Should we regulate real estate speculation?

Real estate speculation happens across the country, but is particularly popular in our largest cities. Some say foreign ownership and speculation is driving housing prices up for local residents: wealthy investors living in far-off countries buy housing with no intention of living in it. But should the government step in and regulate the practice of flipping houses?

Just a month ago, the Simon Fraser University Urban Studies program held a symposium on housing affordability. Their data-packed brochure indicated that Vancouver has been second to last in housing affordability for the past six years, and 40% of residents consider the high cost of housing to be the most important issue in the city. The city’s annual homeless count has identified an increasing number of homeless people in the city–some 2,700 people in 2014 compared to about 1,100 in 2002. While 35% of homes in Vancouver are rented, only 17% of new construction was purpose built rental housing. Urban Futures has done a number of studies on foreign ownership: in one, they found that the 2011 Census (National Household Survey) showed that Vancouver didn’t have an excessive level of foreign occupancy–that is, about 1.4% of the apartment units in the city were occupied by foreign or temporary residents, but there are no Census data that specify their citizenship, length of stay, or that support a thesis on foreign investment. In another, they found that only 0.4% of purchases in the region in 2010 were made by people living outside of Canada. But an article in the New Yorker last year quoted a report from Sotheby’s International Realty Canada: in the first half of 2013, foreign buyers accounted for nearly half of luxury home sales in Vancouver.

Vancouver Mayor Gregor Robertson announced on Friday that he has proposed that the BC government develop a speculation tax who “buy a home just to make a quick buck” by selling it 6 months later. He’s asking Vision voters to support the call for a new tax on investors, and other tools like an increased property tax on the most expensive residential properties with proceeds invested in new affordable housing.

“Together, we can send a message that housing shouldn’t just be an investment commodity – it should be for living in.” –Mayor Gregor Robertson

Less than two days after Robertson’s announcement, a petition started circulating in Toronto calling on Brad Duguid, Minister of Economic Development, Employment, and Infrastructure, to restrict foreign investment in residential real estate in the Toronto region. As of 5 pm today Shaan Brach’s petition had 10,491 supporters.

I’m sure that the Liberal governments of both Ontario and BC will shy away from regulating real estate speculation and taxing the rich, but nevertheless the petition and call for a new tax do raise several troubling questions: who should be allowed to buy housing in Canada? Should the government (either provincial or federal) intervene when housing prices climb too high for the average person or household to afford? And if so, how should this be done?

Canadian governments have a history of intervening when market conditions create affordability issues for local residents or when housing conditions are poor. Forty years ago, Canada Mortgage and Housing Corporation was busy supporting the development of co-operative and non-profit housing with the ample funding of the federal government. The federal government helped develop co-operative housing from 1973-1991, establishing long-term operating agreements coinciding with the length of the mortgage. They also had programs to help first time homebuyers, supplement rents, and rehabilitate housing in historic and central neighbourhoods. But over the years, their balanced approach to housing affordability changed. The two ends of the spectrum (households with very low incomes and homeowners with enough equity to buy) continued to benefit, but programs that helped renters and low- to middle-income households were gradually dropped.

Municipalities and developers have also introduced innovative solutions to housing affordability:

• Equity loans–Toronto’s Option for Homes and the City of Saskatoon/Affinity Credit Union Equity Building Program help people move into affordable ownership by loaning purchasers a small percentage of the downpayment
• Shared equity–at SFU, units in the Verdant building are reserved for university faculty and staff and resale prices are restricted to 20% below market value), and community land trusts.
• Affordable Housing Trusts–municipalities such as Vancouver, Surrey, Richmond, Coquitlam, and Whistler have developed housing trusts through legislation and with the cooperation of the BC government

The issue of foreign investors driving up housing prices is critical in cities like Toronto and Vancouver, but there’s no quick fix for the affordability problems that took decades to create. In cities like Calgary, Fort McMurray, and Kelowna, affordability is still a major issue even without high levels of foreign investment. In Edmonton, 33.5% of all condominium units are rented. Researchers and policymakers across the country have been trying to find and implement the solutions for at least two decades. A speculation tax would only be part of the solution, but combined with better rent controls and a higher high-end property tax whose revenues would be used to build and maintain housing of different types for different income levels, it could be a good start. We definitely need an increased role for the provincial and federal governments in affordable housing, but that’s not news.