A group of developers in B.C. recently wrote a letter pleading with the federal and B.C. governments to loosen restrictions around foreign investment in the housing industry.DARRYL DYCK/The Canadian Press
There was a time when owning a condominium in Vancouver or Toronto was one of the best money-manufacturing investments you could make.
Prices soared, in large part incited by demand from foreign buyers, some of whom flipped condos multiple times before anyone ever lived in them. Many sat empty, as these same buyers watched their investments steadily appreciate. Developers, meantime, couldn’t build condo towers fast enough, with the prices they were charging per unit going up as quickly as the buildings themselves.
The unseemly greed on display eventually caught up with all involved. A furious public backlash to what was taking place, wrongly characterized by some at the time as xenophobia and racism, was nothing of the sort. Rather, it was a protest against a real estate market that had become utterly detached from the income realities of everyday Canadians who wanted to own a home.
Eventually, governments at the national and provincial levels listened. Measures, such as foreign buyers’ taxes, were introduced. They immediately stifled the house-buying enthusiasm of the overseas investor class. Prices began to decline, despite the level of supply falling. This ran counter to everything the development industry had insisted for years – that only greater supply would bring prices down.
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Which brings us to today. Recently a group of developers in B.C. wrote to the federal and B.C. governments pleading for leniency around foreign investment in the housing industry. They painted a bleak picture of the current situation, with condo projects being postponed or cancelled altogether because of a lack of buyers willing to slap down a deposit for a unit that won’t be available for a few years. Only foreign investors, they say, are readily prepared to do that. Their counterparts in Toronto concur.
Reaction from Ottawa has so far been muted. In B.C., where foreign investment had the most outsized impact on prices, the response from the NDP government was fierce and instant: not a chance. “We are not going back to the Wild West days of empty condos and foreign investment racking up the prices,” said Housing Minister Christine Boyle.
What is that line of George Santayana’s? Those who cannot remember the past are condemned to repeat it. In the context of the current conversation around the housing market, the aphorism has never seemed more apt. A recent study by B.C. housing academics Josh Gordon (McMaster University), Andy Yan (Simon Fraser University), and David Ley (University of B.C.), took a deep dive into the foreign investment maelstrom that engulfed the country over the last decade. It is a deeply sobering read that examines an epoch I often chronicled in these pages.
In one section, for instance, influential Vancouver real estate promoter Bob Rennie is quoted from a 2011 speech saying the condo market had predominantly become “an equity play and not an income play.” Vancouver, Mr. Rennie told his audience, would drop to the “middle of the pack, putting us at around 150th of 325 cities [surveyed by Demographia in terms of house-price-to-income ratio] if we isolated and excluded some areas fueled solely by Mainland China.”
Mr. Gordon and his colleagues determine that the “substantial and continuous wealth migration” seen during the foreign investment frenzy created “a ‘decoupled’ housing market in Vancouver more extreme than any other in Canada.”
The authors conclude that the measures introduced by the B.C. government and Ottawa had an immediate impact on cooling the market. Specifically, they said Greater Vancouver condominium prices increased by 65 per cent in inflation-adjusted terms from early 2015 to early 2018 (when foreign buyer investment was at its peak). In the nearly seven years since the foreign-buyer tax measures were introduced, prices have fallen about 10 per cent.
“In sum,” the paper says, “measures to restrict foreign ownership have a legitimate place in the policy arsenal of governments to address housing affordability challenges.”
While I have sympathy for the workers that some developers are laying off because of the slowdown in the market, my empathy extends only so far. Developers in B.C. knew exactly what was driving sky-high prices throughout the 2010s and didn’t want it to stop. Their profit margins soared. And how could they not, when they were charging up to $3,000 a square foot for some new condos?
But it didn’t last because it couldn’t last. Society at large had the ultimate say and declared: enough. And for once, our politicians listened.
If the current housing crisis is as bad as everyone says it is, then there should be high demand for new condos. It just may be, however, that developers won’t enjoy the kind of profit they got used to.