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I grew up in an extremely remote part of Southern California and for years there were rumors of "land banking" investments being made by Asian investors. This was back in the 90's, so it was extremely difficult to verify these types of rumors.

Fast forward 15 years and an article pops in their local paper (I had long since moved away), and it turns out it was true!

From the Daily Press [1]:

> Lured by the prospect of massive transportation projects that could skyrocket land values, the Victor Valley has become a jewel for foreign and domestic investors looking to make a fortune in a practice called land banking. In land banking, investors buy raw land and hold onto it until the value goes up because of inflation or development.

For those who aren't familiar with the area, it's a remote and extremely low-income, low-education area of California. Anyone making investments in property there is looking for them to pay off a generation or two from now.

[1] https://www.vvdailypress.com/article/20121001/BUSINESS/31001...

I wouldn't call it remote. I know people who live in Victorville and commute over Cajon Pass to Riverside. One hour each way isn't an unthinkable commute in Southern California, and it lets them afford a fairly nice place compared to what they could get in Riverside. I suspect they're not that unusual.

In fact I thought of "land banking" there myself a decade or two ago, because I could see that the commute over Cajon would become thinkable.

victorville may very well get a high speed rail station in the coming decades.

Easy fix- have very high property taxes, but they are deductible or waived for locally earned income. If it costs the owner 25% a year to hold the property, won't be nearly as attractive.

Unfortunately at this point a large amount of the Canadian and Australian real estate markets (and thus national wealth) are driven by Chinese money, so there's little chance of this happening.

I like the idea of a vacancy tax that is proportional to the value of the property so that any year-over-year gains in equity are eaten up by such tax. I think turning a vacant property into a liability instead of an asset would do a lot to keep housing accessible.

The Tamil Nadu state government (and a few other states), in India, did something like that - when the real estate market fell a bit, the government noticed that the developers were still holding on to many ready-to-occupy flats (condos) in the hopes of getting a higher price later. The government immediately issued a notice that once a residence is constructed by such developers and is ready-to-occupy, property tax and utility bills (for water) has to be paid for it whether it is occupied or not. Thus builders stopped building in excess or holding on to it to cut supply and artifically raise demand (and thus prices).

I would agree, with one caveat: limit taxes to land only. And then set the taxes so high that the purchase price of land is as close to $0 as possible, which means that there will be both small positive and small negative valuations for the land (because of the tax burden).

This is equivalent to taxing away the land rents: the unearned appreciation of value in property that comes from those around you, rather than what you build.

In this sort of system, other taxes can decrease quite a bit as well.

Georgism? On my Hacker news? What a time to be alive.

Basically this means that all land is effectively rented from the government. It's an interesting proposal, but how would price discovery occur?

There are still sale prices, the difficulty is separating the land portion from the improvements portion. This is currently performed for many purposes, including insurance, which has the benefit of being tied to somebody's valuation, rather than a standard assessors estimate.

However, this idea originated from a time before we had zoning restrictions like we do today. Which also means that any change in zoning would result in a big change in land value too. One could also imagine transferring zoning allowances, much like air rights are sold in NYC, so that people that don't want to change their property can instead give their greater density allowance to person down the street that wants to change their duplex into a fourplex, or something. Such transfers would also be near to zero dollar activities.

But given our current difficulty with handing out any sort of zoning change to allow more people to live in high demand areas, I start to think that this idea is hopelessly poisonous to land politics of entrenched powers (land owners). Still, one can dream.

Sale prices are part of a feedback loop with taxes.

Good except for retired folks with less income or investment income. Perhaps just make a homestead exemption.

You can make a homestead exemption. You can also make property taxes lien-able on sale or transfer of the home, which makes some sense in areas where property values are rising quickly. If you are fixed or low income and care more about having a place to live than making money on the property, that works too.

We kind of have that... property taxes are deductible from your federal taxes if the home is your primary residence... although they put a cap on the amount a few years ago, and it isn't nearly as valuable anymore.

BC has vacancy tax:

* https://www2.gov.bc.ca/gov/content/taxes/speculation-vacancy...

