5 ms·

Question for people more knowledgeable than me? Why doesn't this result in dirt-cheap rents across Canada? Sure a bunch of hot-money can easily bid up asset pr

Question for people more knowledgeable than me? Why doesn't this result in dirt-cheap rents across Canada? Sure a bunch of hot-money can easily bid up asset prices. But at the same time it should also drive down yields on those assets. Like you say, the vast majority of these houses aren't being lived in. Nor are the owners sensitive to returns. Why don't more of them put their dwellings up for rent, flooding the rental market and driving down prices?

cam0 6y ago
Part of the reason why this doesn't happen is because the owner-investors are so wealthy that the 36-72k in rental income would mean nothing to them, and it isn't worth the hassle of being a landlord.
mgh2 6y ago
There are unforeseen costs associated with being a foreign landlord open for local renters: taxes, fixes, complaints, language barriers (even before COVID). The incentive to buy, hold and not rent, even with the speculation tax is higher than having their entire money confiscated by the CCP. The (discounted) money generated by rent does not justify the costs mentioned earlier either.
- mixmastamyk 6y ago
  A property management company and accountant can solve these issues and pay for themselves.
lotsofpulp 6y ago
Renting property comes with significant liabilities, and may not be worth it if rents aren’t high enough.
nacho2sweet 6y ago
Vancouver where I live had fairly cheap rent compared to ownership for awhile, maybe back in 2010's. Mortgage + maintenance fee back then for a condo could be like $2800/month but would rent for as low as ~$1000-$1500. It is still like this but the spread is a bit less because of cheap money, and weaker condo prices cause of covid. You can get 1.79% 5 year fixed on a 25 year amortized mortgage rn. Our housing market bubble is humming through covid. We have very low to no property taxes. All of our taxes are based on income. So a condo could have annual property taxes of like $1800-$2000... So what is the point of renting it out if it is increasing in value 10% a year and you are going to use it maybe 2 months a year. The west side of Vancouver were all the mansions are, and had a the greatest new concentration of rich foreign buyers actually paid the lowest taxes in the province. We also have very big immigration influx in Canada, foreign student population and a 10 year visa program with China. These all started shooting up rents. But also caused what is known as satellite families which drop of their kids and caretaker, use the public schools, health care etc but make all their money back in their country of origin not claiming income tax here. We had University students with their names on $30million houses. House wife seemed to be the most lucrative job going in real estate. We got a new provincial government a few years ago who brought in the "speculation tax". Basically if you don't pay income tax here but own a house you have to pay a tax of 2% of the properties value. This is compounded on top of an empty homes tax the city put in place of 1% if it is not rented out. There was also some new laws/procedures put in place with data sharing across province/city/real estate board that is helping clearing up some malfeasance as well.
amscanne 6y ago
Relative to the cost of purchasing, it does. Buying in major cities in Canada simply does not make any financial sense unless you were counting on continued insane growth (fueled by local speculation as much or more than foreign). Most people are unaware of the specific bet they are making, and buy just because Canada has a crazy cult of home ownership. From my own experience, it is far more intense than anywhere else. Paying anything other than a mortgage is widely seen as "throwing your money away", even with the above financial realities. Unfortunately, although people are unaware of the nature of the bet they are making (unbridled speculation fueling price growth), they have been right for a long time, even through the housing collapse in the US. But the music's gotta stop at some point. Though locals may talk about how young Canadians are "screwed" or that no one can afford a house anymore, the reality is that home ownership in Canada is higher than it has ever been in history. Young Canadians simply need to accept that, for now, owning a house shouldn't be their one goal in life: they should opt-out of the cult of home ownership, and just wait until buying makes financial sense (i.e. the bubble bursts or deflates).
- kennywinker 6y ago
  1. "crazy cult of home ownership" you're talking about the thing that has driven middle class wealth accumulation for most of the past 100 years? crazy cult. 2. "opt-out of the cult of home ownership, and just wait until buying makes financial sense (i.e. the bubble bursts or deflates)" For the bubble to burst, the things driving it have to change. Since the 90s, floods of global money have been driving up the cost of housing in canada's major cities. The bubble has been bubbling for 30 years. "just wait" is not actually a viable solution. Recent changes - an empty homes tax and a foreign buyer taxes - have been attempts to curb the problem, but it's not like we've tried all the tools in the toolchest - we've barely tried anything.
  - amscanne 6y ago
    A home is place to live, not some magical wealth generator. The cult is that it is seen as such, and people have it in their heads that home ownership is the most important component in financial success. The reason that you note “just wait” is not a viable option is surely because you also view home ownership as something you need to do. But you don’t need it, you just want it. Blaming global money is the easy thing to do, but I don’t think there’s compelling data that supports this. Sure, it has had an effect, but Canadians themselves hold a large share of responsibility for the market today. This is why the empty homes and foreign buyers haven’t really done anything — they are just populist measures. If you really want to have an impact, fight local speculation too. Regarding the middle class wealth accumulation, Canada is in for a world of hurt when the bubble bursts. A shocking proportion (1/3) of Canadians nearing retirement have no assets outside their primary residence, and their plan is to use reverse mortgages or downsizing to fund their retirement. This is because so many Canadians live at the edge of what they can afford, commonly known as “house poor”, which is the phenomenon driving a lot of local prices. What is happening now is a massive intergenerational transfer of wealth from the younger generation to the older generation. When the bubble deflates, everyone who sold their house is making bank, and young people who were desperate to have a piece of dirt are the ones who will be holding the bag. I’m not saying you shouldn’t own a house if you need it and can afford it, but the idea of a home as a “wealth generation” device will not age well in Canada.
hourislate 6y ago
The Chinese buyers are not concerned with making money on their properties. The properties primary use is to hold money. It's like the jar buried in the backyard full of gold for the Chinese. Renters are not worth the hassle and earning an income renting a property might throw up some flags and other Income Tax headaches. What you get is a lot of properties just sitting empty going up in value because of the lack of inventory screwing potential Canadian buyers or renters. I don't know if I remember correctly but I read somewhere that there were Condo buildings in Vancouver that were almost dark at night because so few people actually lived in them. Complete neighborhoods were void of people because of the foreign ownership. This is about parking money in an asset that would be hard for the CCP to get their hands on. If it were in a foreign bank account as currency, the CCP would have easy access to it. The CCP probably doesn't even know there are 1oo's of billions over the last 2 decades sitting in Canadian housing.
- evrydayhustling 6y ago
  Lots of good points here, but this last bit is not realistic: > The CCP probably doesn't even know there are 1oo's of billions over the last 2 decades sitting in Canadian housing.
zzapplezz 6y ago
The answer is because a resource is at play that is finite: land. If all the productive land in an urban area is effectively owned by foreign investors and left to sit, then renters bid up the remaining dwellings until they're priced out of the area. It also becomes more expensive to build in that area so the housing stock can't keep up with demand. It's terrible to let a vital commodity lay to waste.
- conanbatt 6y ago
  housing is not finite
  - zzapplezz 6y ago
    With enough zoning it absolutely is, not to mention the lead time required to permit and actually build it. Once built depreciation kicks in - housing isn't permanent. It's a consumable.

