Douglas Todd: Once abhorred, foreign-buyers tax now mainstream in Canada
Credit to Author: Douglas Todd| Date: Fri, 04 Oct 2019 21:00:02 +0000
What a difference an election cycle makes. When Canadians last went to the polls in 2015 you would have had to scour the country to find someone willing to talk about a surtax on foreign nationals buying real estate.
Now, such taxes are just considered the right thing to do — by the federal Liberals, NDP and Greens. And B.C. has shown the way.
How did this happen? Ignited by the public’s anger over the housing affordability crisis, the B.C. Liberals in 2016 surprised almost everyone by going against their own free-market ideology and suddenly imposed a 15-per-cent tax on foreign purchasers of housing in Metro Vancouver.
Many were shocked by this affront to economic globalization and investment. Property developers and their lobbyists, plus some activists and a handful of academics, claimed a foreign-buyers tax was xenophobic and even racist.
The foreign-buyers tax took some fuel out of Vancouver’s stratospheric housing prices, however. And polls show that people supported it. The next year, Ontario slapped a foreign-buyers tax on real estate in the Toronto region. And after the B.C. NDP narrowly won office in 2017, it hiked the surtax to 20 per cent and expanded it to Victoria and other cities.
Finance Minister Carole James and Attorney-General David Eby then devised more pioneering legislation. They brought in vacant dwelling and speculation taxes, which in part target “satellite families” that buy houses with wealth made overseas, where it is not subject to Canadian income taxes. They also began an inquiry into how international money-laundering contributes to house-price inflation.
And now Canada’s three centre-left parties are basically mirroring B.C. — with the Greens’ Elizabeth May showing a readiness to go further, raising the possibility of a total ban on foreign buyers.
The centre-right Conservatives are not silent either. Early on in the campaign, Andrew Scheer promised a national inquiry into “shady” global money-laundering in real estate, which he said “inflated prices in the Greater Toronto Area and Vancouver.”
It is a remarkable turnaround from 2015, when former Vancouver Mayor Gregor Robertson, real-estate developers and their Twitter allies labelled racist the research of urban planner Andy Yan and then-Opposition MLA Eby, since it showed high-priced Vancouver homes were being snapped up by non-resident buyers, particularly from China.
That was then. Now, all politicians are on notice. Insights West has found 72 per cent of British Columbians, for instance, believe the federal Liberals have done a poor job on housing.
That is why Justin Trudeau has caught the new housing zeitgeist, which goes against his brand. He has been a champion of free trade, globalization and making Canada open to foreign investment. (The Economist recently reported the nation has a disquieting dearth of big, Canadian-owned companies.)
The new promises on housing from Canada’s centre-left parties harken back to the 1970s and ’80s, when the union-rooted, centre-left was mostly led by economic nationalists suspicious of multi-national corporations and globalization.
That era is echoing again in the way Canada’s federal politicians — in addition to promising to pour billions into affordable housing — are talking a great deal about protecting the interests of locals over investors.
Urban wages are not nearly keeping up with over-pumped housing prices. Despite softening a little in Vancouver, Victoria and Toronto in the past year, the cities still remains among the most unaffordable in the world.
The giant Swiss bank UBS this month declared Toronto’s hyper-inflated housing market, out of 24 major cities on four continents, has the second-highest risk of having its bubble burst. Metro Vancouver has slid slightly from last year, when it was fourth most vulnerable to a bubble, to sixth. The B.C. government’s measures appear to be gradually working.
The data is still grim, however. The Greater Vancouver Real Estate Board reports the average price of a detached house in August is still an intimidating $1.55 million, with condominiums punching in at $651,000.
It all helps to explains why, on the first day of his campaign, Liberal leader Justin Trudeau came to B.C. to promise to “ensure foreign speculation doesn’t make housing less affordable for Canadians.”
Trudeau committed to following the lead of the B.C. NDP and impose a one-per-cent tax on the assessed values of homes owned by non-resident, non-Canadians.
Meanwhile, the Green Party of Canada is also pushing for a national tax on foreign buyers — and is mulling a complete ban on such sales.
May’s latest newsletter highlights a “brilliant” article by UBC professor William Rees, in which he says “massive taxes on foreign buyers or empty house taxes might help fix market inequities, but an outright ban on foreign ownership would be more honest and effective.”
For Jagmeet Singh’s part, the NDP is pledging that Canadians will “have the option to buy a home they can afford” after the party institutes a national 15-per-cent foreign-buyers tax. “We estimate this will raise substantial revenue.”
This is not to mention that all four major federal parties are also suddenly talking tough about clamping down on money laundering in lax Canada. Specialists have long ranked Canada’s housing market as a particularly easy commodity through which to turn illicit cash into so-called clean money.
Of course, Canada’s politicians are not just making campaign promises to reduce demand for housing from speculators and from foreign capital. Their pledges to support social housing are also reminiscent of the 1970s.
The Liberals say they will build 100,000 affordable homes over a decade. The NDP commit to 500,000 affordable housing units over the same period, plus rental subsidies. The Greens want to construct 25,000 new affordable units and renovate 15,000 others every year. The Conservatives say they will ease regulations and offer subsidies to get new homes built, especially ones that are environmentally friendly.
At the same time, the four leading parties are tossing out a range of complex tax and mortgage incentives, which are meant to appeal to first-time buyers. These promises are making housing analysts skeptical, however, particularly in light of the effects of immigration-fueled population growth in major cities and record-high household debt. The experts warn against the obvious: Too much stimulation will simply make housing prices rise further.
It is auspicious that Canada’s politicians are finally zeroing in on urban housing costs. And it is especially notable this election that they are recognizing one of many things that needs addressing is the way Ottawa’s policies have contributed to turning our big cities into global real-estate markets.