If there is no registered resident for a domicile then the owner gets charged. Not sure how useful it's been:

* https://www.cbc.ca/news/canada/toronto/vacancy-tax-delayed-2...

You have a seemingly unlimited demand for a good at any price . Produce as much as possible and sell as much as possible is a more sensible approach.

Each house sold to a chinese person makes canada as a whole one house-worth richer.

So just pave over Canada's best farmland (the fraser river delta) with unoccupied houses built for "export", and don't worry about providing them with transportation networks, schools, etc under the assumption that nobody will actually live there?

This is hilarious, like maybe make them so that they don't have interiors, just a shell of a house!

Whatever works, why not. Why would canadians as a whole refuse to get richer so easily?

Yeah though when it collapses, i.e. due to foreign policy, local government will likely end up with the costs tearing down abandoned houses and a drop in real estate tax even on everything, I believe they call that phenomenon "Detroit".

Attempting to keep a buffer for that away from the various interest groups is impossible even if you defy the physics of money in politics to adequately tax profits that can buy politicians.

> Yeah though when it collapses, i.e. due to foreign policy, local government will likely end up with the costs tearing down abandoned houses and a drop in real estate tax even on everything, I believe they call that phenomenon "Detroit".

That's an idea of what could happen, but it is not what is happening. Of course it would be better if the properties bought by foreigners were rented out, and the incentives to do so are very strong already (making rent money!), but even if they aren't, the worst case scenario is an eventual reposession of the property meaning again that Canada is one house-worth richer!

Those is why China started limiting the outflow of capital several years ago.

It has an immediate effect in LA, where a number of buildings under construction were financed by Chinese investors. In one case, the developer itself couldn't get it's own money out, and now they have a giant unfinished hulk right across from Staples Center.

> Those is why China started limiting the outflow of capital several years ago.

On paper, but like all things in China enforcement is a completely different thing. There are many ways around it and it's much easier when Canada's AML and KYC requirements would make a 1980s' Caribbean Banker blush.

Even a municipal vacancy tax is just a new cost of doing business. Further, the Canadian Liberals and BoC have both signalled that they intend to devalue the CAD and prop up real-estate. You'd be a fool as a Chinese foreign investor to not dump money into Canadian real estate. It's de-facto government-backed at this point, comes with a Canadian passport, and the Canadian Liberals will never move a finger against you or China.

On paper, but like all things in China enforcement is a completely different thing. There are many ways around it and it's much easier when Canada's AML and KYC requirements would make a 1980s' Caribbean Banker blush.

China's been pretty heavy-handed in its enforcement of these rules. As noted earlier, they basically killed off Chinese cash buyers in the US market in California, and have done the same to Vancouver.

I don't think you've been reading news over the last year about Canada being considerably unhappy with China these days. I'd disagree with your characterizing the liberals at not doing anything. Also have you been paying attention to the meng wanzhou CTO of Huawei at all? I'm tempted to fact-check the rest of your statements as a function of the complete inaccuracy of the last one but that would take to much time :)

He might be Albertan. I'm in Alberta and a lot of people here are in their own filtered news bubble. They state as fact that Trudeau is working for China directly, or 'worse', is somehow a secret Muslim... It's an alternate reality here, and very sad. :(

I don't see how his arguments are highly specious or any less accurate.

> On paper, but like all things in China enforcement is a completely different thing. There are many ways around it and it's much easier when Canada's AML and KYC requirements would make a 1980s' Caribbean Banker blush.

Yes, if you have the right connections, which almost all these investors have, it's no biggie to move money out of China. I don't know about Canadian laws to make a comparison about Canadian laws to a Caribbean banker in the 80s. But I do know that the Chinese are plowing money everywhere - Malaysia, Thailand, parts of Europe, Singapore, almost all of them are being massively bought by Chinese investors. Does not take a genius to figure out that the CCP plan has either failed, or more likely was just political grandstanding for their Weibo and QQ fans.

> Even a municipal vacancy tax is just a new cost of doing business.

