Immigration Slump to Weigh Heavily on Australian House Prices

So far, Canadian housing prices continue to defy gravity despite the decline in immigration arrivals:

Fitch Ratings-Hong Kong/Sydney-21 September 2020: Australia’s house prices are set to decline by 5%-10% over the next 12 to 18 months, as net immigration weakens sharply, says Fitch Ratings. Price declines on this scale would be unlikely to have a ratings impact on Fitch-rated residential mortgage-backed security (RMBS) transactions, but the evolution of the coronavirus pandemic may create risks that will require close monitoring.

Immigration had already been slowing prior to the outbreak of the pandemic, but has plunged since the health crisis led to strict controls on international travel. The Australian government in May predicted that immigration would fall by 15% in the year to June 2020 (FY20) and by a further 85% in FY21. This would represent a fall of almost 200,000 permanent arrivals in FY21 relative to FY19, and mark the lowest level of net immigration since June 1993.

The decline will lead to a significant drop in household formation. The most recent Australian Census, held in August 2016, showed that the average Australian household had 2.6 people. If this ratio holds for immigrants, the reduction in immigration between FY19 and FY21 would imply demand for around 76,000 fewer dwellings than would have otherwise been the case. Assuming the natural population increase remains similar to previous years, Fitch estimates the population growth for Australia will reach just 0.7% in 2020, a level not seen in the past 40 years, and down from 1.4% in 2019.

Previous recessions in Australia that were coupled with significant unemployment resulted in a reduction in household formation as fewer adult children moved to their own dwellings. The exceptional uncertainty related to the current recession, and its disproportionate impact on young people, is likely to reduce household formation and property demand even more.

The Australian Bureau of Statistics has indicated that 171,000 housing approvals were granted in FY20. This is significantly down on the peak for approvals of 243,000 in the 12 months to August 2016, which may help to mitigate the demand shock. Monetary policy has also loosened, which could provide some support for house prices, as could government policies targeting support for the housing sector.

Nevertheless, we believe house prices will face downward pressure nationwide, as supportive factors will be outweighed by the impact of the change in net immigration, along with high unemployment and general economic uncertainty. Indeed, risks to our forecast for house prices are skewed to the downside, and price falls could exceed 10% if our assumptions about the path of the pandemic prove to be overly optimistic.

Fitch modelling for RMBS transactions addresses risks to house prices associated with the impact of the pandemic. Our stress analysis at ‘Bsf’ includes market value declines of at least 25%, so the 5%-10% drop in prices we expect should not have significant effects on ratings. Nevertheless, price declines will vary between regions, and transactions that have collateral concentrated on inner city units in Sydney and Melbourne may be more affected. Moreover, we remain alert to the potential for downside risks associated with the pandemic’s evolution, and will continue to monitor trends in the housing market closely.

Fitch estimates that immigration into Australia has added approximately 1% to GDP annually over the past 10 years. An end to pandemic-related travel restrictions could result in a rapid reversion of immigration to previous trends, and we expect new permanent arrivals to remain a driver of medium-term growth. However, we do not expect restrictions to be eased until well into 2021, and there may be public pressure on the authorities to limit immigration in the near term as long as unemployment remains high.

Source: Immigration Slump to Weigh Heavily on Australian House Prices

Douglas Todd: Canadian sovereignty faces challenge over foreign-buyers tax

Todd on the British Columbia foreign buyer tax:

Canadian sovereignty is on trial in a lawsuit against B.C.’s 20-per cent tax on foreign buyers of residential homes.

Jing Li — a Chinese citizen and international student who launched her case after using her family’s money to buy a townhouse in Langley in 2016 — is in effect challenging what some believe is Canada’s sovereign right to impose a targeted tax on foreign nationals, a B.C. surtax that is similar to many in other provinces and countries.

Arguing the tax illegally discriminates against people on the basis of their national origin, Li maintains in her claim it makes her feel “I am not wanted in Canada. … I feel that this anger has been directed toward people like me and other Asian nationals, due to unfair biases and stereotypes which the tax has further reinforced.”

