May 9, 2016

Harnessing Resentment: Another report on Vancouver’s housing crisis

Things are getting nastier.  From the Huffington Post:

 

Huf Post

The report, titled “Vancouver’s Housing Affordability Crisis: Causes, Consequences and Conclusions,” says political inaction has allowed the problem to grow.

“By linking the crisis unambiguously to foreign ownership and investment, documenting the major harms of the affordability crisis, and proposing a policy route out of the current mess, the report hopes to harness the city’s resentment and dispel its resignation.

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Leave a Reply to Michael GordonCancel Reply

    1. And now for an intelligent perspective.

      The op-ed linked and quoted below was published in the Sun a week ago, and it was one of the few that offered well-thought out solutions to counter all the knee jerking and hyperventilating going on. A very refreshing read indeed.

      http://vancouversun.com/opinion/an-affordable-housing-manifesto

      How to solve the housing affordability crisis in the Lower Mainland.

      Ultimately, the current housing bubble is a reflection of the collective market sentiment that Vancouver housing will always go up (or at least never go down) and yield greater returns than other investments. The key is to introduce measures which will collectively change that expectation to one that housing prices will decline significantly to a more affordable (but still high relative to local incomes) level over the near term, while encouraging growth of rental inventory.

      Principal causes of the real estate bubble

      This section defines the problem well, and lists at least seven (7) principle causes of high prices, of which foreign money is only one. It also lists systemic causes that will not change much, like the fact we live in a very desirable place with decent public services and a strong economy.

      Some factors contributing to the bubble are systemic and either not amenable to short term adjustment or constitute key attractive features of living in the Lower Mainland no one wants to change: e.g. our high quality of life; our protected parks; security of investment; high immigration rates; a relatively strong job market etc.

      The principle causes, in order of appearance in the article:

      1. Historically ultra-low interest rates.

      2. A large number of wealthy foreign home buyers.

      3. No land for more detached houses. (This point especially is too cavalierly dismissed by journos and others who should know better, or at least who should develop better research skills into land use and zoning.)

      4. High construction costs.

      5. House-hopping renovators.

      6. Pre-closing shadow flipping.

      7. Poor regulation of realtors.

      A comprehensive menu of reforms governments at all three levels could introduce to moderate housing prices

      A. Special taxes on non-tax resident buyers (“NTRs”) plus a new investment program for non-tax residents.

      Part 1: A tax on non-tax residents’ purchases of residential real estate.

      Part 2: A rental housing immigrant investor program: Rather than just deterring overseas buyers from buying in Vancouver with such a tax, a companion initiative could try to channel the money currently chasing houses to creating affordable rental housing. Specifically, NTRs should be encouraged to invest in a new-long term rental housing immigrant investor fund which builds new rental housing with long term affordable rents.

      B. Flip taxes.

      Expanding the rental pool

      For rental housing, condos should be the major source of new rental housing; however, we need to ensure more of them reach the long term rental market rather than being held empty or underused as short term investments or rented as short term accommodation to visitors. The provincial government could consider selectively limiting outright bans on rentals in strata bylaws, at least in new stratas. Municipal governments could also move to enforce existing land use bylaws to stop owners renting out condos and other rental housing in the short term (Airbnb, VRBO, etc.) rental market.

      One of the concluding paragraphs:

      Although the full scope of the reforms above are significant, none of them is extraordinary and more than half could be implemented without passing new legislation. Some, such as the Flip Taxes, will require consultation and careful drafting before being legislated, but even committing to pass them should have a moderating effect on markets. Any additional tax revenue earned by the provincial government from the taxes suggested above beyond the cost of administering them could be invested in subsidizing affordable housing. This ambitious agenda calls on all three levels of government to do their part, with the provincial government taking the lead on several key initiatives. The proposed Rental Housing Immigrant Investor initiative entails federal cooperation since immigration is still a federal responsibility. Several of the reforms above may need to be reviewed for both effectiveness and to ensure they are still needed in the medium term if prices correct.

      The author also brings up the dangers of a 1981 style crash which was brought on by climbing interest rates, something the sensationalistic stories so far never touch.

      Thomas may find some taxation parallels above to his oft-expressed ideas.

      Please read the full article for more details.

        1. Good for them. Let’s monetize this desire to park cash elsewhere such as in BC. Don’t discourage it, just monetize it better.

  1. Nobody denies that Chinese demand contributes to high housing prices. It’s another source of demand on a limited supply of housing. However, isolating a contributing factor and fixing the problem aren’t the same thing. Even the linked article only notes that an additional surcharge on foreign-based transactions will just raise money. This isn’t a bad thing in its own right, but no evidence exists that this will reduce prices – or even the rate of price increases. Australia only shows a correlative outcome – nothing whatsoever to show that higher taxes on foreign buyers are what’s cooling down the housing market.

    Tax foreign purchases all you want. Always nice to have more revenue. But if you want to actually do something about housing prices, you either mastermind a concerted effort to make Vancouver an undesirable place to live, or build more housing. Simple, though not easy.

