Government regulations, such as the federal foreign buyer ban have turned foreign investors away from Canadian real estate in recent years.Carlos Osorio/Reuters
As the Vancouver and Toronto condo markets continue to languish, the major role of the investor, both foreign and local, is coming into focus.
In the city of Vancouver, 50 per cent of newly built condos were investor owned, according to Canadian Housing Statistics Program data, compiled by Simon Fraser University associate professor of professional practice in urban studies, Andy Yan. The data period covers 2016 to 2022.
In Toronto proper, 58 per cent of new condos were investor owned.
Ottawa faces growing pressure to loosen foreign homebuying ban
But investors bought into other housing types during that period as well, with 52 per cent of all property types in Toronto investor owned, and 43 per cent of all property types in Vancouver investor owned between 2016 and 2022. It’s important to note, said Prof. Yan, that the data does not include presale purchases, so the percentages could be even higher.
“Those numbers are extraordinary,” said David Ley, University of B.C. professor emeritus, geographer and author of Housing Booms in Gateway Cities.
Prof. Ley noted that the dates line up with two different market booms: the 2016-2017 foreign buying boom that was cooled by a series of government measures, and the 2022 pandemic-era boom that was driven by ultralow interest rates and local buyers. That boom dissipated with a spike in interest rates and inflation.
“I don’t believe those numbers would show up the same way today, what with everything we are told, and we hear from the development community that the market is dead, that investors have flown,” said Prof. Ley.
As a consequence, developers are pressing policy-makers to encourage the all-important investor back into the market. Government regulations, such as the federal foreign buyer ban and the B.C. foreign buyer tax, have turned foreign investors away from Canadian real estate in recent years. Builders are asking the federal government to walk back the ban and allow foreign buyers into the newly built condo market, which is a model used in Australia and New Zealand.
But 27 housing experts, including Prof. Ley and Prof. Yan, planners, researchers and former city staffers, are pushing back, arguing that an investor-driven housing market, particularly from outside wealth, pushes housing out of reach for locals. Both sides of the argument penned letters to the federal government last month, with the academic camp arguing that a reintroduction of foreign capital and investment will “reflate prices artificially.”
Eby rebuffs developers’ calls to loosen foreign investment rules in housing
The letter signed by 25 developers was sent to Prime Minister Mark Carney, Housing Minister Gregor Robertson, B.C. Premier David Eby and others. It argued that foreign buyer restrictions need to be lifted to revitalize the newly built condo market. They argue that the sale of newly built condos, even if many are unaffordable to local buyers, enables them to finance new construction and bringing necessary supply to the market. That then frees up existing homes for local buyers.
“We have vilified that investor who … took the risk of buying presales,” said Barrett Sprowson, senior vice-president, residential, at Peterson Real Estate. Peterson is a developer of commercial and residential properties, including a four-storey condo project in Oakridge called the Ashleigh, which they are currently selling. The company is also completing Toronto’s Mirvish Village. But Mr. Sprowson said most of the company’s projects are on hold because of the stagnating market.
“[Investors] are mom-and-pop humans that have kind of shouldered the bulk of our rental stock the last two decades,” said Mr. Sprowson. “So, the policy and narrative around that investor has really turned them off the last few years, and that’s one of the things we need to adjust,” he said. “That investor [is not] a bad guy.”
He said foreign buyers are just “a drop in the bucket.”
“Where I see the foreign buyer being helpful is the very, very high end of the market where we don’t have a local market,” he said. “What that does is create some liquidity in the market so that we can go do other things.
“We need to look at all the regulations and pull back things that are not working. That foreign buyer ban is not helping our market, and it’s certainly hindering it in that we could do with some liquidity at the high end of the market, that would trickle down. We need less regulation overall, and particularly where it’s not making a difference.”
Prof. Yan found that in Vancouver, nearly 15 per cent of newly built condos were owned by non-resident investors between 2016 and 2022. In Toronto, it’s 11 per cent.
Prof. Ley said the problem with depending on foreign capital to fund newly-built high-rise condos is that a lot of older housing stock is then redeveloped to make way for those newly built condos.
“There is, or has been, competition between local end users and investors for property.”
Toronto mortgage broker Ron Butler, host of the popular Angry Mortgage Podcast, said that while low-rise housing such as detached houses may have already gone as low in price as they will go, it’s a different story for new condos. That market, he said, was a case of the speculator run amok.
“You may have hit the bottom on single-family [houses], townhouses, et cetera,” said Mr. Butler. “But you are nowhere near the bottom on high-rise condos.”
He said there are three reasons for the drop in condo prices: there are thousands more new condos still coming to completion; there are thousands of purpose-built rentals coming to completion that will compete with those condos; and immigration levels have dropped off due to government policy.
But Mr. Butler takes issue with the developers who’d like to reopen the market to foreign capital.
“You build stuff that you know no one can afford, so you get foreign people in to buy it. And then eventually, it will either stay empty, or somebody will struggle to find the money to buy it to live in, or [the owner] is just going to sit back and leave it empty until inflation pushes the rents back up again. Okay. Right. But the concept is ludicrous,” said Mr. Butler.
“As soon as affordable housing starts to raise its ugly head, we want to chop it off by removing the foreign buyers ban.”