In this era of globalization and free trade, in which trans-national corporations and libertarians often call for “open borders,” it is not fashionable to stand up for national sovereignty. Cultural liberals and even business leaders often characterize the concept as thinly disguised racism.

But some Canadians maintain it is ethical to discriminate against people who are not citizens or permanent residents (that is people who Canada have formally allowed to begin the immigration process). UBC law professor Joel Bakan, creator of the documentary The Corporation, says “in the past 30 years of economic globalization there has been an attack on the idea of the nation state.” But the sovereign nation, he says, remains the key structure through which a people can create a democratic community.

A B.C. Supreme Court judge will hear Li’s lawsuit in open court beginning June 25. In the meantime UBC professors Nathanael Lauster and Henry Yu are among those providing affidavits on behalf of Li, whose lawyer is Luciana Brasil, a specialist in class-action suits.

The B.C. government, in response to being sued, has obtained affidavits from, among others, UBC geography professor David Ley and SFU’s Andy Yan.

Should foreign nationals have the same rights and privileges as Canadian citizens and permanent residents, especially in regards to property?

In support of Li’s lawsuit against the B.C. government, Lauster claims the foreign-buyers tax reflects the kind of anti-Chinese sentiment that has become a “moral panic,” leading to “blaming the foreigner.”

British Columbians have scapegoated Chinese buyers, Lauster says. “There are clear indications that the inception and implementation of the foreign-buyer tax has reflected and invoked xenophobic, racist and specifically Sinophobic tendencies and sentiments.”

Lauster, an American who writes about his process of immigrating to Canada, maintains foreign students, temporary workers and other non-permanent residents are unfairly impeded by the foreign-buyers tax, particularly because many eventually apply to become immigrants.

The foreign-buyers tax has evoked a “Yellow Peril” discourse, Lauster says, with modern-day “folk devils.” The “social epidemic” manifests itself in anonymous comments about media articles and on Twitter. “Chinese immigrants and home buyers have been the primary targets of rhetoric. A variety of historically rooted stereotypes and biases have been perpetuated targeting Chinese home buyers and immigrants.”

For some reason the affidavit of Henry Yu, a UBC historian who specializes in documenting discrimination against ethnic Chinese, is not available to the public. Li’s lawyer did not reply to questions about it. Judging from the responses to Yu’s affidavit, however, it is similar to Lauster’s in arguing the tax demonstrates Canadians’ racism.

Andy Yan, who heads SFU’s City Program, counters in his affidavit that Yu and Lauster ignore “the globalization and hyper-commodification of housing,” which has hammered cities such as London, New York and Sydney and led to, for instance, 23 per cent of Coquitlam’s new condos being bought by foreign nationals.

Yan maintains Yu and Lauster are also blind to the “agency” of minority groups in B.C., where Chinese-Canadians have been leading activists supporting the tax on foreign buyers. There are now 470,000 ethnic Chinese in Metro Vancouver. Asians make up two of three immigrants to Canada.

An Angus Reid poll found 89 per cent of the city’s ethnic Chinese support the foreign-buyers tax. Even the then-Chinese consul general in Vancouver, Liu Fei, said, “The Chinese government would have no hesitation in stepping in and regulating (house) price increases like this, unlike governments here.”

Indeed, China has a range of restrictions on foreign buyers. And Yan’s affidavit makes it clear that jurisdictions throughout the world limit the purchasing power of foreign nationals. Yan says Yu and Lauster should not have ignored curbs on foreign buyers in Prince Edward Island, Ontario, Manitoba, Singapore, Hong Kong, Britain, Australia and the U.S. He could have added Denmark, Mexico, France, Switzerland and others.

In his affidavit, David Ley, author of Millionaire Migrants, says a key tactic of pro-growth real-estate advocates has been to claim that opponents of rapid expansion are xenophobic.

