Gen Squeeze’s approach to the issue of global capital
The impact of global capital on B.C. housing markets is significant. But it can be challenging to talk about. Here's our approach.

The housing crisis in B.C. continues.

To quote a recent UBCM report, “what we have been doing is no longer working. Housing prices are too high, household debt levels are too high and too many people become homeless and stay homeless for too long…"

"... Governments, be they federal, provincial or local, have not fully gauged the magnitude of this issue as it has been building. It is now at a scale where all orders of government are going to need to creatively and collaboratively use the full array of tools available to them.”

The full array of tools will include measures to restrict harmful demand, increase the right kind of supply, tax housing wealth more fairly, and more. 

On the demand side, one of the most pressing issues is the tide of global capital that has been washing into B.C. real estate. [1]

And frustratingly, the data on this topic continues to be partial.

As this presentation explains, the foreign buyer data currently being collected and released by the province of B.C. is an underestimate. The real numbers are likely much higher. As a result, some politicians see the current numbers below 10 per cent and think "no big deal."

In fact, basic economics teaches us that a small number of 'marginal buyers' [read: buyers with lots of money] can effectively set the price for everyone else. 

Some have argued that domestic speculative activity exceeds global speculative activity in B.C. real estate (i.e. that we should focus more on tackling domestic speculation, or at least worry less about global capital).

And in most areas, domestic speculation probably does exceed global speculation. But to what degree has domestic speculation been triggered or exacerbated by the influx and inflationary effects of global capital? Answer: probably quite a bit. 

The two are, without a doubt, intricately connected.

Bottom line: the impact of global capital on B.C. housing markets is significant

But good luck trying to talk about it without emotions flaring, either way. It wasn't that long ago that prominent politicians and industry voices were denying the role of global capital and essentially characterizing those who were calling attention to it as racist or xenophobic. 

In navigating this minefield, and in aiming for evidence-based solutions, here’s Gen Squeeze's approach:

Short story

Gen Squeeze’s position — informed by our own generational analysis — is that there are systemic problems in how our society treats housing and real estate wealth. We think of these systemic problems as a pile of long-burning, hot coals at the bottom of the current real estate bonfire.

We want to totally put the fire out. We’re going after those coals. We want young people (and all people), now and forevermore, to be able to afford a secure, suitable home of their own (whether renting or owning).

To achieve that, we need to be restricting all forms of harmful demand, building up more of the right kind of supply, and taxing real estate wealth more fairly. In other words, a comprehensive, long-game approach.

But there's no denying that global capital inflows have essentially become jets of gasoline sprayed on that long-burning fire, escalating costs and making everything worse. 

If we were to halt all global investment in single-family residential real estate, would we achieve a complete recoupling of housing costs with local incomes? We think not, but it would be foolish not to prioritize restricting this flow of ‘gasoline’, even as we dedicate significant resources to the long game.

Long story

We don’t let the
existence of xenophobes and racists determine our position

There are some people who are motivated by a xeonophobic or racist mindset (either wholly or in part), and they may cry for restrictions on foreign buyers and/or immigration from a place of intolerance. Let’s all agree that this kind of intolerance is wrong and harmful, and then avoid forming our own opinions in reaction to the existence of xenophobes and racists.  

We don’t conflate restrictions on capital with restrictions on people

Canada can and should welcome people from the entirety of our global, human race to participate in the ongoing improvement of our communities and lives here in our little corner of planet Earth. We should structure our society on self-evidently true principles including openness, tolerance, compassion, and unity.

At the same time, it’s a bit of a stretch to claim there exists some universal principle that dictates we must open our economic borders to unrestrained flows of global money.

People and money. They are different things. Human beings can and should be treated distinctly from the dollar bills they may hold.

All real estate speculation is problematic

Speculation, by its very nature, inflates the value of something beyond its inherent worth, destabilizes markets, incentivizes all manner of fraud, dishonesty and manipulation, increases inequality and often leaves a lot of ordinary, hard-working people to pick up the pieces when speculative bubbles burst.  

It’s totally legit to treat domestic and global speculation differently

In innumerable areas of provincial and federal policy, we treat domestic and global capital distinctly. Because we have economic sovereignty.

