Vancouver's Foreign-owned Real Estate: Is Public Policy Required?

There is currently a frenzy of discussion around the issue of foreign ownership of residential real estate in Metro Vancouver. It is an issue upon which opinions abound, but facts are scarce. As the debate has taken on a decidedly Asia focus, with some recent studies and popular media coverage pointing to investors from Asia as one of the drivers of Vancouver’s soaring housing prices, the Asia Pacific Foundation of Canada (APF Canada) has written a background document aggregating the available facts, outlining similar challenges in other jurisdictions, and raising the question: Is public policy required?

It is APF Canada’s belief that a constructive and inclusive dialogue on the issue of foreign ownership of residential real estate in Vancouver be predicated on hard data and corroborative facts.

Our expert panel

To add to the current dialogue on foreign ownership in Vancouver’s residential real estate market and to help push for policies informed by statistics and research, APF Canada has also asked a panel of real estate and foreign investment experts to weigh in on the following three questions:

1. What do we currently know about the size and nature of foreign ownership in residential real estate in Metro Vancouver?

2. What group(s), if any, in Vancouver are being impacted by the sale of residential real estate to foreign owners?

3. Should there be regulation of foreign ownership in residential real estate or should we avoid regulation in this area and if the answer is to regulate what should the policies look like if enacted?

Our panel’s responses to these questions follow. To jump to our background report on this topic, click here.

Barbara Yaffe, Vancouver Sun journalist

1.    We do not know very much.

Prof. David Ley, the UBC geographer, has said he found a direct correlation over a 25-year period between Metro Vancouver housing affordability and numbers of foreign newcomers to the area.

Re/Max, relying on their own sales experience, estimates foreign buying accounts for 70 per cent of the luxury market of $3 million-plus homes, located mainly in Vancouver and West Vancouver. Similarly, foreigners are said to account for 20 per cent of the $1 million-plus market.

The British Columbia Real Estate Association insists foreign buying is not a problem, at 5 per cent of the market, but their figures are suspect because of the narrowness of how they define foreign owners.

Because we do not collect official data on the phenomenon of foreign residential ownership, there are no officially accepted statistics on this issue.  Before the election, the Federal Conservatives promised only to start collecting such information starting in 2016.

2.    Since supply and demand influences price, everyone is potentially affected.

The simple fact is, offshore money makes the overall housing market more competitive. Those who are price-squeezed out of the higher-end homes presumably then turn attention to less expensive product, putting pressure on that market segment, and so on. And because homes have grown so expensive, more people find themselves forced to rent. That in turn lowers the vacancy rate and puts upward pressure on Vancouver’s rental rates. 

But let’s not kid ourselves, a ridiculously high Property Transfer Tax (PTT) and very high real estate fees (both expressed as a percentage on very high selling prices of homes) also have aggravated affordability in the region.

3.    This question is difficult to answer in the absence of reliable official data. We have a free market system that should be tampered with only very judiciously. Further, we need evidence from the many other jurisdictions that already have implemented a variety of different measures to curb foreign money in their property markets; they can tell us whether the measures they have used have proved effective.

Any restrictive measures should target the “luxury homes” rather than foreign buyers, and apply to all buyers in order to prevent charges of racism. A higher PTT on luxury homes and a concomitant lower PTT on homes, say, under $1 million, for example, could be helpful and inoffensive.

Australians have an interesting system; precluding foreigners from buying pre existing properties.  They are free to purchase any new property they wish.

Measures also should be considered to dissuade foreign owners from keeping Vancouver housing as a place to park their cash. Vacant homes are harming neighbourhoods. Especially in view of the fact that some of the vacant housing units are permitted to grow decrepit.

David Ley, Professor in the Department of Geography at the University of British Columbia

1.     We know a lot from various kinds of evidence: a) the experience of the real estate sector, where recent studies by Macdonald Realty and Re/Max have confirmed the dominance of foreign buyers at the top end of the market especially, as stated for years by individual realtors (accounts often denigrated as ‘anecdotal’); b) there is the digging of several investigative journalists, and most notably by Ian Young of the South China Morning Post who has boldly and effectively raised issues native journalists have sometimes shied from; c) academic work, including the books by Katharyne Mitchell (2004) Beyond the Neoliberal Line and David Ley Millionaire Migrants (2011).

We have only glimpses of the scale of this investment, but there is no hard comprehensive annual data. Investment is two-fold. First, there is a degree of speculative property purchase, for example at the launches of Vancouver condos in Hong Kong, Singapore and Shanghai. This has been underway since the 1980s. Today it is facilitated by web-based transactions, as well as off-shore direct sales (e.g. Macdonald Realty’s office in Shanghai). We have no idea of actual sales totals, though in earlier years we heard of Vancouver projects that were sold out in their launches in East Asia.

Second, a great deal of foreign money has entered the Vancouver property market through the federal government’s Business Immigration Program. Since 1980 I estimate some 200,000 people have come to Vancouver through this wealth migration. As millionaires, they have bought both family and investment property in the city. Their Canadian incomes are meagre – which is why the BIP was terminated by the feds in 2014 – and the source of their income in local property is heavily off-shore. Over 70% of those landing through the BIP have come from Greater China that is the PRC, Hong Kong and Taiwan.