When you're a monied investor, taxes just become operating costs. I remember back in the day, my family in a Gulf country had to pay an exorbitant part of our income to get a "license fee" to set up a tiny restaurant no bigger than a Subway. Now, I just opened a satellite office for investors in one of the fanciest districts in the country and those license fees are just a cost of doing business. Not to mention, I'm getting a fuck ton of local subsidies to do that, driving my costs further. This is the case with almost all major cities in emerging markets I know of struggling to build an ecosystem (Singapore, KL, Dubai, Riyadh, etc).

> Further, the Canadian Liberals and BoC have both signalled that they intend to devalue the CAD and prop up real-estate. You'd be a fool as a Chinese foreign investor to not dump money into Canadian real estate. It's de-facto government-backed at this point, comes with a Canadian passport, and the Canadian Liberals will never move a finger against you or China.

I don't know if it's tied to the Liberals, but the CAD has seen significant devaluation against the dollar the past 5 years or 10 years (excluding the effects of USD appreciation too). I also do not know about Canadian govt incentives to boost real estate, but that's not far fetched to assume from #2. Current requirements for citiznship by investment (in Quebec, the federal programme was shut down) show a requirement of only CAD 2 million as net worth, not even direct investment, and an intention to settle in Quebec. Alternatively, one could set up a BS company and get a federal pass through. Both of which aren't hard for the typical Chinese investor to prove. So yes, the government programme does come with an easy passport at the end of it.

Lastly, let's be honest - Canada only took on Meng Wanzhou because the US told them to. If they were really serious about Huawei breaching the Iran sanctions, they would have to arrest a number of other Chinese businessmen who own property in Canada, as well as a number of Arab and Iranian businessmen, who don't have qualms skirting the sanctions. Canada is only standing up to China at the moment, because they have US backing, and because it's Meng Wanzhou.

1. CAD to USD devaluation is largely a function of the price of Oil & Gas. The lower the price of oil & gas the lower the CAD to USD ratio, it is not attributed to the BOC monetary operations.

2. If Canada was serious about taking on Huawei it would have done so when Huawei allegedly stole IP from Nortel back in 2008-2009. However the Harper conservative government at the time did nothing in fact only bailed out auto companies during the financial crises instead of helping out tech.

3. And yes, of course Canada is standing up to China because one of the benefit of Canada is that the US us their closest ally.

4. Can't speak to your first statement but it seems hyperbolic ("Caribbean Banker blush") - and like I said earlier not going to do the research given the other statements.

5. Yes MVT is an added cost of doing business that can tilt the scale to the point at which it isn't worth doing the business anymore for foreign buyers. I did read that the Vancouver and Toronto market cooled significantly after that was implemented. It is can also be construed as a signal that the behavior is now being watched and monitored.

edit: for formatting

1.) I forgot for a moment there that the BOC uses fuel prices as a gauge to regulate currency values. But that wasn't my core point, nor was I attributing it to Liberal policy (kinda stated I don't think it has anything to do with that).

2.) I don't mind criticizing the Harper government. In fact, I'd readily place them below Trudeau's. But I don't think Trudeau's would have aggressively pursued Chinese IP theft. In fact, no Western government would have. What did Obama do when the Chinese were stealing IP from Western universities?

3.) Again, as I said, I don't really know about Canadian KYC and AML laws and the "Caribbean banker blush" thing. But one cursory glance, and it's easy to find so many loopholes in the current policy which was created to dissuade investor citizenship.

4.) Canada is only positioning itself for its strongest ally, just as Australia. Till the trade war began, I dearly remember how Canada and Australia had these nice treats and fancy dinners for Chinese investors that weren't available to investors from other places. Not that I'm complaining, but some special treatment was certainly meted out to the Chinese, via regulations and otherwise. Which led to the current shit show.

5.) Vancouver and Toronto are still on the high side. Let's talk when those places become affordable to buy into for native city folks. But as always, for most big issues, we'll continue putting a Band-Aid solution over it.

Yes, if you have the right connections, which almost all these investors have, it's no biggie to move money out of China.

