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