One of the concerns that Finance Minister Jim Flaherty heard from economists during a closed-door meeting on Monday is that it’s difficult to properly assess the housing market because of a lack of data.
The wide-ranging discussion that Mr. Flaherty held with more than a dozen economists from the private sector focused on macroeconomic forecasts, with the Finance Minister preparing for the federal government’s fall economic update.
The economists each weighed in with various thoughts and concerns, a number of which related to the housing market.
“One of the things that I mentioned was about the investment activity in housing, and the data that is actually present,” says Sonya Gulati, an economist at Toronto-Dominion Bank who participated in the meeting in Ottawa.
“It’s really hard to capture how much is investment activity in housing versus owner-occupied,” she says she told the Finance Minister. “And in particular, if you want to add and overlay that with foreign investor activity in real estate, that’s even more of a black box. We really don’t have a good sense about how much of the Canadian real estate market is being propped up by foreign investors and the risk that that represents in terms of the overall housing market.”
It’s an issue that Ottawa has been aware of for some time. During a discussion with The Globe and Mail’s editorial board in April of 2012, Mr. Flaherty acknowledged that the government doesn’t have a good grasp on the amount of foreign money in the domestic housing market.
“It’s mainly anecdotal, so I don’t have a statistical grasp of it, no,” he said at the time, adding that he had been hearing anecdotally that a large number of people in emerging economies were paying cash for condos in Toronto or Vancouver.
The worry among economists has been that foreign investors might have played a larger role than assumed in the Canadian housing market’s escalation in recent years. Investors are more likely to bail out of the market in the event of a downturn than owner-occupiers are.
BuzzBuzzHome Corp., a company that provides buyers with online information about newly constructed homes, recently started a petition asking Mr. Flaherty to “create a transparent, competitive Canadian real estate market” by bolstering the data that are available.
“If some countries are enacting seriously preventive laws against foreign speculation in residential real estate, then shouldn’t Canadians at least know what percentage of home purchases are made by foreign investors?” the petition asks, citing Australia as an example. “This lack of data puts Canadian homeowners at risk of losing a large portion of their savings, as foreign investment volatility could have a serious impact on home demand and, consequently, prices.”
The petition also argues that the way that new construction sales are currently being recorded is “inherently flawed.”
Kiyoko Fujimura, an executive vice-president at BuzzBuzzHome, said she decided to create the petition after the young company expanded its operation to the U.S. over the past year.
“We’ve just found that the access to data in the U.S. compared with what we have in Canada was incredibly striking, and we were just able to do so many cool things with the data that they were providing,” she said. “And it just became obvious that Canada’s lagging quite far behind in that regard.”