    1. Not so. If you raised land transfer taxes significantly, say to 25%, for non-residents, locals would get a 23% advantage on houses or condos below $2M, which is significant ! If you tripled property taxes, or charged a significant enough surcharge as suggested by the SFU prof you’d get enough of a change in behavior to make a dent in demand !

      Condos are less of a concern as you can always build more but SFH are.

      Enforcing tax payments and buyer registration is critical, too as we have far too much tax leakage on unreported house price gains !

      1. It’s clear that you think this makes intuitive sense, despite having no proof. I’d be willing to try it and see what happens. Who do we tax? Just those without Residency or those not yet citizens? What about Canadian 3rd party brokers? They ok? At what rate is this tax set until we see some quantifiable goal, which will be what? Reduction in ‘X%’ in median housing prices? Or reduction in ‘Y%’ of rising cost rate? When do we change the rate if the original rate doesn’t put us on our trajectory?

        There is no objective here. No notion of what success looks like, other than lower prices and fewer ‘foreigners’. Just a lot of fear.

        1. Whenever you raise prices for ANYTHING demand goes down: apples, cars, phones, airplane seats or housing. If you raise SFH by 25% through a special land transfer tax on non-residents their demand goes down and more tax $s are generated in BC vas mere 2% ( or 3% over $2M) land transfer tax.

  2. Good to see some more debate on this topic in the attached lengthy academic debate on housing affordability in Vancouver, especially the connection between income taxation and property taxation.

    His annual surtax is a very good idea to consider, by linking property ownership to income taxes, or lack thereof in many cases ! But it does not go far enough.

    Missing AT ALL in his report is

    A) the excessive expectation that one needs to own a SFH in Vancouver,

    B) the impact of excessive income taxes to shift rational behavior to tax free housing, as wealthy immigrants and long term residents behave rationally by buying very large, often too large properties, as the gain is tax free, as opposed to 50% income taxes for higher income earners on extra bonuses, for example.

    C) the fact that Vancouver is not that expensive on a world scale,

    D) the fact Metrovan has more affordable housing further out, or in condos in New West, Surrey, Burnaby etc. i.e. he neglects to mention the fact that Vancouver is a small place but MetroVan is not and that MetroVan does not really have a worse affordability problem compared to similar sized 2M+ metroplexes anywhere

    E) the list of benefits of foreign money for sellers and folks involved in constriction of new homes/condos,

    F) the mention of land transfer taxes, as those could, or rather should, be far FAR higher, say 25% for SFH or 12.5% on condos for non-residents, and finally

    G) the mention of tax free capital gains for Canadians on any residence

    As such, incomplete, and FAR TOO long to be certainly ignored. The word bubble is utterly misplaced as there is none. Do we seriously expect foreigners to stop buying here or interest rates to go down substantially or people to leave in large numbers ?

  3. Why the litany: “foreign buyers”? Are Arabs and Russian oligarchs buying here as they are in London? No. Are there planeloads of wealthy French or Belgians buying up property? No. Would there be an outcry if a pile of New Zealanders bought up Dunbar? No.

    It’s Yellow Fever all over again – from the head tax, to Japanese internment, to the Komagata Maru. And lets not forget stealing unceded land from the people who lived here for thousands of years.

    The wealthy Chinese that are moving here are floating our boat. Would Detroit like to a get a share – hell yes. See the new Porsche/Mercedes/Audi dealerships? What about all the restaurants and high-end stores?

    If you want a bucolic environment where nothing changes this is not it. Why do locals get into a tizzy over good people coming in with good money – these are not Papa Doc Duvalier and Idi Amin.

    Why doesn’t Greedy Jim Pattison get censure? Are the Chinese polluting our city with billboards? He has lifted his leg in every corner of this province. Are they enslaving thousands with idiot jobs – suffocating competition. His cash crushes all of these good people – obscenely, grossly, offensively rich – pathologically obssessed with cash and control. Even Trump is less maniacal. One is overt – one is a shark in the water.

    There have been monstrous land grabs in the world – mostly by pirate “Royals” and merchant thieves (we call them corporations now). The great Anthony Bourdain suggests that the heads of monarchy be impaled on sticks while people throw excrement at them. Sounds good – it’s the only royal visit I’d attend.

    1. What a bunch of BS, We are talking about a situation never seen before in the history of the world. A situation where the largest country in the world with 1.4 BILLION people are getting rich at the same time are frantically trying to get there money out of a Communist country and have set there sights on Vancouver because we have the most laid back lax real estate regulations in the world. The ripple effect is massive, condos and townhomes are now up 25%. And it won’t stop there.

      1. You need to read up on history, Ron. This has been happening for millennia, often accompanied by armies and occupation before the economic might of a “foreign power” takes over. There are equitable solutions. You are just not interested in them, or in a less hysterical and more rational conversation.