There are a few ten thousand Chinese investors with U.S. projects that wish this were still true, so if you have a method for doing this, you should let them know immediately because you will become an extremely wealthy individual (if it works).

But it hasn't been since 2017, when they cracked down on the use of surrogates to move money out of China. (China first cracked down on direct transfers in 2014/2015. I had a number of clients at the time that were directly effected by these measures.)

Funny then. I'm seeing Chinese money move into Bangkok and Singapore very recently.

By connections, I meant CCP connections. Knowing the right people in the party hierarchy (Xi followers, not overtly ambitious, some common sense between the ears, etc) can make you go a long way.

Question for people more knowledgeable than me? Why doesn't this result in dirt-cheap rents across Canada?

Sure a bunch of hot-money can easily bid up asset prices. But at the same time it should also drive down yields on those assets. Like you say, the vast majority of these houses aren't being lived in. Nor are the owners sensitive to returns. Why don't more of them put their dwellings up for rent, flooding the rental market and driving down prices?

The Chinese buyers are not concerned with making money on their properties. The properties primary use is to hold money. It's like the jar buried in the backyard full of gold for the Chinese.

Renters are not worth the hassle and earning an income renting a property might throw up some flags and other Income Tax headaches. What you get is a lot of properties just sitting empty going up in value because of the lack of inventory screwing potential Canadian buyers or renters. I don't know if I remember correctly but I read somewhere that there were Condo buildings in Vancouver that were almost dark at night because so few people actually lived in them. Complete neighborhoods were void of people because of the foreign ownership.

This is about parking money in an asset that would be hard for the CCP to get their hands on. If it were in a foreign bank account as currency, the CCP would have easy access to it. The CCP probably doesn't even know there are 1oo's of billions over the last 2 decades sitting in Canadian housing.

Lots of good points here, but this last bit is not realistic:

> The CCP probably doesn't even know there are 1oo's of billions over the last 2 decades sitting in Canadian housing.

Vancouver where I live had fairly cheap rent compared to ownership for awhile, maybe back in 2010's. Mortgage + maintenance fee back then for a condo could be like $2800/month but would rent for as low as ~$1000-$1500. It is still like this but the spread is a bit less because of cheap money, and weaker condo prices cause of covid. You can get 1.79% 5 year fixed on a 25 year amortized mortgage rn. Our housing market bubble is humming through covid.

We have very low to no property taxes. All of our taxes are based on income. So a condo could have annual property taxes of like $1800-$2000... So what is the point of renting it out if it is increasing in value 10% a year and you are going to use it maybe 2 months a year. The west side of Vancouver were all the mansions are, and had a the greatest new concentration of rich foreign buyers actually paid the lowest taxes in the province.

We also have very big immigration influx in Canada, foreign student population and a 10 year visa program with China. These all started shooting up rents. But also caused what is known as satellite families which drop of their kids and caretaker, use the public schools, health care etc but make all their money back in their country of origin not claiming income tax here. We had University students with their names on $30million houses. House wife seemed to be the most lucrative job going in real estate.

We got a new provincial government a few years ago who brought in the "speculation tax". Basically if you don't pay income tax here but own a house you have to pay a tax of 2% of the properties value. This is compounded on top of an empty homes tax the city put in place of 1% if it is not rented out. There was also some new laws/procedures put in place with data sharing across province/city/real estate board that is helping clearing up some malfeasance as well.

Relative to the cost of purchasing, it does. Buying in major cities in Canada simply does not make any financial sense unless you were counting on continued insane growth (fueled by local speculation as much or more than foreign).

Most people are unaware of the specific bet they are making, and buy just because Canada has a crazy cult of home ownership. From my own experience, it is far more intense than anywhere else. Paying anything other than a mortgage is widely seen as "throwing your money away", even with the above financial realities.

Unfortunately, although people are unaware of the nature of the bet they are making (unbridled speculation fueling price growth), they have been right for a long time, even through the housing collapse in the US. But the music's gotta stop at some point.