Developers first began playing the racism card in Vancouver and Los Angeles in the 1990s, Ley says. He notes Bob Rennie, a famed condo marketer and former chief of fundraising for the B.C. Liberal party, has alleged racism is “a huge undercurrent” in the housing debate.

Ley accepts Lauster and Yu’s analyses of B.C.’s discriminatory history up to the repeal of the immigration act in 1947. But he laments neither acknowledge how attitudes have changed. “Unlike in the colonial period, there is no ethno-racial divide that neatly separates, homogenizes and penalizes people of East Asian origin,” Ley says.

“There is significant resistance within Vancouver’s Chinese‐Canadian community to inflationary pressures in the property market primed by foreign capital, dispelling innuendoes that such resistance is inherited from old racist attitudes held by white Canadians.”

We will find out later this month where this case goes. If the judge declares the foreign-buyers tax is illegal, a massive class-action suit is sure to follow. Li’s lawyer did not reply to questions about who has so far been paying for the lawsuit’s substantial costs.

Meanwhile, those of us who continue to value national sovereignty will think of people like Bakan. Even though the liberal-left is often distracted by identity politics related to ethnicity, Bakan says the nation-state remains the key structure to protect the common good of passport holders and permanent residents.

Defenders of sovereignty may also consider Nobel Prize economist Joseph Stiglitz, who says globalization will only benefit most members of a nation if it puts strong social-protection measures in place. That includes rules to protect Canadians from out-of-control housing costs.

Source: Douglas Todd: Canadian sovereignty faces challenge over foreign-buyers tax

Gary Mason provides an effective riposte to those house-rich opposing the tax:

…But, hey, let’s not worry about them. They’ll figure it out, I’m sure. Let’s turn our attention to the homeowners in Vancouver whose $3-million-plus abodes face a minor tax hike. Although they can defer it until after they sell, many don’t want to. So, let’s everyone get together and figure out how we can help these poor, poor multimillionaires.

Source: Opinion What about the poor multimillionaire homeowners?

 

Douglas Todd: Canada’s public guardians have failed Vancouver [investor immigration and housing]

Good long read by Todd on some of the major policy and operational failures that have contributed to housing prices in Vancouver:

The main dereliction of duty by Immigration Canada has been its refusal, until it was too late, to properly assess the Business Immigrant Program (BIP).

Started in the mid-1980s, the BIP has arguably been the most crucial factor driving up Metro housing prices. UBC geographer David Ley estimates it has brought more than 400,000 well-off immigrants to Metro.

The first problem with the BIP, say Ley and others, is that it had extremely low standards.

It began by requiring an immigrant entrepreneur to invest only $150,000 in a business and hire one Canadian. The U.S., at the same time, was demanding business immigrants invest at least four times more money and hire at least 10 Americans.

One of the few high-level government officials to sound a warning about BIP applicants, whose first choice is to pour money into “safe” real estate, was David Mulroney, Canada’s former ambassador to China.

Asia-Pacific-trade boosters like Yuen Pau Woo, recently named a senator, have long said Canada should do everything it can to attract rich immigrants, calling them “the best and brightest.”

But Mulroney counters that liberally handing out passports “devalues the importance of Canadian citizenship.” And Justin Fung, with HALT (Housing Action for Local Taxpayers), concurs: “We’re practically giving away passports for free, and little benefit.”

In the meantime, Immigration Canada officials have not properly monitored the BIP. Their lax approach went on for decades as wealthy trans-nationals avoided being tested for compliance with even the BIP’s low standards.

A forensic auditor for the World Bank ended up called Canada’s BIP “a massive sham.”

The Conservatives finally killed it in 2014, which Fung called “years too late.”

Fung also worries a form of the BIP lives on in Quebec’s stand-alone immigrant-investor plan, which each year brings thousands more moneyed arrivals to Vancouver.

In addition, the federal Liberals are considering reviving a pilot program similar to the BIP.

