“I’ve never had a more difficult time agreeing with anyone,” said the federal Liberal government’s Parliamentary Secretary for Housing Adam Vaughan on a call with STOREYS on Monday.
“He’s talking out both sides of his mouth,” said John Pasalis of Toronto real estate brokerage Realosophy on a later call with STOREYS. “He’s backtracking to score political points.”
The two were speaking of one another, hours before resuming a heated Twitter exchange. The subject of debate is one on everyone’s lips: Canada’s red-hot, record-breaking, and – for many – soul crushingly expensive housing market.
It all began after Vaughan appeared on TVO’s “The Agenda” last week and said that, “We’re a very safe market for foreign investment but we’re not a great market for Canadians looking for choices around housing.”
The admission was a somewhat surprising one; one many say was overdue. Critics like Pasalis say the Liberal government has facilitated such a climate for its five years in office.
“For years, our federal government has been deflecting our attention away from this, saying that offshore capital is not a problem,” says Pasalis. “They had Canadian Mortgage and Housing Corporation (CMHC) come out four or five years ago and say that anyone suggesting foreign capital was a problem was effectively xenophobic, and have been pushing against a narrative that it was problematic for years.”
It didn’t take long after the TVO interview for Pasalis to take to his popular real estate blog Move Smartly and active Twitter feed to highlight that, while Vaughan acknowledged this problem in his interview, he also stated, “We have a very good system of foreign investment creating a lot of new housing in Canada.”
It’s safe to say this remark didn’t sit well among many in the real estate community.
“If our federal Parliamentary Secretary for Housing believes that the only way to build new homes in Canada is to court foreign investors while ignoring the significant negative consequences of such a policy - he is unfit to hold his office,” writes Pasalis in his blog post.
In the days since, both Pasalis and Vaughan have battled it out on Twitter, as passionate users continue to chime in – many of them understandably fuelled by frustration at the state of today’s market, especially for first-time domestic buyers.
The reality is that the current Canadian real estate market – one that’s increasingly out of reach and anxiety-inducing for today’s younger generation, so much so that they're "giving up" – is one that works in favour of foreign offshore investment. And that’s no big secret. But this is the first time the federal government has really publicly acknowledged that the Canadian system grossly benefits these foreign investors.
“Our market is distorting in ways that’s worrying everyone, myself included,” Vaughan told STOREYS, post-TVO interview. “The biggest problem for Canadian homebuyers is speculators, because they need inflation for their business model to work. We have to bring inflation under control to become more in synch with incomes. In Toronto, we have global real estate markets with regional income markets – they’re out of whack.”
No matter who you ask, the bottom line is that most Canadians – especially first-time homebuyers (in theory, that is) in cities like Toronto or Vancouver – can’t compete with foreign investors on the real estate front.
READ: Aggregate Price of a Home in Canada Expected to Break $800K This Year
Pasalis highlights that foreign investors have made their money in places where incomes are higher and tax rates are significantly lower, giving them an advantage over a young family paying taxes in Canada. He also believes some of the dollars flowing into Canada’s housing market are coming from criminals.
“Foreign money has been ploughing into our housing market from offshore investors and – in some cases – money launderers to launder their cash through real estate that inflates house prices. For years, they’ve said this isn’t happening. Now, he’s effectively saying that not only is it happening, it’s their desired outcome – all part of the strategy,” says Pasalis.
To be clear: Vaughan and Pasalis both apparently agree that offshore money is a problem; that speculation is directly widening the gap between renters and buyers by inflating home prices. They also agree that we need to create a secure and attainable housing market for Canadians. They both tell STOREYS the way to do this is to pull this offshore sector of purchasers away from the market.
So, what’s the source of contention?
While Vaughan says that he’s a “strong believer that if you’re buying a home in Canada, you should be living in that home,” Pasalis calls him out for applying the belief strictly to resale homebuyers – not to new homes. Vaughan appeared on a BNN Bloomberg broadcast Monday night and made this viewpoint clear. And if it wasn't, he drove it home on Twitter afterward.
READ: Toronto Real Estate Market Now Hotter Than 2016 Housing Boom that Caused Government Intervention
"Foreign investment to create new housing, funds that hire workers, increase supply and build more housing to meet demand is good. The housing itself however should not be sold to off-shore speculators. That doesn’t help Cdns find housing they can afford," he tweeted.
Pasalis isn't buying it. “First of all, it doesn’t really matter if foreign investors are buying a new home or a resale home – the problem this creates in our housing market is the exact same, it artificially inflates home prices,” says Pasalis.
To be fair, Vaughan raises an important point in his focus on the resale market. “These investors capitalize on the distortion in the housing market with the purchase of low-end multi-unit buildings, because you can’t jump to home ownership as a single person renting,” he tells STOREYS. “Affluence is pooling in the rental market, so they buy low-end multi-residential units, give them a paint job, and jack up the rental price. We need to take a look at whether you can buy a house in Canada if you don’t live in Canada. The resale market should be sold solely to Canadian individuals – not sold in batches.”
Vaughn tells STOREYS that his government is “looking into everything” to address the affordability issue. Joining the heated conversation, some Twitter users have said that homeowners should take a hit for housing to be affordable. But Vaughan remains adamant that he “won’t vilify the individual mortgage-holding homeowner,” and that triggering even a 10% decline in housing prices (even in markets where prices are up 25-40% year-over-year) isn't fair and won’t fly.
“When people say that the way to fix this is to tax the crap out of homes, it doesn’t help ordinary Canadians whose lives are built around an investment they didn’t make to get lucky, they made to secure themselves,” says Vaughan. “We need to be careful about the way we vilify people who got lucky. They aren’t the people who are speculating even though they’re the ones clearly profiting from this runaway inflation in certain markets.”
READ: TRREB: Capital Gains Tax on Your Principal Home Should Be a Non-Starter
The solution, says Vaughan, is to pull offshore institutional forces from the resale market and see what happens. “If this dampens inflation, if this gives us space and time to figure out the other parts of market the ensure Canadians can sustain housing,” he says. “Start with the offshore money and build the entire spectrum of housing needs out to focus on the end user – not the investor.”
To achieve this, Vaughan suggests investing in more family-friendly infrastructure in downtown neighbourhoods, creating knockout panels between condo units to allow for the potential creation of larger units, and producing a range of affordability options.
But Pasalis isn’t confident that we’ll see any action. “Speculation is a problem but they’re not doing anything about it. They say it’s tricky to address, but it’s actually not,” says Pasalis. “He’s trying to be a politician and deflect from what he said because it’s obviously not politically popular for the federal government to basically say they’ve been selling off all of our houses to foreign investors – they’re not going to win a lot of points with that one.”
In the muddle of finger pointing and endless Twitter exchanges, the fact remains that Canada has a serious housing crisis on its hands. House prices increased 25% across Canada in one year from February 2020 to February 2021. In Toronto, homes selling for 50% over asking in a matter of days has become commonplace.
READ: Is This the Year the GTA Real Estate Bubble Bursts?
Of course, nobody who’s even slightly entertained the idea of buying a property recently needs the reminder. Figures released this week from RBC show that nearly half of Ontarians under the age of 40 have given up the dream of home ownership. It's not only taking a toll on the bank accounts of prospective homebuyers, but their mental wellbeing as well (just ask my group chats).
So, any initiative to cool this overheated market is long overdue and, frankly, a desperately needed lifesaver for the younger generation. Particularly those who cannot count on the bank of mom and dad to save the day.
In the meantime, we have a feeling this isn’t the last we’ll hear of the Vaughan and Pasalis exchange. And we’ll be following along with popcorn.