Though locals may talk about how young Canadians are "screwed" or that no one can afford a house anymore, the reality is that home ownership in Canada is higher than it has ever been in history. Young Canadians simply need to accept that, for now, owning a house shouldn't be their one goal in life: they should opt-out of the cult of home ownership, and just wait until buying makes financial sense (i.e. the bubble bursts or deflates).

I agree with everything you've said, except the last point. The federal government has shown that it will do what's necessary to maintain the status quo. As each COVID benefit runs out, another one is added to replace it. How long can they keep this going? I don't know, but I'm not willing to bet against all the people who own 1+ homes and the politicians who represent them.

I personally delayed buying a house in Toronto since 2013, thinking that it's too hot and it can't keep going up. I missed out massively. I don't recommend young Canadians to wait, but rather buy your primary residence if you can before you're completely priced out of the market. Just don't put all your investment into housing in the GTA, it may pop one day.

Well it’s true that my advice is not pragmatic. The market can remain irrational longer than you can remain solvent.

But I wouldn’t encourage FOMO by saying “buy or you’ll be priced out!” since it’s just perpetuating the assumption that it’ll last forevér. It won’t. But it might last a while.

If you really want a house and can afford it, buy a house. But understand the reality of the financial risk. That’s not just coming from me, it’s coming the Bank of Canada and many other international organizations.

1. "crazy cult of home ownership" you're talking about the thing that has driven middle class wealth accumulation for most of the past 100 years? crazy cult.

2. "opt-out of the cult of home ownership, and just wait until buying makes financial sense (i.e. the bubble bursts or deflates)"

For the bubble to burst, the things driving it have to change. Since the 90s, floods of global money have been driving up the cost of housing in canada's major cities. The bubble has been bubbling for 30 years. "just wait" is not actually a viable solution.

Recent changes - an empty homes tax and a foreign buyer taxes - have been attempts to curb the problem, but it's not like we've tried all the tools in the toolchest - we've barely tried anything.

A home is place to live, not some magical wealth generator.

The cult is that it is seen as such, and people have it in their heads that home ownership is the most important component in financial success.

The reason that you note “just wait” is not a viable option is surely because you also view home ownership as something you need to do. But you don’t need it, you just want it.

Blaming global money is the easy thing to do, but I don’t think there’s compelling data that supports this. Sure, it has had an effect, but Canadians themselves hold a large share of responsibility for the market today. This is why the empty homes and foreign buyers haven’t really done anything — they are just populist measures. If you really want to have an impact, fight local speculation too.

Regarding the middle class wealth accumulation, Canada is in for a world of hurt when the bubble bursts. A shocking proportion (1/3) of Canadians nearing retirement have no assets outside their primary residence, and their plan is to use reverse mortgages or downsizing to fund their retirement. This is because so many Canadians live at the edge of what they can afford, commonly known as “house poor”, which is the phenomenon driving a lot of local prices.

What is happening now is a massive intergenerational transfer of wealth from the younger generation to the older generation. When the bubble deflates, everyone who sold their house is making bank, and young people who were desperate to have a piece of dirt are the ones who will be holding the bag.

I’m not saying you shouldn’t own a house if you need it and can afford it, but the idea of a home as a “wealth generation” device will not age well in Canada.

There are unforeseen costs associated with being a foreign landlord open for local renters: taxes, fixes, complaints, language barriers (even before COVID).

The incentive to buy, hold and not rent, even with the speculation tax is higher than having their entire money confiscated by the CCP. The (discounted) money generated by rent does not justify the costs mentioned earlier either.

A property management company and accountant can solve these issues and pay for themselves.

The answer is because a resource is at play that is finite: land.

If all the productive land in an urban area is effectively owned by foreign investors and left to sit, then renters bid up the remaining dwellings until they're priced out of the area. It also becomes more expensive to build in that area so the housing stock can't keep up with demand. It's terrible to let a vital commodity lay to waste.

housing is not finite

With enough zoning it absolutely is, not to mention the lead time required to permit and actually build it. Once built depreciation kicks in - housing isn't permanent. It's a consumable.

Part of the reason why this doesn't happen is because the owner-investors are so wealthy that the 36-72k in rental income would mean nothing to them, and it isn't worth the hassle of being a landlord.

