Comment by waterheater
2 years ago
A little insight on Vancouver: PRC investment firms decided that the steady growth of the North American real estate market looked to provide great returns on investment. So, these firms started buying up large numbers of single-family homes in Vancouver. I've heard a few reasons for why they chose Vancouver: (1) the large amount of PRC nationals in Vancouver, (2) geographic proximity to the PRC (relative to other North American metropolitan areas), and (3) the closer relationship with the Canadian government (relative to the US).
Now, the investment firms took a different approach. Many ordinary people and even real estate firms will try to rent out their secondary properties, particularly if the property is in a major metropolitan area. Here, the firms didn't rent out the properties for any reason. Their investment strategy decreased the total available housing supply (for anyone, including renters) while demand kept increasing, so the home prices naturally skyrocketed. They sat on the properties and rode the tide.
The issue that Vancouver started encountering was that single-family homes on a regular residential block may be only 50% occupied. The end effect is you'd have families living on a regular ol' city block but with half the properties vacant, which destroys the development of community in that neighborhood. Also, because the Vancouver housing market pricing exploded, property taxes blew up, yet many residents' neighborhoods became a worse place to live. The housing market wasn't growing because of newfound desirability (e.g. Austin) or fresh industry (e.g. Atlanta and entertainment); in those cases, the new economic activity will provide benefit to the community in a variety of ways. The Vancouver situation only benefited the investment firms with no tangible benefit to the community.
Residents became understandably upset. Hence, the empty home tax was passed to disincentivize the investment firms' predatory investment strategy.
I believe the Prohibition on the Purchase of Residential Property by Non-Canadians Act went into effect this year, it's going to be interesting to see if that does anything to help the situation, I'm cautiously hopeful. Fun story: When I graduated from college (20ish years ago) I moved to Toronto, one of my school buddies was a Chinese guy who mentioned he would be able to get me decent rent on a unit in a new construction condo because of some family connection. I took him up on it and lived there for 2 years. Over those 2 years I lived on a "ghost floor" - I was the only person on my floor and nobody was on the floor above or below. A family office had bought up 3 floors in the building and I was living on one of them. It was surreal to say the least.
They'll just incorporate in Canada.
I'm sure they'll find a way around it, however it's worth noting The Act is on direct or indirect buying and specifically addresses people attempting to circumvent through incorporation. There are pretty stiff penalties for not doing good diligence of the source of the funds. I'm not disagreeing people will figure out ways around it, only that it isn't going to be quite as simple as that in practice.
Canada was picked because of our combination of weak (money laundering) and strong (secrecy and security of ownership) laws, and a pliable government.
Vancouver was the perfect place for the reasons you mentioned and geography, it’s hard to expand the housing supply.
And an existing drug trade to tap into in order to facilitate the funds required!
Sounds like a use-case for imminent domain. If you aren't using the property, you lose it and it goes to someone who will.
>> A little insight on Vancouver: PRC investment firms decided that the steady growth of the North American real estate market looked to provide great returns on investment. So, these firms started buying up large numbers of single-family homes in Vancouver.
Reference required. Empirical evidence does not support your claim.
The PDF in the parent’s comment shows there were 1010 vacant homes in 2017 and 502 vancant homes in 2022.
Jens Avon Bergmann of MountainMath.ca did analysis after the 2021 numbers were released. His takeaway:
>> “The results demonstrate very little “toxic demand” leading to vacancies in BC, and provide valuable checks on estimates of “foreign” ownership.”
https://doodles.mountainmath.ca/blog/2021/11/21/three-years-...
Please stop spreading this disinformation unless you have actual references with actual empirical evidence. It is actively harmful to supply-side solutions.
I am open to have my mind changed if you have evidence that toxic demand is actually causing significant harm. With significant harm defined as being one magnitude greater than the 500 vacant homes in the above PDF from the City of Vancouver.
https://static1.squarespace.com/static/5df7c3de2e4d3d3fce16c...
"Analysis of land title records by TI Canada found that nearly half of the 100 most valuable residential properties in Greater Vancouver are held through structures that hide their beneficial owners. Nearly one-third of the properties are owned through shell companies, while at least 11 percent have a nominee listed on title. The use of nominees appears to be on the rise; more than a quarter of the high end homes bought in the last five years are owned by students or homemakers with no clear source of income. Trusts are also common ownership structures for luxury properties; titles for six of the 100 properties disclose that they are held through trusts, but the actual number may be much higher as there is no need to register a trust’s existence."
This is exactly why the Prohibition on the Purchase of Residential Property by Non-Canadians Act and considerably stricter source of income requirements went into effect this year. The reality is nobody really knows, people have a hunch one way, numbers show another, context another again. It's difficult to say.
Disinformation? Come on, man.
Here's articles on what the situation was.
2015 - "Vancouver house-buying frenzy leaves half-empty neighbourhoods": https://www.theglobeandmail.com/news/british-columbia/vancou...
2016 - "One-Third Of Vancouver’s Real Estate Market Is Owned By Chinese Buyers": https://www.fortunebuilders.com/one-third-of-vancouvers-real...
2016 - "China is buying Canada: Inside the new real estate frenzy": https://macleans.ca/economy/economicanalysis/chinese-real-es...
Today, the situation is under control because Canadian governing authorities appear to have implemented effective policies.
2022 - "'Astonishing' drop in number of empty homes not occupied by 'usual' residents in Metro Vancouver: Census": https://vancouversun.com/news/local-news/astonishing-drop-in...
2023 - "Chinese Real Estate Investors in Canada – Is Their Ownership Now Less than 4%?": https://precondo.ca/chinese-investment-in-canadian-real-esta...
>Empirical evidence does not support your claim.
Actually, empirical evidence does support my claim, further supported by clear and effective policy reactions taken by Canadian governing authorities.