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Would taxing do anything in this specific case? Foreign investors are already willing to pay millions in a single home just for it to lay empty, from what I rea

Would taxing do anything in this specific case? Foreign investors are already willing to pay millions in a single home just for it to lay empty, from what I read in this thread. Why would some fixed (even if progressive) tax on top of that change the demand?

ryanbrunner 5y ago
Presumably if it was high enough they would move onto other investments that are comparatively more profitable when accounting for the tax. It would have to be a heck of a tax to keep up with how Canadian house prices have been inflating recently though.
- doliveira 5y ago
  Yeah, that seems the crux of the problem: price rising is exponential, a fixed tax can't offset it.
hrdwdmrbl 5y ago
Hypothetical example: Tax it 100,000,000%. Turn a $1 house into a $1,000,000 house. Do you think they'd still want it? That's the power of taxation to change behaviour. (of course a real tax can be whatever is needed to "get the job done", it doesn't need to be ridiculous). If you don't want empty houses, tax empty houses (though as a distracting aside, the idea that empty houses is a big problem has also been fairly thoroughly debunked, but that's another discussion that it's important rn)
- GypsyKing716 5y ago
  Off by a few zeros. Humbly thought I might put that out there in the word problem.
- doliveira 5y ago
  Other than an ideological argument of preferring taxes over outright bans, I feel like the effect is the same. If foreign investors are indeed the ones pushing price up orders of magnitude above inflation, they clearly don't care about prices increasing tenfold. So it seems the tax would have to be insanely huge to actually achieve the same effect. And honest question: why do we want foreign investors buying homes anyway? I understand buying commercial locations, but not residences.
  - eru 5y ago
    > Other than an ideological argument of preferring taxes over outright bans, I feel like the effect is the same. Taxes also provide revenue. And they allow people to make their own choices. If you think that having a foreign investor own a house causes Canadians to feel a collective 1 million CAD of pain per year, then it's only fair to give the foreign investor the chance to pay off the Canadian pain. (Also gray areas around bans are annoying: you have to draw the line of eg who qualifies as a foreigner and what qualifies as owning somewhere. And there's bound to be some weird corner cases and loopholes that people with expensive lawyers can work around. The reward for finding the loopholes is immense, because there's a discontinuity in the law. If you have a tax, you have a finer grained instrument. So you can eg charge people in proportion to how much time they spent out of Canada. Instead of going 51% out: you are banned to 49%: everything is fine, the tax can vary gradually.)
pbronez 5y ago
It should be possible to make home purchases economically irrational for undesirable purchasers. For example, you could impose a draconian property tax on all non-owner occupied residential properties. Financial investors and money launderers look at homes as illiquid, stable assets. They expect that they can extract their millions with a few week’s time, perhaps with gains from continued inflation. If they lose a significant portion of that value over the duration they hold the asset, it stops making sense. A punitive tax like this should be pegged to some other “safe” asset. Perhaps a basket of national bonds from the G20. Ensure that taking residential inventory off the market produces a substantially worse return than those other options. If you don’t want to kill domestic land lords, make it trivial for a citizen to apply for a waiver. Just know that the investor types will be motivated to subvert this system. Strongly recommend you have real jail time penalties for doing so. Financial folks hate real prison.
hoseja 5y ago
If you tax them 100% you can take that money and build equivalent government housing on the next lot over.
- malka 5y ago
  Lots take up physical space. This space is not infinitely extensible. The next lot over will be farther from the city center.
jusssi 5y ago
The tax could be an "empty house" tax, so there would be an incentive to get a tenant. Alternatively, the tax could be targeted at negating profit from value increase, so that you pay higher tax on profit from sale of property (possibly with a deduction you can apply when buying another one within some reasonable timeframe, so that normal homeowners aren't affected).
- eru 5y ago
  I would advise against 'empty house' taxes. They just create lots and lots of grey areas. Also don't tax transactions: you don't mind if people are buying and selling property. What you mind is foreigners (or others) _holding_ property. So tax that. Transaction taxes are economically inefficient, because they impede the re-shuffling of assets to the best use. Look into 'land value tax' for more detail.
eru 5y ago
There are two effects: First, as you mention, taxing clamps down on demand. Second, taxes bring revenue. You are worried that the first effect won't kick in. But that's not a problem at all: just keep jacking up taxes either until it does kick in, or you can afford to make everyone in Canada a billionaire from the second effect. (Incidentally, this is very similar to worries that a central bank won't be able to create inflation. That also is a good problem to have: keep purchasing assets with newly printed money until you either have the desired inflation, or you managed to buy the rest of the world for the cost of some ink and paper.)