2.     More briefly, those impacted are those who find the residential market unaffordable: the young, the tenant population, families, refugees, and interestingly, the better educated. The profile was well-described in Angus Reid’s important 2015 report on the housing problem in Greater Vancouver. His interviews show 50% of the population is seriously considering leaving the region because of the cost of ownership here. This analysis was complemented by VanCity’s report this year on the serious effects of housing unaffordability on the retention of workers holding ‘in-demand’ jobs (nurses, fire fighters, etc., even GPs).

3.    Other cities and nations with severe affordability problems have introduced ‘cooling measures’ to regulate a hot market: for example London, Hong Kong, Singapore, Sydney. The focus has been on high-priced property of particular interest to foreign buyers: Hong Kong and Singapore have new stamp taxes on foreign buyers. In no case have there been serious declines in prices as some fear-mongers would claim. The taxes introduced in Sydney are regarded as too low to be significant; those in London, directed progressively at price bands of expensive properties have had an effect. But taxation alone is not enough. This is a big, complex issue that requires a focussed national housing plan by senior government, to include new supply of affordable social housing.

David Wachsmuth, Assistant Professor in the School of Urban Planning at McGill University

1.     There are other researchers who will be able to answer this question with more precision, but the bottom line is that we don’t have good information about this question, because it isn’t being tracked systematically. The Canadian Housing and Mortgage Corporation has done some estimates, and so have some private firms, but unless the city or province is willing to collect residence information at point of sale and compile it, available estimates are always going to be imprecise.

2.    The group that loses out the most from the sale of residential real estate to foreign owners is everyone who works in the Vancouver area and earns Vancouver wages, but has to try to find housing in a market distorted by buyers who don’t work in the Vancouver area and earn Vancouver wages. Normally we expect housing prices and local economic conditions to be roughly related, but in Vancouver that isn’t true, because a lot of housing demand is coming from outside the local economy. This problem is exacerbated by non-local buyers purchasing houses as speculative investments and not actually occupying them, a practice which further reduces housing affordability by removing housing stock from the market.

Note that this isn’t a problem with “foreign”—i.e. non-Canadian, and usually imagined to be overseas—buyers per se, it’s a problem with buyers who are disconnected from the Vancouver local economy. They could be from Toronto or from Seattle, and the problem would be the same.

3.    There’s a strong public interest in regulating the sale of housing to people who don’t live and work in the Vancouver region, because non-local buyers make housing less affordable for everyone else. The specific question of foreign nationality isn’t the problem (although it may be the easiest way to tackle the problem politically); the problem is people buying houses who aren’t living in those houses year-round and contributing to the local economy.

If someone wants to move to Vancouver, they should be able to buy a house the same way anyone else can. If someone wants to buy a house in Vancouver as a speculative investment, they should face heavy disincentives to do so—ideally heavy enough to dissuade them from doing it in all but exceptional cases.

One simple way to accomplish this would be to place a fee on residential vacancy, one which starts small but gets increasingly larger the longer the property isn’t being lived in. A vacancy fee wouldn’t solve the housing affordability crisis in Vancouver by itself—doing that would require serious renewed public investment in social housing, to start with. But a vacancy fee would be a concrete step towards decommodifying housing, by making it clear that the right of people to find affordable shelter is more important than the right of investors to make money by speculating on residential real estate.

Gordon Houlden, Director of the China Institute at the University of Alberta

1.    The fundamental problem in examining this issue is the lack of reliable data. This paucity of data has the pernicious effect that any claim of an effect by foreign investment on urban real estate could be true or could be false.

In August, 2015 the China Institute of the University of Alberta (CIUA) published a report by Kerry Sun titled: “Foreign Ownership in Real Estate in Canada: Key Issues”. The principal recommendation of this report was that Canadian governments must step up and collect the necessary data regarding foreign investment in order for policy-makers and the public to understand if foreign investment is playing a significant part in shaping urban real estate pricing and availability. With this data it would then be possible to determine if regulations or restrictions are needed.

2.    As noted above, without reliable data it is not possible to gauge impacts with any accuracy.  In theory, groups that are impacted would include current home owners, potential home owners who may not now be able to enter the market, as well as the investment and real estate service industries.

But there is also a cultural and even political dimension to this debate.  Some ethnic communities, particularly immigrants of Chinese heritage are being blamed by some observers as being responsible for high urban real estate prices in Vancouver. But without proper data collection anecdotal stories trump proper analysis, and do not allow unfounded or exaggerated claims to be debunked.

3.    Any decision regarding regulation should await the development of a proper data base.  One cannot regulate phenomena that are not yet properly understood. The CIUA paper lists what measures a number of foreign jurisdictions have taken.  These range from special tax levies, through residency requirements, although exemptions are often made for new construction.

Governments should also, I believe, avoid the assumption that foreign investment in urban real estate is always a negative development.  Rather, careful analysis and debate on the merits and demerits of capital inflow into urban real estate should take place. Any regulations should be carefully designed, and tested for results over a period of time.

To view our backgrounder on this topic, click here.

APF Canada welcomes reader comments.

Barbara Yaffe

Vancouver Sun journalist

David Ley

Professor in the Department of Geography at the University of British Columbia

David Wachsmuth

Assistant Professor in the School of Urban Planning at McGill University

Gordon Houlden

Director of the China Institute at the University of Alberta