What recently released RE data doesn’t tell us

Good morning readers, I hope everyone is having a wonderful snow filled day. As I was scrolling through the RE section, I stumbled upon a very intersting article in the Globe tiled “What Toronto and Vancouver housing data do and don’t tell us” by Josh Gordon,assistant professor at the Simon Fraser University School of Public Policy. This peaked my interest as I have always been scepticle of published data on housing and jobs. Here the cliffnote’s version of the article blended with my opinoins. The recently released data that will be refenced here is relates back to data released by CMHC and StatsCan, read my previous artilce on this matter here.

  •  The qualifier for a “foreign resident” seems to be very conservative as it is only those who’s primary resident is outside of Canada. My question is: if there is a “foreign investor” Canadians should be scared of are those who are smart enough to declare their primary resident in Canada, thus avoiding the foreign investors taxe and taking advantage of the many social services it provides?
  • This is just the first release of data, we really have no idea how the data is trending. Plus, immigrants have built this nation, so why question their relavent to the growth of the economy now that housing has become too expensive for millenials?
  • As pointed to by Gordon, the fact that “4.8 per cent of the housing stock is owned by “non-residents” in Vancouver and 3.4 per cent in Toronto” is almost meaningless because we should not be concerned about the absolute amount of forein owned housing by its velocity ( in physics terms, we want the velocity (speed and direction) not just he location of the object)
  • The indicator that comes closest to actually capturing the velocity of foreign owned RE is non-resident ownership rate of condos completed in the last ywo years, which is ~12% in Toronto
    • 12% foreign is significant, but what impact does it have on the market? Interestingly, a study carried out in the U.S. in the 2000s found that for every 1% increase in “out of town” buyers, prices increaesd by 2%, this means that Toronto’s prices are roughly 32% higher than they would otherwise be without “out of town” buyers
  • Another impact is what phychologist refer to as anchoring. Anectodally speaking, foreign buyers tend to outbid local owners, thus setting a new benchmark for the neighborhood. This new benchmark now becomes the lowest starting point for the next set of bidding wars/offers. Essentially, a dominos effect, that has the power to change the economy of a city
Credits: www.ra2ej.com
  • Next, others have pointed out many many times before, how we classify “foreign ownership” is cruicial considering the fact that students, homemakers, numbered companies, and other legal owners are not foreign owners eventhough their source of funds is likely foreign.
  • Another scary effect that speculation is having is the fact that local incomes cannot keep up with housing prices and thus “de-coupling” from them. Thus leaving million of average citizen without the opportunity of purchasing a home
  • To me, the most compelling reason for why foreign ownership is having a massive impact is the average house price-to-avera earning ratio. Nationwide, this ratio is roughly 3-4, but in parts where foreign investors are likely prevenat, this ratio is in the 20-35 range (20 in Richmond Hill, On and West Vancouver, B.C.)

Clearly, it seems that the currently complied data does not give us a complete narrative, but draws conclusions based on limited data and assumptions. I hate concpiracy theorists, but it appears that StatCan would have an incentive to keep the lid on the “foreign investor” issue to keep the money flowing in.

 

Have a wonderful day and keep the comments/suggestions coming!

Hadi is Honours civil of engineering graduate with solid project management experience in the construction industry. Solutions-focused, results-oriented with strong business acumen and entrepreneurial spirit. Currently, he is working as an assistant site-superintendant with Darcon Inc. at one of Vaughan's biggest developments, Centro Square.

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