This story will just not die a natural death.
It’s been a month since all the hoopla about Vancouver’s 15% “foreign buyer tax” started, and I never thought we’d still be talking about it into September.
It doesn’t affect us here in Toronto, and yet the stories continue to mount.
The story I’m second-most tired of hearing about: Toronto following suit with a similar tax.
Here are five reasons why it won’t happen…
My “vacation” to Idaho seems like so, so long ago…
I put vacation in quotations, since a colleague told me it wasn’t really a vacation.
He said, “You didn’t take a vacation; you just changed the scenery from your office.”
He’s right to some extent. I sold three properties while I was away, and had offers in on three others.
I blogged with the same frequency as I did when I was in Toronto, and I took a good number of calls.
But the one thing that actually increased when I was down in Idaho was the number of media requests.
This was right after Vancouver announced they would apply a 15% tax to the purchase of real estate by foreign buyers, and I was swamped with calls.
CBC, Toronto Star, Globe & Mail, Reuters, Bloomberg, Real Estate News, and a couple of papers in British Columbia that I honestly can’t remember.
Everybody wanted a piece of the action, and the new tax had all the makings of a great story – it made many people happy, it made many people mad, it involved money, there was a good guy and there was a bad guy, and it was ballsy; really, really ballsy.
I told one reporter, “Thirty years from now, university students studying political science and economics are going to see this in their textbooks and use it as a case study of one of the worst fiscal policies ever enacted by a wing of government.”
And I stand by that quote. In fact, that was as nice as I could possibly convey how I felt.
As the week went on, the questions from the media moved from “what do you think about this tax” to the inevitable, “do you think Toronto could follow suit?”
That’s the media for ya!
Once the first story began to lose some lustre, they created a second story out of nothing.
Eventually, they began to ask the appropriate parties – John Tory, Kathleen Wynne, and any professor or economist who had a nameplate and a thought on the matter.
For the most part, I feel as though people agreed that what’s happening in Vancouver should not influence what’s happening in Toronto, especially when it comes to fiscal policy and taxation.
But people continue to talk about the new tax in Vancouver, and if and when we’ll see the same policy enacted here in Toronto, or throughout Ontario.
I’m of the opinion that this tax is not happening. Not a chance.
So let me outline a few points that I feel put a nail in this coffin.
1) We don’t have the same foreign demand.
I don’t have data to back this up, but does anybody?
Don’t forget, much of the discussion over the last few years has been about how to track foreign buyers.
CMHC even admitted they have no clue if their numbers are accurate.
What is a foreign buyer, anyways?
Is it a buyer that lives in a foreign country?
Is it a resident of Canada, but non-citizen?
Is it a resident of Canada, even a citizen, who is getting money from a foreign buyer?
In any event, my opinion, estimation, and anecdotal evidence will have to suffice.
Simply put, I believe have a fraction of the foreign demand here in Toronto that Vancouver has, and has had, over the last few years.
Geography plays a huge factor here, as we know.
The term “foreign buyer” gets thrown around, but most people really mean “Asian.”
That’s not a derogatory term, by the way. That’s the name of a regional group of people.
And when people refer to the rapidly-appreciating housing costs as a “problem,” and the word “Asian” continues to be thrown into the mix, it’s easy to see why people can become both overly-sensitive as well as overtly-racist, depending on how they feel about the issue.
The 2011 census of Metro Vancouver showed that 40.8% of the 2,313,328 person population was Asian, and furthermore, a 2006 study by Statscan projected that by the year 2031, that number will grow to 49.9%.
By comparison, the 2011 Toronto census showed that 23.1% of the population was of Asian descent.
Vancouver happens to be a direct flight away from mainland China.
So is it any wonder why people the other side of the pond are investing in Vancouver before anywhere else?
We have foreign demand here in Toronto, no doubt about it. Not just from Asia, but from the middle east, the former Russian bloc, and from our neighbours south of the border.
But we have a fraction of what Vancouver has, er, um, at least did have before the crazy tax…
2) We are not in a “crisis.”
2016 opened with The Globe & Mail’s Kathy Tomlinson writing an expose on the “shadow flipping” in Vancouver.
I wrote a follow-up blog called, “Kathy Tomlinson Changed Real Estate Forever,” and I wasn’t exaggerating.
Shadow flipping isn’t why the government has introduced the 15% tax, but the shadow flipping being exposed in Vancouver brought a lot more attention to that market.
With that attention, came outrage, and with that outrage, came investigation.
And ultimately that led to politics, which is why we’re having this conversation.
The shadow flipping represented a very small percentage of properties, and was ultimately facilitated by a couple of brokerages that specialized in foreign buyers. It wasn’t the epidemic that people made it out to be.
But it helped both residents of the area, and anonymous internet commenters, to pile on with their scorn for the “evil foreign buyer,” and soon those foreigners were blamed for the high prices.
3) Our prices haven’t appreciated as much.
Is there a number at which the market goes from “hot” to “crisis?”
Is it a 10% annual return?
Maybe there’s no number.