Renting property comes with significant liabilities, and may not be worth it if rents aren’t high enough.

Parallels the dodgy wangling going on in Australia for the past decade or more.

"Pending" legislation to prevent money laundering via real estate has gathered dust in Canberra for well over a decade!

Lawyers, accountants and real estate agents are still exempted from reporting anything suspicious (including briefcases full of cash), providing an easy avenue for foreign buyers to launder funds through property.

https://www.macrobusiness.com.au/2017/10/us-expert-slams-aus...

On the surface we are a western nation, but lift the covers and we are enabling money laundering into real estate, to the tune of billions and billions every year.

Real estate agents report unprecedented numbers of overseas’ buyers of residential and commercial property in Melbourne and Sydney paying cash…

An estimated 70 per cent of Chinese buyers pay in cash

How is the Canadian government allowing this to happen? They should ban Chinese from buying and driving up prices, it's quite obvious what's going on.

This is only a small part of the story. Seattle, San Francisco, and Los Angeles all have housing costs far in excess of local wages, and are pushing poorer people out of the cities. These other cities only have a tiny fraction of external money coming in, yet have very similar problems.

One common thing, however: building far less housing than the population is growing in the US.

This is the primary effect, decades of downzoning and decreasing housing production, without taking into account the needs of the population, just the desires of landlords and homeowners.

What this does is push up what percentile of wealth sets the market price. And if at the top of the wealth percentiles there are 10%-20% foreign money, then it seems like a tiny number of people are having a much bigger effect than they are.

Cutting out the purchases of those 10-20% wont have a huge effect on prices, but they make a great scapegoat, and let homeowners and landlords continue their profit-seeking schemes for a few more years.

Vancouver has both vacancy taxes and foreign purchase taxes. They do not solve the real problem, but are good window dressing and help a tiny fraction of the population.

It drives up the price of real estate, all of it. Which means that for those Canadians that bought - it's a huge segment of their net worth. And they vote.

Because not everyone's a loser in this case. Homeowners (typically boomers) benefit from this in the form of higher valuations for their home, which means $$$ when the decide to sell, or decide to take out a HELOC.

That's a very short sighted approach. They're going to pay for it in the long term.

You're right, it's just that the people who are going to pay for it in the long term is not as politically active/connected as the people who's going to benefit from it in the short term (and possibly will die before the consequences appear).

The real estate market in Canada needs better regulation too. My wife and were trying to buy a home in Toronto. We bid on a home that had no movement all summer and made an offer. Later that evening the selling agent found a mysterious second bidder, who they were also representing and that buyer kept overbidding us. Our agent wasn't privy to the bids we were making but I am sure that agent was sharing them with their buyer. They tried to get us to bid almost 20% over asking but but we walked away after 1%. I don't see how it is ethical for an agent to represent the buyer and seller in a home selling situation but I suppose if they ban it those agents will just get someone else in their company or some sort of friend to do the same thing.

IMHO there should be a public auction site where (binding) bid offers are placed (a la eBay). Or if during bidding things are kept secret, then after an offer has been accepted the process is made public to make sure there was no funny business.

IMHO more transparency would help.

That would be great I can't see why they wouldn't have a process like this.

Millennials are screwed twice: once by having the boomers scoop up all the cheap property decades ago, and then again by unrestricted globalism where foreign people with no stakes whatsoever in the local community use housing to park their money and hide it from the CCP.

This isn’t a particularly clever insight, yet many still don’t seem to get it and draw the right conclusions.

> The average price of a house in Toronto will be in the millions in the next decade. Anyone earning less than 200-300 k a year will not be able to afford one, unless they have a windfall inheritance. Now with a possible Hong Kong exodus, there is no limit to the insanity. Young Canadians in major cities are screwed. Renters for life.

Something I'm wondering: Why then are young Canadians overwhelmingly voting for a party that supports these sky high immigration quotas and lax policies around foreign ownership?

Not just Canada either

>everyone from the sales person to the accountant to the factory floor supervisor is on the take. They skim and over time accumulate some serious money.

How exactly does this part work?