Foreign ownership of property should be heavily taxed both at the transaction and in the form of an elevated property tax bracket for non-resident owners. In urban areas with cost of living problems, non-resident should probably be defined as someone not residing in the city or any corporation with >50% beneficial ownership not residing in the city. Otherwise non-resident could be defined as non-citizen.
I coined a term for this and similar things: "fiscal pollution." Fiscal pollution is essentially harmful investment or investment with strong negative externalities.
I would imagine that a lot of foreign-owned property in Canada is owned by foreigners that already have obtained permanent residency, or who are using relatives who have obtained permanent residency. Consequently, they may be treated no differently than any other Canadian. So, would simply “taxing foreigners” really be an effective solution?
> Otherwise non-resident could be defined as non-citizen.
I don’t think this would work well in a lot of cities. For example in London there are any number of non-citizens who are just as much resident in the city as anyone else. You’d be saying that e.g a French citizen who’d lived in London for 10 years was a non-resident.
I still don't see how that makes quite the right cut. For example, I live in London any my landlord is German. She lives in London too. I can't see any reason why she should be treated differently to a UK citizen in the same position.
> non-resident should probably be defined as someone not residing in the city or any corporation with >50% beneficial ownership not residing in the city.
Some places already have that distinction for capital gains. You get a different tax percentage on the capital gain resulting from the sale of your "main residence" (where you spend the majority of your time) vs any secondary or investment properties you might have.
Why not institute policies to build more housing units? Taxation should be used to manipulate prices downward only when other market options don't exist.
The government could finance the construction of new houses. They could even go so far as incentivize the construction of entirely new suburbs or towns outside of major cities like Vancouver and build ultra-fast trains to connect the commercial district of the major city to the new suburb that is being built with affordable housing in mind.
Trying to halt foreign investment is a fool's errand. There is too much money to be made from these people, giving a strong financial incentive to find legal ways to subvert the taxes/regulations put in place.
I’ve wondered why California doesn’t leverage Prop 13 to encourage more housing units. Say for any property which isn’t owner occupied, the number of rentable units must increase by N per year in order to maintain Prop 13 tax lock. Seems like very quickly we would have landlords fighting cities to expand their rentable units, expending much more money than they otherwise would in order to expand the rental stock.
Canada seems like it has plenty of land left to build on.
None of their major cities come close to the size of US cities like Dallas-Fort Worth or Chicago.
Any attempts to limit the inflow of Chinese investment will fail. And the more aggressive the government gets, the more Canadians are going to get caught up in it by accident.
Chinese people are willing to pay massive premiums for houses and high property taxes, all while not utilizing any of the services those taxes are paying for. Canada would be wise to start incentivizing construction in out-of-the-way places specifically to accommodate these investors. Otherwise, these foreign investors will use their extensive capital to find legal loopholes and will continue to focus on "safer" bets (read: Vancouver housing).
It's exactly like the problem with DRM: being aggressive just hurts legitimate consumers because hackers will always find a loophole in the system. So the best course of action is to give customers exactly what they want with minimal friction.
Funny that you bring up Mexico because Mexico's system is similar to what I'm proposing: special economic zones and other incentives that ensure that foreign investment flows where the government wants it to.
Toronto, despite being the crane capital of the world "only" built 200k condo units in 20 years with marginal increase in other housing. Population increased 500k in the same period. Mississauga increased 120k dwelling units in 40 years, while population increased 300k. Beijing cranked out multiple 100K+ megablocks in 5 years.
It's a supply side problem. There's more land than money, 1/2 of Richmond BC is undeveloped. There's space for millions of units. The fundamental problem is Canada cannot build due to combination of regulations and construction culture.
Canada is receiving so much money for investment because it is perceived as the most stable country in the Americas.
But Canada just doesn't have enough assets to soak all that money up. So that money chases the few assets such as residential property stock.
Canada could legally allow all this money to be invested in startups or companies that need funding instead of passive assets. That way, the same money would be funneled to actual companies and workers, while at the same time, providing assets to all this foreign money.