Canada Revenue Agency

It gets worse.

While Canadian passports were being sold at bargain-basement prices, the Canada Revenue Agency has been ignoring another red flag — that many BIP newcomers and other owners of Metro mansions have been reporting strangely low incomes.

Even though the tax department had been warned, the politicians responsible did not want to face the reality that thousands of BIP investors and others were hiding most of their assets, which should have been taxed.

Officials have not wanted to admit to the widespread phenomenon of “astronaut” fathers who leave wives and student children in expensive homes in Metro to return to their homelands to do business — without declaring their offshore assets to Canadian tax officials.

An early attempt to bring in a national law requiring residents of Canada to disclose their foreign assets was opposed and not only by centre-right politicians, says Ley. B.C.’s centre-left NDP government of the 1990s also expressed concern such a law would be “culturally insensitive” and decrease B.C.’s attractiveness as a place for migrants to invest.

And even when a national foreign-assets disclosure tax law was finally brought into effect, it has often gone unenforced.

In the midst of Vancouver’s escalating housing crisis, in 2014, former Conservative prime minister Stephen Harper chopped 262 experienced tax auditors.

One of the first people to publicly expose ongoing tax avoidance by the trans-national elite was former Richmond Mayor Greg Halsey-Brandt.

In 2015 Halsey-Brandt directed Postmedia to data showing residents of one of Richmond’s most expensive neighbourhoods, where most of the population is foreign-born, were reporting poverty-level incomes — and thus putting themselves in position to pay virtually no taxes.

Another revelation came in the fall of 2015 when statistician Jens von Bergmann and UBC geographer Dan Hiebert independently unveiled census statistics showing high portions of mansion owners in ritzy Vancouver neighbourhoods were declaring almost no income.

The figures from von Bergmann and Hiebert showed several neighbourhoods, in which houses were selling in the $5-million to $7-million range, that were generally populated by immigrants, particularly ethnic Chinese.

In 2016, South China Morning Post journalist Ian Young broke open the tax department’s failures. The Hong-Kong-based newspaper revealed Canada Revenue Agency officials had been aware for decades of such tax-avoidance schemes.

CRA officials had admitted, in internal documents, they were not willing to devote auditors to catching these “highly sophisticated” tax-avoiding schemes by Metro Vancouver mansion owners and others.

‘They were scared,” the source said, “of being labelled racist.’”

In addition, a common real-estate scam has gone largely undetected as a direct result of the failure of Canada’s tax and immigration departments to share their information.

Because of the absence of cooperation, many Metro house owners have been avoiding paying capital gains taxes. They have been falsely claiming they are residents of Canada for tax and immigration purposes when they are actually mostly living outside the country and not disclosing their foreign income.

Unfortunately, it turns out that Canada’s immigration and tax departments have not been the only ones turning a blind eye to such unfairness and cheating in Vancouver’s exploding housing market.

Source: Douglas Todd: Canada’s public guardians have failed Vancouver | Vancouver Sun

Study likely to fuel debate on foreign home buyers

One of the small, low-cost, but important initiatives in the budget, along with some estimates from economists regarding the extent of the issue. Better data means better decisions:

New funding from Ottawa to help remedy what economists call an “astonishing lack of data” about international investment in Canadian real estate amounts to less than the down payment on an average detached house in Vancouver, despite signs the country’s most expensive housing markets are witnessing a significant influx of foreign buyers.

Responding to Tuesday’s federal budget, National Bank of Canada economists Peter Routledge, Parham Fini and Paul Poon estimate that the Liberal government’s promise of $500,000 for Statistics Canada to study the issue of foreign investment in the housing market amounts to just 27.5 per cent of the average $1.8-million price of a detached home in the Greater Vancouver Area. (It equates to just 18 per cent of the $2.87-million average price of a detached house in the City of Vancouver, or less than the required minimum 20-per-cent down payment.)

