It seems like everyone has a plan to address the housing unaffordability disaster in Vancouver these days.
There are five-point plans, six-point plans and 10-point plans. If the path to success is all in the planning, then Vancouver has got this nut cracked.
Nevertheless, to this potluck, the Hongcouver blog presents a more modest offering: a one-point plan to help tackle Vancouver’s home-price lunacy. End the Quebec Immigrant Investor Program (QIIP), the fraud-drenched immigration scheme that still pumps thousands of foreign-funded millionaire homebuyers into Vancouver’s market. Divert that immigrant intake to programs with authentic economic or compassionate purposes. Just stop selling passports at Vancouver’s expense, now.
It sounds so simple. Too simple?
Wait - surely a one-point plan is a major simplification?
It is, of course. The war on unaffordability requires a range of weaponry, including supply, taxation and more data.
But here at one-point plan HQ, we are all about priorities, and addressing the root cause of Vancouver’s unaffordability. Lack of supply didn’t get us here. If there’s inherent undersupply, it didn’t worsen last year in any correspondence with the crazy price increases. On the contrary, housing starts are at record levels. Similarly, interest rates in Vancouver are no lower than in the rest of Canada. Vancouver’s awesomeness didn’t skyrocket in recent years. Neither did over-taxation nor under-taxation.
What does set Vancouver apart – both in scale at this moment, and compared with the rest of the nation and most of the world over time – is foreign money. Foreign money, which by definition boosts the price-to-local-income ratio, is the gleaming core of Vancouver’s housing disaster. It is the irreducible base element to the alchemy that saw unaffordability double in the decade since 2005 – then saw median prices soar a further 30% in 2015, as the Canadian dollar collapsed and the Chinese yuan floodgates opened.
The one-point plan seeks to remove one of the most important conduits for that foreign money. It can’t stop all of the foreign money flowing into Vancouver, and nor should it try to stop that which builds a thriving economy. But it can stop some of it, the bits that bear no relationship to meaningful investment or tax revenue and instead treat Vancouver like a piggy bank.
The QIIP’s role in the Vancouver real estate market
The QIIP is still on track to send about 1,400 new millionaire households to Vancouver annually for the next few years.
The passport-selling party didn’t end when Ottawa froze the federal Immigrant Investor Program (IIP) in 2012. In fact, in 2014, likely IIP and QIIP arrivals in B.C. had fallen only 26% from the absolute peak of intake in 2011 (full 2015 stats are not yet available). In the 10 years from 2005 to 2014, B.C. took in about 14,300 IIP and QIIP households. That’s right: compared with the 10-year average, millionaire migrant arrivals in Vancouver remained virtually unchanged for a few years, despite the federal IIP’s axing. All thanks to Quebec.
And the QIIP is awful, built on fraud from start to finish. Quebec receives an $800,000 loan from each selected IIP household. But instead of settling in Quebec as they vow in their applications, at least 89% leave and settle elsewhere, mainly Vancouver.
Underscoring the ridiculousness of the scheme, only 0.1% to 0.2% of QIIP immigrants speak any French. Even this understates the scale of the exodus, since the federal government knows that some IIP households use “addresses of convenience” in Quebec, according to an internal 2013 briefing document.
In its own official immigration policy, Quebec admits with droll understatement: “Immigrant investors’ contributions to Quebec’s economic development stems much more from the financial investment resulting from their selection than from their physical presence, which remains limited.”
That awareness hasn’t deterred Quebec from siphoning up the cash. Those 1,400 annual B.C.-bound QIIP households will give Quebec $1.12 billion in interest-free loans. B.C. will get none.
Knocking out a market strut
This is the point where supply hawks point out that 1,400 households represent only a small fraction of Metro Vancouver transactions: about 5% of residential sales in a typical year.
But a basic understanding of the home-buying behaviour of the Chinese multi-millionaires who dominate IIP/QIIP arrivals reveals the folly of their argument.
Pretty much all data and market observers – from condo king Bob Rennie, to industry-friendly economists, to academics like David Ley and Andy Yan – agree that such buyers are concentrated in expensive detached housing, in areas like Vancouver’s west side and Richmond.
So let’s apply conservative assumptions. Let’s assume the typical QIIP household buys a home worth $2.5 million, the bog-standard average detached price in the city of Vancouver.