ryanbrunner 5y ago

Presumably if it was high enough they would move onto other investments that are comparatively more profitable when accounting for the tax. It would have to be a heck of a tax to keep up with how Canadian house prices have been inflating recently though.

doliveira 5y ago
Yeah, that seems the crux of the problem: price rising is exponential, a fixed tax can't offset it.

hrdwdmrbl 5y ago

Hypothetical example: Tax it 100,000,000%. Turn a $1 house into a $1,000,000 house. Do you think they'd still want it? That's the power of taxation to change behaviour. (of course a real tax can be whatever is needed to "get the job done", it doesn't need to be ridiculous). If you don't want empty houses, tax empty houses (though as a distracting aside, the idea that empty houses is a big problem has also been fairly thoroughly debunked, but that's another discussion that it's important rn)

GypsyKing716 5y ago
Off by a few zeros. Humbly thought I might put that out there in the word problem.
doliveira 5y ago
Other than an ideological argument of preferring taxes over outright bans, I feel like the effect is the same. If foreign investors are indeed the ones pushing price up orders of magnitude above inflation, they clearly don't care about prices increasing tenfold. So it seems the tax would have to be insanely huge to actually achieve the same effect. And honest question: why do we want foreign investors buying homes anyway? I understand buying commercial locations, but not residences.
- eru 5y ago
  > Other than an ideological argument of preferring taxes over outright bans, I feel like the effect is the same. Taxes also provide revenue. And they allow people to make their own choices. If you think that having a foreign investor own a house causes Canadians to feel a collective 1 million CAD of pain per year, then it's only fair to give the foreign investor the chance to pay off the Canadian pain. (Also gray areas around bans are annoying: you have to draw the line of eg who qualifies as a foreigner and what qualifies as owning somewhere. And there's bound to be some weird corner cases and loopholes that people with expensive lawyers can work around. The reward for finding the loopholes is immense, because there's a discontinuity in the law. If you have a tax, you have a finer grained instrument. So you can eg charge people in proportion to how much time they spent out of Canada. Instead of going 51% out: you are banned to 49%: everything is fine, the tax can vary gradually.)

pbronez 5y ago

It should be possible to make home purchases economically irrational for undesirable purchasers. For example, you could impose a draconian property tax on all non-owner occupied residential properties. Financial investors and money launderers look at homes as illiquid, stable assets. They expect that they can extract their millions with a few week’s time, perhaps with gains from continued inflation. If they lose a significant portion of that value over the duration they hold the asset, it stops making sense. A punitive tax like this should be pegged to some other “safe” asset. Perhaps a basket of national bonds from the G20. Ensure that taking residential inventory off the market produces a substantially worse return than those other options. If you don’t want to kill domestic land lords, make it trivial for a citizen to apply for a waiver. Just know that the investor types will be motivated to subvert this system. Strongly recommend you have real jail time penalties for doing so. Financial folks hate real prison.

hoseja 5y ago

If you tax them 100% you can take that money and build equivalent government housing on the next lot over.

malka 5y ago
Lots take up physical space. This space is not infinitely extensible. The next lot over will be farther from the city center.

jusssi 5y ago

The tax could be an "empty house" tax, so there would be an incentive to get a tenant. Alternatively, the tax could be targeted at negating profit from value increase, so that you pay higher tax on profit from sale of property (possibly with a deduction you can apply when buying another one within some reasonable timeframe, so that normal homeowners aren't affected).

eru 5y ago
I would advise against 'empty house' taxes. They just create lots and lots of grey areas. Also don't tax transactions: you don't mind if people are buying and selling property. What you mind is foreigners (or others) _holding_ property. So tax that. Transaction taxes are economically inefficient, because they impede the re-shuffling of assets to the best use. Look into 'land value tax' for more detail.

eru 5y ago

There are two effects: First, as you mention, taxing clamps down on demand. Second, taxes bring revenue. You are worried that the first effect won't kick in. But that's not a problem at all: just keep jacking up taxes either until it does kick in, or you can afford to make everyone in Canada a billionaire from the second effect. (Incidentally, this is very similar to worries that a central bank won't be able to create inflation. That also is a good problem to have: keep purchasing assets with newly printed money until you either have the desired inflation, or you managed to buy the rest of the world for the cost of some ink and paper.)