There were a few articles that made their rounds last month regarding housing affordability. The one that caught the most attention was the news about an idea that a West Coast think tank came up with: Tax homeowners on any value of their property over 1 million dollars. That would affect everyone with a house in Vancouver.
Not to worry yet. Even though this think tank was hired by the government, there is no indication that they are seriously considering this idea. Perplexing that taxing seems to be the go-to solution for everything. But are people sitting on one million dollar homes driving up the price of real estate?
In the same month, Better Dwelling delved into Statistics Canada data in regards to foreign ownership of real estate but this time including partial ownership. So if there were 4 owners and one of them is a non-resident, then it would be counted in this review. Under these rules, 9% of new construction in BC has at least one non-resident owner. And new construction is considered homes built after 2016. When we include all the properties, the percentage drops to 4.7%. If we look at condos specifically, 13.4% of new constructions have some percentage of foreign ownership. This drops to 8.4% when we look at all the condos.
I am not blaming all the price appreciation on non-residents. They are not the only ones buying real estate. It is economics 101. More demand with the same supply means prices go up. They certainly contribute to it.
However, at this point we don’t need non-residents to drive up real estate prices. This last wave of price increase has been mainly due to locals jumping into the market. More and more people are buying their first rental property. You can see in the chart below that during this covid period, there is an increasing share of investors jumping into the market.
You can’t blame either group as it is human nature to try to improve your own well-being. That is the spirit of capitalism. The government sets the rules and we navigate within them. The question is whether we should tweak these rules and if yes, how?
