Josh Gordon is assistant professor at the Simon Fraser University School of Public Policy.
Statistics Canada and the Canada Mortgage and Housing Corp. recently released a batch of data looking at "non-resident" ownership of housing in Toronto and Vancouver. Many observers have tried to spin the data in misleading ways, so it is important to look closely at what the data tell us – and what they don't. Here are four important takeaways.
First, the data provide a baseline or conservative estimate of foreign ownership. Statscan and CMHC define "non-resident" owners as those with their primary residence outside of Canada. This will mostly capture foreign citizens who have limited ties to Canada.
In the popular debate, this group has loomed large: buyers flying in to purchase houses as investments or people buying condos in showrooms overseas. While vivid, this imagery has always been understood to be something of a caricature by those who study the issue.
What's startling is just how substantial this "caricature" appears to be: 4.8 per cent of the housing stock is owned by "non-residents" in Vancouver and 3.4 per cent in Toronto – roughly 36,000 housing units in Vancouver and 56,000 in Toronto. Nothing to sneeze at.
Second, the release provides data on the "stock" of non-resident ownership – the share of all existing property – but little on the "flow." When it comes to housing prices today it is the "flow" that matters more – those currently participating in the market.
The most telling "flow" data are the non-resident ownership rates of condos completed in the past two years. This is striking: 16 per cent of newly built condos are owned by non-residents in Vancouver and 12 per cent in Toronto.
These shares are sufficient to have a big impact on prices. One U.S. study of the 2000s housing bubble suggested that for each percentage point increase in the share of "out of town" buyers in an urban market, prices increased by about 2 per cent over the next year.
Third, non-resident buyers are acting as the "marginal buyers." In each housing category, whether condos or detached houses, non-resident buyers are paying more for units than resident buyers, sometimes substantially more. They are thereby "setting the pace." When 10 "local" buyers for a unit get outbid by a big offer from offshore, the winning bid has just set the benchmark for what prices can be achieved – and this will subsequently affect buyer and seller behaviour, especially if that dynamic is as substantial as the "flow" data indicate. This means that a modest number of buyers can have a major impact on the market.
Fourth, and most importantly, we still don't have a good picture of foreign ownership of housing. Foreign ownership is best defined as ownership primarily based on foreign income or wealth. From the present data we learn about non-residency, but not where the money is coming from.
For example, proxy buyers such as students and homemakers would not usually be counted as "non-resident" in this data – even if the funds were foreign. Numbered companies and speculators with murky offshore financing would also be missed.
The concern in Toronto and Vancouver is that money with no connection to the local labour market is being used to buy housing. This can lead to rising unaffordability, as housing prices are set by wealthy buyers that do not rely on local incomes – the phenomenon of "de-coupling."
To get a better sense of this dynamic, Statscan and the CMHC should compare income-tax data and ownership titles. This analysis is tricky and time-consuming, but there are various ways to get a good initial picture.
One approach would be to look at the properties bought for more than a million dollars in recent years and calculate the share of those properties that were bought by individuals who had paid less than $50,000 in lifetime Canadian income tax at the time of purchase. A truly "local" income earner able to buy such a property would have paid well more than that amount in taxes. There would be some exceptions, but they would be minor – and offset by omissions in the other direction.
The typical measure of housing affordability is the average house price to average household income ratio. For most Canadian cities, that ratio is three or four, including when we look at detached houses in isolation.
In Richmond and West Vancouver, B.C., long known to be popular destinations for foreign money, the price-to-income ratios for detached houses in 2017 were around 25 and 35, respectively. In Richmond Hill, Ont., another popular destination, the ratio was nearly 20 in early 2017. This is "de-coupling" on steroids.
Industry representatives and too many pundits would have you believe that these extreme ratios have little to do with foreign money. This is absurd. Either the most disastrously designed mortgage systems in North America just happen to be located or concentrated in these municipalities, or foreign money is playing a major role.
Until governments get more complete data on foreign sources of housing finance – not merely foreign citizen or "non-resident" buyers – these commentators should not insult our intelligence with claims that foreign money is unimportant.
There are many channels for foreign money to enter a housing market and properly gathered data can, and will, tell us this.