        1. The difference this time is several HUNDRED MILLION folks are getting wealthy very very fast and want out, or at least their kids and money .. this scale is unprecedented .. as is the pace. Plus we can travel faster and information travel even faster than 20, 50 or certainly 200+ years ago !

  4. Arnie Carnegie talks about all the economic spinoffs of wealthy people moving here, but a lot of property is owned by people who contribute virtually nothing to the economy or the cultural vibrancy of the city.

    On the short walk from here to the kids’ school I would run out of fingers trying to count all the empty houses. Why make the effort to rent out a place when you’re making tens of thousands per month just holding it?

    Other homes are “occupied” in the sense that someone “lives” there a few weeks per year. Still others are occupied by a stay-at-home mom and a child or two whose entire income comes from a husband who works overseas. In the latter case my concern isn’t about an empty house, but about a household that’s not contributing its fair share despite obviously being able to afford to do so. When the rich appear to be poor it makes a mockery of our tax system and unfairly burdens those who cannot easily avoid paying.

    Am I outraged that someone paid $60 million for a building downtown and paid absolutely no tax on the transaction? Absolutely. I don’t care who they are, where they’re from, what colour their skin might be or what language they’re most comfortable speaking. None of that matters. What matters is that they can afford to contribute to our country’s well being but choose not to. I don’t want that type of person owning part of this country, I don’t want them living here, heck, I don’t want that type of person to even exist.

  5. There’s a DVD called Mardi Gras: Made in China. It documents the making of glass beads at a factory in Fuzhou. These are shipped to New Orleans where the natives have a curious ritual. The men yell at the women to show them their tits. When they do, they are rewarded with these glass beads.

    With the money from these glass beads, the evil Overlords in China buy real estate – just like the Europeans did when they traded beads and trinkets for New York. The Europeans did a wholesale trade – the Chinese do it house by house. Inflation. The Europeans also had a propensity for using guns. Just one of a raft of examples is the Opium War – the Brits forced the Chinese to buy Indian opium at the point of a gun.

    Oh, and how did they get that opium – from the Jewel in the Crown – India. Was there military (pirate) force involved? Remember all that Gandhi stuff? What other countries in the history of the world did they conquer and still control? Not to mention the other colonial monsters like the Belgians in the Congo, or the Spaniards in Mexico. The list goes on – how about the Dutch in South Africa and elsewhere, or the murderous Portuguese.

    Yes, there have been atrocious thefts of land and resources – they’re still going on today; some blatant, some less obvious – like lending money to poor countries and then robbing them of everything they can.

    The Chinese coming here – maybe not all are stellar artsy paragons of virtue but, basically, most of them are selling teddy bears and kitchen gadgets and sneakers; and buying real estate. No weapons are involved.

    The kids of these Chinese – where are they going to live when they grow up? They’re not leaving. They like it here. They’ll travel often to China to get in touch with their heritage, but their roots will be here. Very good for the airline industry.

    How much do they have to contribute right away? They’ve already popped a few mil for a house, or lent money tax free to the Canadian government. They have already contributed more than many who just happened to be born here. Why should that simple accident of birth be carte blanche to privileges? Like people that say they’re proud to be Greek or Italian or whatever – that’s where you were born. So what. Does that mean you deserve a house? What did your parents or grandparents do with their lives that you can’t afford what you perceive as an entitlement.

    1. Clear the YVR runway for the jet set of China! You are so right Mr. Carnegie. Our sense of entitlement to live in Vancouver is ghastly and pedestrian. I implore you to have mercy upon us and not bring in the Pinkertons to teach us the lesson we so dearly deserve.

  6. You canNOT stop money flowing around the world. You can only change policies to make it go elsewhere or you can MONETIZE IT BETTER. That is what I suggest. Money coming to BC is generally good as it creates wealth, tax revenue and jobs. We just do not tax it high enough, especially limited edition single family houses. We do not monetize the BC or Vancouver brand well enough for the general populace.

    Monetization comes through TAXATION of non-residents.

    Higher taxes on acquisition, say 25% on SFH and 12.5% on condos.
    Higher taxes while holding, say triple for SFH and double for condos.
    Higher taxes when selling, say 50% withhoding taxes when sold to prove that enough taxes are paid on the gain.

    Don’t restrict foreign ownership, just monetize it better.

    1. huh ? Refugees to elsewhere in BC ?

      Every issue has two sides.

      A $2M condo doesn’t fall out of the sky. It gets planned, then created, then built, then is owned for decades, centuries sometimes. As such it creates massive employment: jobs for designers, architects, city planners, SFU professors on urban planning, concrete pourers, painters, plumbers, window manufacturers, elevator installer, property managers, realtors, marketing firms, clean up crews, land scape architects, tree pruners, vase re-arrangers etc .. plus associated tax revenue: GST, PST, income taxes, land transfer taxes, property taxes

      As such I’d say: Don’t restrict foreign ownership, just monetize it (even) better.

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