No scapegoats this time: B.C. economist says foreign buyer share in home sales drops to near zero in 2020
Home prices have been rising in B.C. even as foreign buyers become less and less of a presence in the real-estate market.
Since the B.C. Liberal government imposed a foreign buyer tax in 2016, a levy that was increased and expanded by the succeeding B.C. NDP administration, the share of non-Canadians in both volume and value of properties sold has steadily declined.
In 2020, the share of foreigners in the fair market value of homes was almost zero.
It was 0.56 percent to be exact, based on figures compiled by Brendon Ogmundson, chief economist with the B.C. Real Estate Association.
Ogmundson used official B.C. government data on property transfer taxes.
Also last year, foreign buyers accounted for 1.4 percent of homes sold in the province.
Meanwhile, the benchmark price of a typical home in markets served by the Real Estate Board of Greater Vancouver rose to $1,084,000 in February 2021.
This represents a 33.8 percent increase compared to the same month in 2016, the year the foreign buyer tax was brought in amid strong and mostly anti-Chinese sentiment.
Ogmundson finds it interesting that there’s not a lot of heated talk about the real-estate market, which has been witnessing multiple offers, bidding wars, and selling prices that are way above listed prices.
“There’s not a convenient scapegoat this time around,” Ogmundson told the Straight in a phone interview.
Since foreigners are no longer around to be blamed, the BCREA economist observed a different behaviour among some of the players in the market.
“A lot of their response that we’re seeing is kind of rational,” Ogmundson said.
Ogmundson explained that the behaviour is “rational” because it is a response to low interest rates, an undersupplied market, and an economy that has proven resilient amid the COVID-19 pandemic.
“Those three things together are going to cause prices to rise above their…long-run average,” he said.
Based on figures pulled by Ogmundson from B.C. government data, purchases of foreign buyers accounted for three percent of homes in 2017, a year after the foreign buyer tax.
Foreigner share of the fair market value of those homes during that year was 3.97 percent.
In 2018, the share in homes bought and value went down some more to 2.4 percent, and 3.16 percent, respectively.
A further decline occurred in 2019, with foreign buyer share of homes purchased and fair market value at 1.7 percent, and 0.86 percent.
The year 2020 came and COVID-19 happened.
“We have this almost perfectly designed natural experiment that…couldn’t happen in any other time, where we closed borders and essentially turned off foreign investment,” Ogmundson noted, “and what’s happened is we have record home sales all across the province and even all across Canada.”
In January, the BCREA reported that the value of homes sold in B.C. for the year 2020 totalled $73.5 billion.
According to the provincial association, this represented a 35.6 percent increase from 2019.
Also, the annual average home price in B.C. increased to $782,027 in 2020.
That's an 11.7 percent improvement from $700,369 recorded the previous year
Taxes are part of demand-side measures, and Ogmundson said policies like the foreign buyer tax was the product of framing the situation in an incorrect way.
“I think a lot of the issue is sort of misdiagnosed as being mainly a foreign capital or foreign investment issue,” he said.
In 2018, former Vancouver mayor Sam Sullivan, then a B.C. Liberal MLA, wrote a commentary for the Straight about house prices and foreign buyers.
Sullivan noted that in the previous couple of years, the debate on what was causing home prices to rise has “pitted non-economists against economists”.
“The non-economists claim foreigners are to blame. The economists claim we Canadians are to blame,” according to Sullivan.
He continued: “NDP politician David Eby has led the anti-foreigner group. A study he initiated indicated up to 70 percent of West Side Vancouver houses were purchased by foreigners.”
“Just last month Stats Canada researchers and Government of Canada housing economists finally released their report. They found 3.2 percent of all single detached homes in Metro Vancouver were owned by nonresidents. This includes Americans and British Columbian snowbirds who live south of the border most of the year,” Sullivan added.
In the phone interview, Ogmundson said that there is no “magic number for when foreign investment is driving the market”.
He recalled that in 2016, when the foreign buyer tax was brought in, mortage rates fell to a record low 2.4 percent for a five-year, fixed-rate mortgage, the economy was strong, employment had grown about 10 percent from 2015 to 2017, and new home listings pretty low.
“It was kind of a bit of a perfect storm for price acceleration, and you had an increase in foreign investment to it,” Ogmundson said.
Ogmundson said that it is “difficult” to pinpoint “causality”.
“Are investors interested in the market because prices are rising? Or are investors causing prices to rise or is it kind of a feedback loop?” he asked.
"The trouble is that we kind of always try and find whats the one thing that’s driving the market when in fact it’s generally a whole bunch of different factors that are all happening at once or kind of reinforcing each other,” Ogmundson said.
In a previous interview with the Straight in January 2021, Ogmundson made an observation about the antiforeign sentiment in B.C. when talk about real estate is involved.
“We have a thriving pan-Asian population for a long time, but even people who have been of second-, third-generation are still sort of seen as foreign because of their names or something silly like that,” Ogmundson said at the time.
Looking ahead, the BCREA is expected to release a major report explaining what are the factors driving the province's real-estate market.