Maybe it’s just a “feeling” on the market, and as you’re starting to see, all these points interact.
A large percentage increase on it’s own might not be a reason to enact a 15% foreign buyer tax.
But a looming election, an angry population, a rabid media sensationalized a small problem – all these things, combined with hyper-appreciation, can result in extraordinary measures.
The average house price in Toronto was up a whopping 16.6% from July of 2016 over July of 2015.
That’s a crazy number. Just crazy.
Anything into the double-digits is nuts.
But even 8%? That’s high, is it not? Imagine 8%, per year, every year, for ten years? Would that put us in “crisis mode?”
I thought the 13’s and 14’s and 15’s that we were seeing in the spring were nuts. But 16.6%?
Nothing tops that.
Wait…….yes, something does.
The MLS Home Price Index composite benchmark in Metro Vancouver this past July was $930,400.
This was an absolutely jaw-dropping 32.6% increase over July of 2015.
Year over year – yes, you see that correctly.
Now that puts our market in perspective, does it not?
16.6% is enough to make people move to Mississauga, but what if we were seeing house prices increase by 32.6%?
Maybe then our government would consider a 15% foreign buyer tax. You know – if we also had the foreign demand that Vancouver does, and if we also had horror stories about shadow flipping dominate the headlines, and so on, and so on, continuing with….
4) We can do the math.
Every political move that is made on the housing front is done so to appease the voters.
The largest voter base, in any and all elections, is referred to as “the middle class.”
Christy Clark said, among other things, that this 15% foreign buyer tax is to make housing more affordable to the middle class.
Right. Sounds great. In a vacuum, that is.
Now let’s say that the would-be-buyer of a $1,500,000 house, happens to own a sad, pathetic, little $800,000 house.
Now let’s assume that suddenly, prices dropped, and that $1,500,000 house was “more affordable to the middle class,” and was available for $1,100,000.
That would be great! Right?
Oh wait, sorry, I forgot – the would-be-buyers’ $800,000 house would now be worth $600,000, and they’d have $200,000 less to use as a down payment on their dream home.
So in the end, the idea of “making housing more affordable” doesn’t work, if you wipe out everybody’s gains.
Maybe for the people out there, sitting in a makeshift-bunker, with bottled waiter, waiting for the apocalypse; maybe for them, those who have been waiting for “the bubble to burst” for 12 years, saving their money; maybe they will be able to afford a house when prices across the board, crash.
5) Vancouver’s decision was a political move.
This isn’t a secret, is it?
British Columbia’s provincial election is in May of 2017.
Christy Clark’s government has fallen out of favour.
The NDP is pushing hard out in B.C., and while it seems like the suggestion that the NDP could win an election in British Columbia is far-fetched, you might want to talk to the folks in Alberta about that notion…
The 15% buyer’s tax was a political move, and if you don’t agree, then I’d love to hear an argument on how this makes sense for the economy as a whole.
Just as ignorant, unintelligent, uninformed citizens in the United States will vote for Donald Trump, whose policies will likely make their lives worse off (specifically the poor, who don’t understand the basics of economics), there are those in British Columbia who are so frustrated with real estate prices (and many other things in their lives, the outlet for which, of course, will be “foreigners”), that they’ll ignore the decrease in the average person’s net worth that will result from a real estate collapse, simply to get their Province just a little bit whiter.
From a municipal standpoint, I don’t see John Tory doing anything as drastic as what was done in British Columbia.
Kathleen Wynne, oh ye of the provincial pension, and $1.9 Billion in carbon taxes, is another story.
The provincial Liberals scare the crap out of me when it comes to taxes, and every time I think, “Okay, they can’t possibly create another make-believe tax,” they figure out a way to do so. As an aside, did you read Kevin O’Leary’s latest “open letter” to Kathleen Wynne? Looks like somebody is setting the groundwork for a political career…
6) We can use Vancouver as a “wait and see.”
One reason why Toronto won’t introduce a 15% foreign buyer’s tax is because Vancouver will.
We don’t need to spend money on studies and committee’s (although I’m sure Kathleen Wynne will…) when all we need to do is watch the litmus test that is Vancouver.
You couldn’t ask for a better situation.
Vancouver is going to be our guinea pig.
When this tax was first announced, I remarked that it was amazing how quickly we went from a “vacancy tax” on empty properties owned by foreign buyers to a “15% foreign buyer’s tax.”
It was as though the government was being reactive rather than proactive.
It was as though they spent only 3-4 weeks coming up with this idea, without really studying it, or considering the long-term effects.
So now if Toronto’s government, or Ontario’s government, ever wanted to consider a foreign buyer tax of their own, all they need to do is sit back, and take “wait and see” approach.
And the best part for the politicians, is they get to use hindsight to make themselves look good!
If the tax blows up in Vancouver’s face, our own politicians can say, “We didn’t introduce a similar tax back in 2016 because we knew it wouldn’t work.”
But rest assured, people are watching Vancouver intently…
If I’ve missed any major reasons, please have your say below!