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Foreign ownership, shadow flipping, an entire generation worried that soaring real estate is pricing them out of the housing market.
There’s no shortage of concerns about Canadian housing, and no shortage of agencies and governments grappling with the multitude of issues.
The latest piece of the patchwork is $500,000 earmarked in the federal budget for Statistics Canada to “develop methods for gathering data on purchases of Canadian housing by foreign homebuyers.”
The funding for StatsCan comes at a precarious time for the country’s economy. Canada is still reeling from the crash in crude prices, which has also raised concerns about the banking sector’s exposure to the oil patch – prompting one money manager to speculate Ottawa doesn’t want to hit the brakes on real estate activity.
“I don’t think the federal government really wants to disrupt the strength in the housing market right now for fear that might be a break in the third leg to the stool,” said Dean Orrico, president and chief investment officer at Middlefield Capital, in an interview on BNN.
“I think they want to be very, very careful,” he added. “And maybe this nominal amount – really, an insignificant amount – to try to tackle this issue of what’s driving the market is really quite intentional on their part.”
While housing market observers decry the lack of hard data on such a pressing issue, some aren’t so sure StatsCan is the right choice.
“We did not have meetings about housing at StatsCan, it wasn’t something we did,” Philip Cross, the statistics agency’s former chief economic analyst, told BNN in an interview.
Statistics Canada doesn’t have expertise on housing and a mere half-million dollars won’t get it there, said Cross. The Canada Mortgage and Housing Corporation, however, does have that background.
“They’ve worked in this area, why wouldn’t you ask them?” said Cross, who is now a senior fellow at the Macdonald-Laurier Institute. “I just have no explanation for this.”
Ben Rabidoux of market research firm North Cove Advisors has the same concerns: wrong agency, and not enough money to seriously tackle the issue.
“The money should be directed to CMHC, but $500,000 is a token amount that won't make a meaningful difference anyway,” Rabidoux told BNN.
“It's simply for appearance.”
Prime Minister Justin Trudeau defended the funding on Friday. “For us, it was important to be giving Stats Canada the tools necessary to understand what’s going on in housing markets,” Trudeau said in response to a question from BNN’s Paige Ellis.
“Making sure that we are able to better understand the issues facing the Vancouver housing market; and [to] eventually be able to work with the province and the municipality perhaps on countering some of the things we find we need to make sure we have good data to do that,” he added.
When it comes to foreign ownership, Canada’s housing agency is already collecting data and has published two reports. Focused on the condo market, the CMHC survey of property managers suggests foreign ownership rates are in the single-digits in the country’s largest urban markets.
That answer hasn’t satisfied many. In Vancouver, the concern about hot foreign money is largely focused on multi-million dollar detached properties.
Enter the B.C. government, which used its 2016 budget to tackle a number of housing market issues. The province says it will amend its Property Transfer Tax Act to compel buyers to disclose their citizenship.
“These changes will generate data that will allow government to monitor the volume of foreign investment… and assesses what effect, if any, they have on pricing,” the government said in announcing the measure.
At the core of the foreign ownership issue is the suspicion that foreign money is what’s really driving prices out of reach for the average family; but one of Canada’s top real estate experts warns regulators and governments could be heading down a slippery slope.
“It’s a big can of worms when you walk down this path,” Royal LePage CEO Phil Soper told BNN.
“I think what we will find in the end is there’s more hysteria than reality – and that, overall, home prices are rising in Canada because we have low interest rates,” Soper said, adding that the economy is faring well in B.C. and Ontario.
To address affordability concerns, B.C. is exempting newly-built homes up to $750,000 from the property transfer tax – if purchased by a Canadian citizen or a permanent resident.
The home must also be the buyer’s permanent residence, and lived-in for one year.
The B.C. government says it will fund the move by increasing the property transfer tax rate to three per cent, from two per cent, on the value of the home above $2 million.
And while the thorny issue of foreign buyers dominates the headlines, a new concern has cropped up: using assignment contracts to “shadow flip” homes in Vancouver.
Assignment contracts can help a homebuyer that’s fallen on hard times and can no longer afford to close the deal. The distressed buyer can sell, or assign, the contract to another buyer.
But there’s mounting evidence that speculators, including real estate agents, are using the contracts to flip homes two or three times before closing – collecting handsome profits each time while driving up the price.
B.C. Premier Christy Clark vowed last week to end the “shady” practice that’s driven by “greed, sheer greed.”
Her solution: “Take the profit out of it.”
New rules will require the express consent of the home seller in assignment contracts, and most importantly mandate that any profits from assignments are returned to that homeowner.
It will be up to municipalities to invoke the rules. Vancouver’s mayor has indicated he’s in favour, calling it a good first step.
But Vancouver isn’t the only hot market in the country: Toronto’s high prices are also causing concern. Both markets posted astounding sales numbers in February, which is generally not the hot home-selling month of the year.
In its first foray into the housing file, the Trudeau Liberals increased the minimum down payment for homes purchased for more than $500,000 and where the buyer puts down less than 20 per cent.
For the portion of the purchase price between $500,000 and $1 million, a 10 per cent down payment is now required. The buyer is still only required to put down five per cent on the first $500,000.
The move was widely seen as affecting only buyers at the margins, less than 1 in 20, and not having much impact, if at all, on the hot markets.
In fact, the Toronto Real Estate Board said sales rose strongly in the second half of February, “despite the new federal mortgage lending guidelines.”
While the federal government was tweaking down payment rules, banking regulator OSFI and CMHC were making regulatory changes that increased funding costs for the banks.
The big banks, in turn, increased borrowing costs when it came to their special five-year mortgages, but the hikes were modest.
The Bank of Canada, for its part, continues to cite housing debt as a key area of vulnerability to the country’s financial stability. It also concedes the bank’s easy monetary policy continues to stoke the hot markets.
Still, it says stable inflation is its focus and it can’t tailor monetary policy to respond to the housing market.
That leaves a patchwork of agencies and governments to each pull the levers at their disposal to tackle the big issues.
When it comes to that $500,000 in new money for StatsCan to enter the fray, CIBC deputy chief economist Benjamin Tal says he’s “not sure it’s enough.”
“It’s a major undertaking,” Tal told BNN. “My understanding is CMHC has been actively working on it so we have to make sure that there is no duplication of efforts.”