After Vancouver introduced a foreign buyers tax, sales took a dive, but where are prices now? Michael Craig, Senior Portfolio Manager, TD Asset Management, talks with Sara D’Elia about how regulatory changes might not work long term to cool prices in Canada’s hot housing markets.
Everybody seems to agree that there are risks associated with record high real estate prices. And yet when we look at this chart, it seems as though, once we saw cooling measures, they only seem to have a short-term impact. Why is that, Mike?
So foreign buyers taxes are really just like a toll on a road. And it's making foreign capital a bit more-- it's making house prices a bit more expensive for foreign capital. But if you think about what happened in Vancouver, prices dropped for about four months. And today, they're right back to where they were pre-tax.
We would expect the same phenomenon to occur in Toronto. A few months of cooling, but by the fall we should be back to levels that we saw before the measures were introduced.
If regulatory changes aren't likely to have an impact on prices, what could help curb the housing market?
It's really a supply side solution. Excess demand should be met with excess supply. And ultimately, the cure for higher prices is higher prices as it pulls in more investment to build homes that there's demand for.
And so I think the answer to this is really a supply side solution. The challenge with demand side solutions is you sometimes get unintended consequences that aren't really what you want. And so we would argue that it's more important to think about supply side measures to solve this problem.
One of the things that becomes obvious in this chart is the idea of spillover. So when Vancouver implemented a foreign buyers tax, it caused prices in markets like Toronto to go up. What could be the next up and coming city in Canada?
Well, if you think about where foreign capital wants to go, our research would show that, when people from other countries buy property, they tend to want to buy in places that have some commonalities with their ethnicities. So markets where there's a large Asian population, for example, would be a primary source. So Ottawa, Montreal, Calgary all have vibrant Chinese communities. And that could be the next spot for foreign investment into Canada.
Thank you very much.