the Golden Horseshoe area, and were told that they don’t have that answer. So there’s no measurable result.” (Clip starts 7 mins 45 secs)
2. New policies are squishing Vancouver buyers into limited price range. Closer to home, the Metro Vancouver foreign buyer tax isn’t helping anybody who is struggling to get into home ownership. “It may have taken out not even one per cent of buyers in the lower end of the market,” says Campbell.
He says that a combination of the foreign buyer tax with the mortgage stress test, which qualifies many first-time buyers for a lower mortgage than previously, then adding the BC HOME down payment-matching loan program, all has the effect of squashing a larger group of buyers into a more limited price range. “What you’re doing, by manipulating the market, is that you’re squishing all the buyers into that middle price zone. So that’s why you’re seeing bids for condos with 15 backup offers. Because people still want to live in and buy condos.” (Clip starts 12 mins 15 secs)
3. An annual tax on foreign home owners would not help affordability.Examining the NDP’s proposed annual property tax on foreign (or non-Canadian-income-tax-paying) owners of Metro Vancouver homes, Campbell says, “Again, what is the measurable result? What are they looking to achieve. It’s not going to force more properties into the market. But if the NDP is going to take that money and put it directly from A to B into the housing market, solving the issue of ‘affordable’ housing, it makes some sense. And it might buy some votes, and foreign buyers don’t vote. But the impact on the real estate market will be limited.”
He adds that the term “affordability” is ill-defined, and exactly how new affordable housing can be created is a grey area. “If you’re spending money on affordable housing, where are you going to buy the land? Because that’s expensive. Are you going to build on brownfield? If so, how are you going to clean it up and who’s going to pay for it? Is the City of Vancouver going to speed up its zoning to allow for it? Even though people will be up in arms about ‘affordable housing’ going up in their neighbourhood, is it still going to go ahead? There are so many moving parts right now.” (Clip starts 19 mins 10 secs)
4. Vancouver’s vacant home tax is full of loopholes.“The idea is that we want to take these homes that are dark and get them light again, we want to get the families in and make them more affordable,” says Campbell. “The reality is that, if you actually read the City’s vacant home tax bylaws, there are exemptions that actually exempt the properties we’re trying to get into the market. Strata properties where there is a limited on rentals in the building, which is maybe 90 per cent of buildings, don’t have to be rented out. It’s our responsibility to read the bylaws and see what’s behind the curtain, and make sure we are not being played.”
He adds, “And another potential solution, AirBnB or other short-term rentals, is being vilified.”
Could taking rental restrictions off strata buildings be a solution? “Yes. But can you imagine how many voters who live in strata buildingss would object to this? But in Alberta, it’s a rental free-for-all, and it’s not a problem. There are rules that you can put on these condos to enforce the rules that exists and get any bad [tenants] out.” (Clip starts 32 mins 12 secs)
5. Where is the foreign money going to go?Don Campbell says that with foreign buyer taxes in place in Greater Vancouver and Greater Toronto, there are five key real estate hot spots that foreign money will go to.
“Where foreign money goes, it has to have a global reputation, so it’s not really going to go to places like Kelowna, no matter how much it might seem like that’s happening. It’s already starting to go to Ottawa, Victoria and Montreal.
“But mostly where the money is going to go? Vancouver and Toronto. Yes, despite foreign buyer taxes.
“The market has gone down in price at the high end by around, 15 per cent or so – which is the same as the foreign buyer tax. A $3 million house last year now costs $3 million to a foreign buyer – and they don’t care, it’s the same money. And with the US trade war ramping up, that’s going to bring our dollar down, now we’re even more on sale. Canada will be like walking into a thrift shop to buy property.”
Campbell says that local real estate investors can remain confident in the Vancouver market – and Victoria will continue rising too. “Most of the ‘foreign buyers’ in Victoria have come over the water from Vancouver. They’re selling up and moving to Victoria, where there is a lot of economic migration. It’s a growing centre for high-tech and Millennials are moving there.” (Clip starts 40 mins 40 secs)