According to the Real Estate Board of Greater Vancouver, the all-sales average for Greater Vancouver last month was $1.06 million. This means that if our QIIP households represent 5% of sales, they represent about 12% of the entire dollar value of the market.
Yet this, too, seriously undervalues their likely share. It assumes QIIP households make a single lifetime purchase, and this is known to be untrue. IIP migrants love buying real estate. According to federal data, real estate ownership is by far their most popular business activity in Canada. Real estate ownership made up 63.1% of all unincorporated business activity by IIP migrants, according to the official Canadian Employer-Employee Dynamics Database. For all IIP businesses, both incorporated and unincorporated, real estate ownership was easily the biggest category, at 48.8%.
Modest adjustments to our assumptions boost the QIIP’s dollar share of the Greater Vancouver market. If their average purchase is $3.5 million, closer to the west side detached average, their dollar share leaps to more than 16%. If only one in three such millionaire households buys a second property based on the same assumptions, then it’s 22% of the entire Greater Vancouver market. And so on.
These calculations are based upon sales of all housing types, in areas from Pemberton to the Fraser Valley. Yet, the QIIP’s impact is not so dilute: it is focused to an extreme degree on detached housing in areas like Richmond and the west side, the epicentres of the unaffordability boom in the past decade. The QIIP is thus a vital strut that supports these sectors, and these sectors arguably support the whole market, as other buyers look further afield, and cashed-up boomers hand off the same money to their kids to buy condos. The one-point plan aims to instantly knock out that strut. Scary, risky stuff, yes. But the one-point plan isn’t about preserving equity, mitigating risk or allowing cosy price growth at a decelerated pace. It’s an affordability plan.
But isn’t Quebec a law unto itself?
Could it be done? Yes. The process of winding down Quebec’s IIP could begin as soon as the federal government dares incur the wrath of that province, which says it raised $671.9 million in revenue from the scheme’s billions in loans from 2000 to 2014.
The feds have the legal right, pure and simple, to cancel the program.
Although Quebec is in charge of choosing its immigrants, federal authorities actually issue their certificates of permanent residency, and decide the speed at which to do so.
According to Vancouver immigration lawyer Richard Kurland, there is no doubt that “the feds have the legal right, pure and simple, to cancel the program. This is not about a constitutional or legal barrier. There is neither.”
And the time for the feds to call time on the QIIP is ripe.
Quebec is in the middle of a revamp of its immigration policies, and one goal is to address the admitted failings of the QIIP by “promoting the long‐term settlement of investor immigrants.” Implementation of a new investor immigrant policy is due in 2017.
There have also been huge shifts in opinion regarding the role of foreign money in Vancouver’s housing crisis. Most of the public has long been convinced, but in recent weeks we have seen Prime Minister Justin Trudeau get on board (“obviously overseas money coming in is playing a role”), as well as Mayor Gregor Robertson (“unregulated, speculative global capital”), and a bevy of bankers and economists.
The local real estate board remains steadfastly in denial about the role of foreign money, but you might as well ask a meth dealer about the virtues of moderation.
Despite these obvious openings, the federal Liberal government refuses to object to the QIIP’s current metastasized state. Immigration Minister John McCallum recently told the Vancouver Sun he had no intention of doing so.
Why should he? B.C.’s government isn’t complaining. Premier Christy Clark’s six-point affordability plan unveiled on YouTube this week makes no mention of foreign money whatsoever, let alone the specifics of the QIIP.
The math doesn’t even matter
Do the federal and B.C. governments care how much of Vancouver’s crushing housing affordability woes are related to foreign funds associated with the QIIP? Probably not – but herein lies the true beauty of the one-point plan.
It doesn’t matter whether they, or you, or the development industry, accept the evidence that the QIIP is turbocharging the market. Because irrespective of all these things, the QIIP is horrible.
It is a money-grubbing prank perpetrated upon Vancouver by Quebec. It is a betrayal of Canadian ideals that diminishes residency and citizenship to the status of mere commodities. It makes a mockery of the true worth of immigration as a whole. It is a scam, and it needs to stop. •
The Hongcouver blog ([email protected]; @ianjamesyoung70) is devoted to the hybrid culture of its namesake cities: Hong Kong and Vancouver.
