Does Toronto share the same fate as the Vancouver housing market?

The Vancouver housing market has hit a crisis — and no, not just with prices. A confluence of factors including those ridiculous prices, outdated residency rules, vast and growing wealth in China and the relative stability of the Canadian economy are coming together in a perfect storm that’s profoundly affecting the city’s permanent residents, and pushing away those who would like to be.

Is a heart drain occurring?

When educated folk with high intelligence leave Canada in pursuit of positions (or salaries) not available here, we call it brain drain. What if those who simply love their city have no choice but to leave because they just can’t afford it? Is it a heart drain?

The city’s lifeblood — particularly those in their 20s and 30s who grew up there but can’t afford it anymore — are leaving over the inability to buy a home. In a recent op-ed piece, Hootsuite founder Ryan Holmes wrote that, “Unaffordability is emptying Vancouver of one of its most valuable assets — young people who grew up in the city and who are invested in it.

“Vancouver risks becoming an economic ghost town, a city with no viable economy other than the service industry catering to wealthy residents and tourists.”

It’s the business acumen of any growing city to support future-minded businesses, to lure their executives into placing headquarters there, but as Holmes points out, business opportunities that aren’t supported by qualified residents aren’t much use. It makes recruitment the least of their HR concerns — retaining talent is all but impossible if 20-somethings can’t stay once they get out on their own, let alone marry and have kids.

A potential ghost town

Last week, the Globe ran a story lamenting another aspect of Vancouver’s ever-increasing unaffordability: once-thriving neighbourhoods are now interspersed with more than a reasonable share of empty houses, as offshore investors buy up properties, mow them down, and replace them with luxurious new homes in which no one lives.

While many long-time residents continue to occupy perfectly lovely family homes in desirable neighbourhoods, more and more often they’re seeing their neighbours sell to the highest bidder, perhaps understandably lured by the multi-million dollar payoffs on their once-modest investments.

There’s a new thriving business afoot in vacant property management, whereby pumpkins appear on front porches at Halloween, although trick or treating kids will find no one at home. These luxurious properties are being developed for overseas clients who will live there only rarely, if at all.

A new “temporary resident” visa allows visitors to stay in the country for up to six months each year for 10 years with, as the Globe puts it, “no strings attached.” More than 300,000 Chinese citizens were issued such visas last year, according to the story (Residents are quick to point out that their objections are not racially motivated; it wouldn’t matter where the absentee investors were from if the result were the same).

The empty homes are also at risk of damage by squatters, and of becoming an eyesore with graffiti and untidy yards. Many builders are proceeding without permits as they get tired of waiting for approvals, prompting the city to issue 165 stop-work orders in the first half of last year. The story says prosecutions are pending in 66 additional cases because large trees were cut down without permits.

Tax laws are lagging behind, with CRA demanding that builders charge GST on new construction, unless the registered owner or a relative uses it as a principal residence before sale — but there’s no duration requirement attached. Resident (however brief) sales aren’t subject to capital gains taxes either.

“Downtown Vancouver Sunset” by MagnusL3D. Licensed under CC BY-SA 3.0 via Commons

Follow the greed trail

The problem isn’t entirely attributable to offshore investor greed either; local real estate agents and developers are snapping up older homes to knock down, too. Vancouver’s mayor is asking the provincial government to take a closer look at buyers who flip homes within a year or two.

Last year, RBC scrapped internal guidelines limiting mortgage loans to immigrants with no local credit history to $1.25 million. The bank will now service any amount. Homes above RBC’s former limit up to $9 million were largely serviced by HSBC Canada, CIBC and BMO, with RBC holding 8%. Gotta compete.

According to a case study by a UBC urban planner who studied land titles on 172 sales transactions in 2014 and 2015, more than two-thirds of homes in that price bracket were owned by buyers with non-Anglicized surnames common in mainland China; the most common occupation was reported as “homemaker,” and more students were buying them than doctors. That small sample aside, there is shockingly little official data on foreign ownership.

So what about Toronto?

Not only can foreign investment mean the potential decline of the quality of life for full-time residents, but foreign investors, who have no emotional stake, are more likely to up stakes and get out at the first hint of trouble.

Without sufficient data, we don’t know precisely how much of Toronto’s real estate is owned by foreign investors; therefore, it’s impossible to address the problem legislatively. The B.C. Real Estate Association has said that it’s not foreign demand per se, but rather the limited supply of detached home and constrained geography that has pushed prices ever-upwards, and those are problems we have here in Toronto. The first step has to be to get a clear handle on the problem. Or Vancouver’s present could easily be our future.

Feature image: By No real name given - originally posted to Flickr as English Bay, Vancouver, BCUploaded using F2ComButton, CC BY 2.0 - via Commons