cam0 6y ago

Part of the reason why this doesn't happen is because the owner-investors are so wealthy that the 36-72k in rental income would mean nothing to them, and it isn't worth the hassle of being a landlord.

mgh2 6y ago

There are unforeseen costs associated with being a foreign landlord open for local renters: taxes, fixes, complaints, language barriers (even before COVID). The incentive to buy, hold and not rent, even with the speculation tax is higher than having their entire money confiscated by the CCP. The (discounted) money generated by rent does not justify the costs mentioned earlier either.

mixmastamyk 6y ago
A property management company and accountant can solve these issues and pay for themselves.

lotsofpulp 6y ago

Renting property comes with significant liabilities, and may not be worth it if rents aren’t high enough.

nacho2sweet 6y ago

Vancouver where I live had fairly cheap rent compared to ownership for awhile, maybe back in 2010's. Mortgage + maintenance fee back then for a condo could be like $2800/month but would rent for as low as ~$1000-$1500. It is still like this but the spread is a bit less because of cheap money, and weaker condo prices cause of covid. You can get 1.79% 5 year fixed on a 25 year amortized mortgage rn. Our housing market bubble is humming through covid. We have very low to no property taxes. All of our taxes are based on income. So a condo could have annual property taxes of like $1800-$2000... So what is the point of renting it out if it is increasing in value 10% a year and you are going to use it maybe 2 months a year. The west side of Vancouver were all the mansions are, and had a the greatest new concentration of rich foreign buyers actually paid the lowest taxes in the province. We also have very big immigration influx in Canada, foreign student population and a 10 year visa program with China. These all started shooting up rents. But also caused what is known as satellite families which drop of their kids and caretaker, use the public schools, health care etc but make all their money back in their country of origin not claiming income tax here. We had University students with their names on $30million houses. House wife seemed to be the most lucrative job going in real estate. We got a new provincial government a few years ago who brought in the "speculation tax". Basically if you don't pay income tax here but own a house you have to pay a tax of 2% of the properties value. This is compounded on top of an empty homes tax the city put in place of 1% if it is not rented out. There was also some new laws/procedures put in place with data sharing across province/city/real estate board that is helping clearing up some malfeasance as well.