Still, they say the funding, enough for Statscan to spend one year examining ways to collect data on international buyers, is a welcome change to help address what has become a “politically delicate” issue in a country that prides itself on having an open economy and immigration system.

In an analysis that is likely to add fuel to that political debate, the economists conducted their own research showing that as many as one-third of all home purchases in the Vancouver region last year and 14 per cent in Toronto came from buyers in China.

Without any Canadian-specific data on foreign investors to go on, the economists came up with their estimates by extrapolating from two international surveys of realtors and buyers.

One is an annual report on the level of foreign home-buyer investment by the National Association of Realtors, based on surveys of real estate agents in the United States. It estimates that Chinese investors bought $28.6-billion (U.S.) of real estate in the U.S. housing market between March, 2014, and March, 2015, a seven-fold increase from the $4.1-billion they spent in 2009.

The second is a multiple-choice survey by the Financial Times of 77 wealthy Chinese investors who had bought real estate outside of China. Of those, 33.5 per cent said they bought homes in United States, while 11.7 per cent invested in Vancouver and 8.3 per cent in Toronto.

Combining the two surveys, the economists estimate that Chinese investors spent roughly $9-billion (Canadian) on home sales in the Greater Toronto Area last year, or 14 per cent of all total sales volume in the region.

In the Greater Vancouver Area, they estimate Chinese investors spent $12.7-billion – or 33 per cent of total sales. That figure, they say, lines up with research from B.C. urban planner Andy Yan, who found that 66 per cent of all sales of 172 detached homes in three west-side Vancouver neighbourhoods within a six-month period were to buyers with non-Anglicized Chinese names.

The economists admit their survey is somewhat unscientific, but say such attempts highlight the importance of collecting better data on the influence of foreign investment, and even immigration, on housing market affordability.

Source: Study likely to fuel debate on foreign home buyers – The Globe and Mail

Counting foreigners in the housing market is one thing. Then?

More on the PM’s stated intent to conduct research into the effect of foreign buyers on Canadian real estate prices and information on what the UK and Australia do to restrict foreign ownership:

But if the data does indeed confirm that foreigners are swamping the country’s major urban centres, the question about what Harper would do about it remains up in the air. Harper didn’t elaborate on what specific regulations, if any, he would implement to tame offshore buyers.  However a Conservative Party background document on the issue points to countries like the U.K. and Australia, which have adopted certain policies, without saying which ones are being considered here.

So what have other countries been doing? Earlier this year, Britain implemented a capital gains tax for non-residents selling property in the country, however it was a tax that already applied to British sellers. As of April foreign buyers must pay up to 28 per cent of the profits they earn when selling their homes, though it’s not yet clear whether the move has dampened enthusiasm for London properties among rich foreigners.

And what about down under? “Australia provides a fine example and some guidance,” says Wozny. “[Their regulations] are all fair and logical.” To combat rising house prices in Australia, often attributed to rich Chinese investors driving up the market, rules were put in place restricting foreigners from buying homes that were previously owned or occupied for longer than a year if they plan to use them as a rental property or vacation home. The move effectively limits foreign buyers to newly built properties. As for foreigners living in Australia temporarily—such as those buying a home for their child entering Australia for university—they are restricted to purchasing one property in the country as a primary residence, and must sell it when they leave.

Australia has other nuanced regulations for how quickly foreigners must build on vacant land, and others that limit foreign buyers from purchasing investment properties. Those who flout the rules in Australia can face stiff fines and even up to three years in prison. And yet, despite all the restrictions, home prices in Australia jumped by about 10 per cent over the last year.

So there are genuine questions as to whether targeting foreigners in Canada will make homes more affordable for Canadians. Some argue it may even do more harm than good. “Are you going to introduce some additional charges with non-residency ownership?” asks Richard Bell, a Vancouver-based real estate lawyer with Bell Alliance. “And what’s the impact on the market if you were to do that?”

Counting foreigners in the housing market is one thing. Then?.