To repeat: we definitely need to tackle harmful real estate speculation from BOTH domestic and global investors, but it’s totally OK and defensible to treat these two kinds of capital differently, e.g. based on their differing interaction with our tax system.

We acknowledge that global capital (and foreign buyers) come in many forms

Global capital has been entering B.C. real estate from a variety of sources, including investor immigration programs, direct purchasing by non-resident buyers, indirect/veiled purchasing through family members, condo pre-sales, various forms of opaque beneficial ownership, and outright money laundering.

For starters, it’s useful to distinguish between global capital that has entered our market completely transparently and legally, and global capital that is questionably or or outright illegally entering our market.

We’re outraged by sketchy and illegal activity

It is outrageous and unacceptable when foreign buyers and those involved in the real estate transaction process KNOW they are acting questionably (e.g. hiding true ownership, exploiting loopholes) or illegally (e.g. laundering money through B.C. casinos and into real estate).

Exactly how much has sketchy and illegal activity contributed to rising home prices? Honestly, that’s kind of beside the point. The point is the principle. How can we be expected to trust anything about the system if this kind of manipulation and fraud is allowed to persist?

So we’re happy to see both the federal and B.C. government (both the previous government and the current one) begin to go after this activity. It needs to be a priority.

Even the legal inflows of global capital have been a problem, practically and emotionally   

Then there’s the global capital that’s entered the B.C. real estate market perfectly legally and transparently. For example, there’s been a ton of research and journalism on so-called 'millionaire migrants', of which many arrived in Canada through investor immigration programs.

When these investor immigrants migrate into a small number of highly-desired metro areas, like Metro Vancouver, the inflationary effect on local real estate prices can be significant. That’s the practical effect.

And let’s be real, there’s also a distinct emotional effect on local, longtime residents as more and more uber rich people start moving in, driving around in Lamborghinis, etc., when others can barely afford the cost of rent or their mortgage payments.

It’s pretty hard to stay clear-eyed and level-headed when such glaring inequality begins to define your experience of your hometown.

To the extent that we allow global capital into the residential marketplace, we should channel it to produce greater public benefit

When we gathered 48 housing sector leaders together in the fall of 2016, we identified ten common ground principles for tackling the #CodeRed housing crisis.

One of those principles: “Channel private investment to greater public benefit.”

Global investment in residential real estate doesn’t need to be a bad thing. For example, in an era when purpose-built rental developments have had a hard time competing against the economics of condo towers, why couldn’t we design policies to funnel global capital, to the extent that we allow it into the market at all, into this relatively undercapitalized and much-needed form of housing?

Measures that we support include:


  • First, we need to ensure better data collection and transparency. For example, all beneficial foreign ownership of residential real estate in B.C. needs to be recorded and made available to the public and researchers, with appropriate measures to protect personal privacy.

  • Following New Zealand's lead. We believe the approach recently taken by New Zealand, to simply prohibit the purchase of certain types of residential real estate by non-residents is clear, principled and perfectly reasonable. We're confident there's a way for B.C. to remain "open for business," both in perception and substance, while we prioritize local housing for use as actual homes. 

  • We support the expansion of the 15 per cent Foreign Buyers’ Tax to the Capital Region and Fraser Valley. In a scenario where B.C. doesn't follow New Zealand's lead (see above), we support shoring up and expanding the existing FBT. Illustratively, since the FBT was introduced in Metro Vancouver, the percentage of foreign-involved transactions in the Victoria-area has surpassed that of Metro Van. [1] 

  • We support increasing the rate of the 15 per cent Foreign Buyers’ Tax to counter the ‘rebound’ effect we’ve seen in Metro Vancouver since the tax was first introduced (i.e. the effectiveness of the tax in discouraging foreign buyers has decreased over time, as some come to think of it has simply another cost of doing business).

  • We support supplementing the one-time Foreign Buyers’ Tax with other measures to limit the negative impacts of global capital, including variations on Vancouver's empty homes tax where appropriate, adaptations to capital gains taxes to discourage flipping, and variations of annual housing wealth taxes that can discourage the holding of residential units for speculative purposes. 

[1] As revealed in the province of British Columbia's data on so-called "foreign involved transactions," which we summarize in this fall, 2017 presentation (geared to a Victoria-area audience). 

Eric Swanson
Eric is the Executive Director of Generation Squeeze.
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