amscanne 6y ago

Relative to the cost of purchasing, it does. Buying in major cities in Canada simply does not make any financial sense unless you were counting on continued insane growth (fueled by local speculation as much or more than foreign). Most people are unaware of the specific bet they are making, and buy just because Canada has a crazy cult of home ownership. From my own experience, it is far more intense than anywhere else. Paying anything other than a mortgage is widely seen as "throwing your money away", even with the above financial realities. Unfortunately, although people are unaware of the nature of the bet they are making (unbridled speculation fueling price growth), they have been right for a long time, even through the housing collapse in the US. But the music's gotta stop at some point. Though locals may talk about how young Canadians are "screwed" or that no one can afford a house anymore, the reality is that home ownership in Canada is higher than it has ever been in history. Young Canadians simply need to accept that, for now, owning a house shouldn't be their one goal in life: they should opt-out of the cult of home ownership, and just wait until buying makes financial sense (i.e. the bubble bursts or deflates).

kennywinker 6y ago
1. "crazy cult of home ownership" you're talking about the thing that has driven middle class wealth accumulation for most of the past 100 years? crazy cult. 2. "opt-out of the cult of home ownership, and just wait until buying makes financial sense (i.e. the bubble bursts or deflates)" For the bubble to burst, the things driving it have to change. Since the 90s, floods of global money have been driving up the cost of housing in canada's major cities. The bubble has been bubbling for 30 years. "just wait" is not actually a viable solution. Recent changes - an empty homes tax and a foreign buyer taxes - have been attempts to curb the problem, but it's not like we've tried all the tools in the toolchest - we've barely tried anything.
- amscanne 6y ago
  A home is place to live, not some magical wealth generator. The cult is that it is seen as such, and people have it in their heads that home ownership is the most important component in financial success. The reason that you note “just wait” is not a viable option is surely because you also view home ownership as something you need to do. But you don’t need it, you just want it. Blaming global money is the easy thing to do, but I don’t think there’s compelling data that supports this. Sure, it has had an effect, but Canadians themselves hold a large share of responsibility for the market today. This is why the empty homes and foreign buyers haven’t really done anything — they are just populist measures. If you really want to have an impact, fight local speculation too. Regarding the middle class wealth accumulation, Canada is in for a world of hurt when the bubble bursts. A shocking proportion (1/3) of Canadians nearing retirement have no assets outside their primary residence, and their plan is to use reverse mortgages or downsizing to fund their retirement. This is because so many Canadians live at the edge of what they can afford, commonly known as “house poor”, which is the phenomenon driving a lot of local prices. What is happening now is a massive intergenerational transfer of wealth from the younger generation to the older generation. When the bubble deflates, everyone who sold their house is making bank, and young people who were desperate to have a piece of dirt are the ones who will be holding the bag. I’m not saying you shouldn’t own a house if you need it and can afford it, but the idea of a home as a “wealth generation” device will not age well in Canada.

hourislate 6y ago

The Chinese buyers are not concerned with making money on their properties. The properties primary use is to hold money. It's like the jar buried in the backyard full of gold for the Chinese. Renters are not worth the hassle and earning an income renting a property might throw up some flags and other Income Tax headaches. What you get is a lot of properties just sitting empty going up in value because of the lack of inventory screwing potential Canadian buyers or renters. I don't know if I remember correctly but I read somewhere that there were Condo buildings in Vancouver that were almost dark at night because so few people actually lived in them. Complete neighborhoods were void of people because of the foreign ownership. This is about parking money in an asset that would be hard for the CCP to get their hands on. If it were in a foreign bank account as currency, the CCP would have easy access to it. The CCP probably doesn't even know there are 1oo's of billions over the last 2 decades sitting in Canadian housing.

evrydayhustling 6y ago
Lots of good points here, but this last bit is not realistic: > The CCP probably doesn't even know there are 1oo's of billions over the last 2 decades sitting in Canadian housing.

zzapplezz 6y ago

The answer is because a resource is at play that is finite: land. If all the productive land in an urban area is effectively owned by foreign investors and left to sit, then renters bid up the remaining dwellings until they're priced out of the area. It also becomes more expensive to build in that area so the housing stock can't keep up with demand. It's terrible to let a vital commodity lay to waste.

conanbatt 6y ago
housing is not finite
- zzapplezz 6y ago
  With enough zoning it absolutely is, not to mention the lead time required to permit and actually build it. Once built depreciation kicks in - housing isn't permanent. It's a consumable.