DATE

Don’t Touch The Golden Goose

Steve Saretsky -

Leading up to the Federal budget announcement, the rumour mill was churning, with mainstream media outlets salivating over a possible tax on primary residences, including speculation taxes or even increased taxes on capital gains when selling investment properties. Instead, the federal government delivered none of that, ultimately opting not to tinker with the golden goose. But can you blame them?

According to Ben Rabidoux with North Cove Advisors, residential investment has accounted for 46% of nominal GDP growth since Q1 2018. Yes housing is the economy.

So, naturally, the Liberal Government opted to introduce policy that would provide the illusion they are doing something, while simultaneously ensuring the policy wouldn’t interfere with the red hot housing market. In other words, political lip service.

Starting January 01, 2022, there will now be an annual 1% tax on foreign-owned vacant homes.

“Houses should not be passive investment vehicles for offshore money. They should be homes for Canadian families,” said Finance Minister Chrystia Freeland in her budget address.

However, according to official Government data, foreign ownership is just a small sliver of the market. Remember, back in 2019 CMHC studied non-resident ownership, concluding:

  • Properties that have at least one non-resident owner amount to 6.2% in British Columbia (Vancouver 7.6%), 3.3% in Ontario (Toronto 3.8%) and 6.2% in Nova Scotia (Halifax 4.3%).

The anecdotes certainly suggest foreign ownership is much higher, however capturing its true impact on the market remains illusive, and continues to be the subject of controversy.

In other words, this new tax, which remains light on details, is likely to be riddled with loopholes and will fail to generate meaningful revenues, nor deliver housing affordability. All we have to do is look at Vancouver & Toronto as examples, both cities have foreign buyer taxes and both are still enduring rising home prices and record unaffordability.

Even if we assume policy makers are successful at policing the tax, will a 1% annual tax be enough to deter non-productive foreign investment? Over the past decade, national home prices, as measured by the Canadian Real Estate Associations home price index, have returned 8.7% per annum. In other words, in an era of low interest rates, where traditional savings yield virtually zero, a 1% holding fee is simply the cost of doing business.

Like I said, business as usual in the Canadian housing market. If you can’t beat em, join em.

Three Things I’m Watching:

1. The Bank of Canada announced it will continue to taper its QE program, reducing weekly asset purchases from $4B to $3B. (Source: BoC, Steve Saretsky)
a3733efc-5736-43aa-85c0-72499fb12672-8285881

2. The Bank of Canada’s promise to keep interest rates on hold has moved up from 2023 to the second half of 2022, citing a stronger rebound in inflation expectations. (Source: Bloomberg)
b15f389c-0144-4c96-9910-c220980214fe-9347054

3. Since the start of 2020, the Canadian Government has issued $354B of debt. The Bank of Canada has purchased $302B of that debt— or 84%. (Chart Source: Better Dwelling)
3e195abc-b427-44f1-808e-7722734baddb-8724706

Join the Monday Newsletter

Every Monday morning you'll receive a short and entertaining round-up of news on the Vancouver & Canadian Real Estate markets.

"*" indicates required fields

The Canadian Economy

Steve Saretsky -

Happy Monday Morning! The Bank of Canada moved to the sidelines once again, appeasing premiers in BC & Ontario who publicly pleaded with the BoC last week. It’s no secret these two provinces have the most to lose, their coffers largely built on a highly levered housing market, but we’ll...

Steve Saretsky -

Happy Monday Morning! A few weeks ago we summarized the cabinet shuffle, arguing the replacement of both the housing minister and immigration minister was simply rearring deck chairs on the Titanic. When new immigration minister Marc Miller was repeatedly questioned about rampant immigration putting strains on infrastructure and housing, he noted,...

Steve Saretsky -

Happy Monday morning! The Federal government is ramping up the noise amidst dismal polling numbers and a federal election only two years away. We had a cabinet shuffle just a few weeks ago, which included the immigration minister becoming the new housing minister. This week they arranged a housing retreat...

Steve Saretsky -

Happy Monday Morning! Headline CPI inflation surprised to the upside this past week, pushing back up to 3.3% and well above market expectations of 3%. However, those who have been following along here will know the importance of base effects. When headline inflation fell to 2.8% last month we were...

Steve Saretsky -

Happy Monday Morning! It’s been a few weeks now since the Trudeau government shuffled his cabinet ministers, naming both a new housing minsiter and a new immigration minister. However, as we discussed a few weeks ago in my piece, Same Faces, Different Places, nothing has fundamentally changed. These are the same...

Get the Saretsky Report to your email every month

The Saretsky Report. December 2022