The root of the housing bubble lies in Canada's out of control immigration quotas. This creates an enormous downward pressure for wages which makes housing impossible to afford. The lax immigration system also allows for unparalleled amounts of capital to flow into the country and be parked into assets that are hard to seize (real estate being the prime example). Now, with rampant birth tourism and convenience passports, it's a little pointless to go after foreign ownership: The foreign buyer will simply transfer the properties to his kids who acquired convenience passport via birth tourism and live in the city. If forced to give up assets or freedom in their original country, the real buyer will simply be allowed to immigrate thanks to the family reunification loophole.
Of course, the current government has no interest in stopping it as it's making real estate developers extremely happy and more importantly, gives them a new pool of voters that are sure to keep on voting for ever increasing immigration quotas.
The situation is much better in the US where immigration quotas are kept under control.
Simply eradicate the silly income taxes and use traditional real estate tax, energy taxes, road tax, sales tax, and other waste taxes. The problem is that countries that messed up their tax system during a war aren't going to revert them so they are forever dealing with the market results of taxing income instead of taxing resource usage.
Why shouldn't you buy and hold important resources if the society isn't making those resources fund the system?
Having these free gifts for whoever had money seemed very clever back when the rich people from a system didn't have to let foreign rich people have the same access to their plunder.
I mean it depends on what you replace it with. Sales tax on basic necessities is regressive. Real estate tax, not so much. Capital gains tax definitely not.
The cost of housing in Canada is, ironically, in the land. Land is something that Canada has quite a lot of. In Australia foreigner buyers are only allowed to buy newly build homes, that might work here too.
19 comments
[ 2.9 ms ] story [ 51.4 ms ] threadI coined a term for this and similar things: "fiscal pollution." Fiscal pollution is essentially harmful investment or investment with strong negative externalities.
I don’t think this would work well in a lot of cities. For example in London there are any number of non-citizens who are just as much resident in the city as anyone else. You’d be saying that e.g a French citizen who’d lived in London for 10 years was a non-resident.
Some places already have that distinction for capital gains. You get a different tax percentage on the capital gain resulting from the sale of your "main residence" (where you spend the majority of your time) vs any secondary or investment properties you might have.
But that doesn't change property taxes.
The government could finance the construction of new houses. They could even go so far as incentivize the construction of entirely new suburbs or towns outside of major cities like Vancouver and build ultra-fast trains to connect the commercial district of the major city to the new suburb that is being built with affordable housing in mind.
Trying to halt foreign investment is a fool's errand. There is too much money to be made from these people, giving a strong financial incentive to find legal ways to subvert the taxes/regulations put in place.
Many countries restrict foreign real estate investment without issue (Mexico and Thailand come to mind, but there are many others).
Any attempts to limit the inflow of Chinese investment will fail. And the more aggressive the government gets, the more Canadians are going to get caught up in it by accident.
Chinese people are willing to pay massive premiums for houses and high property taxes, all while not utilizing any of the services those taxes are paying for. Canada would be wise to start incentivizing construction in out-of-the-way places specifically to accommodate these investors. Otherwise, these foreign investors will use their extensive capital to find legal loopholes and will continue to focus on "safer" bets (read: Vancouver housing).
It's exactly like the problem with DRM: being aggressive just hurts legitimate consumers because hackers will always find a loophole in the system. So the best course of action is to give customers exactly what they want with minimal friction.
Funny that you bring up Mexico because Mexico's system is similar to what I'm proposing: special economic zones and other incentives that ensure that foreign investment flows where the government wants it to.
It's a supply side problem. There's more land than money, 1/2 of Richmond BC is undeveloped. There's space for millions of units. The fundamental problem is Canada cannot build due to combination of regulations and construction culture.
But Canada just doesn't have enough assets to soak all that money up. So that money chases the few assets such as residential property stock.
Canada could legally allow all this money to be invested in startups or companies that need funding instead of passive assets. That way, the same money would be funneled to actual companies and workers, while at the same time, providing assets to all this foreign money.
Do it before America figures this out.
Because it's the easiest to get a passport from.
US immigration is far more selective.
Of course, the current government has no interest in stopping it as it's making real estate developers extremely happy and more importantly, gives them a new pool of voters that are sure to keep on voting for ever increasing immigration quotas.
The situation is much better in the US where immigration quotas are kept under control.
Why shouldn't you buy and hold important resources if the society isn't making those resources fund the system?
Having these free gifts for whoever had money seemed very clever back when the rich people from a system didn't have to let foreign rich people have the same access to their plunder.