A visit to Union St.

The resumption of Spring in Vancouver found me biking down to Union St. to grab some delicious Portuguese sweet bread from Union Market (near Hawks Ave). Highly recommended! Union Market is one of these old store fronts that popped up along an otherwise residential street prior to the advent of zoning. It was grandparented into the neighbourhood’s current RT-3 zoning through allowing:

“Dwelling Units, up to a maximum of two, in conjunction with a neighbourhood grocery store existing as of July 29, 1980, subject to the provisions of section 11.16 of this By-law.”

For anyone in love with these little corner grocery stores (and there are a lot of us), it’s striking and bizarre that we don’t allow them in residential zones anymore. But Union Market isn’t actually a corner store. Why? Because this beautiful old townhouse complex right next to Union Market occupies the corner.

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To those of us who love townhouses, it’s striking that this form of housing is also forbidden from the majority of residential zones in Vancouver. Here it’s grandparented in with RT-3 zoning to preserve the pre-1920s cityscape of Strathcona. It’s even got heritage designation. It’s clearly a valued streetscape. So why isn’t this form of housing allowed on other residential streets?

Just down the street I passed another old store front. This one is also heritage (if you squint, you can see the marker near the door). But it’s no longer being used as a store. It’s been turned over to residential use. The whole lot was redesigned to support three different residential units about twenty years ago (1999). One in the back (along the laneway), and two up front. (UPDATE: as noted by an observant twitter user, the storefront portion seems to be AirBnB‘d, so it retains an ironic (?) commercial use…)

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The history of this lot is fascinating, as revealed in a staff recommendation to City Council from 1999 supporting variance from existing RT-3 zoning to enable its renovation:

Heritage Value: The site at 658 Union Street is listed in the “B” category on the Vancouver Heritage Register and is noted as being an “unique example of [an] early multiple structure”. Three distinct structures were built on the site between 1893 and 1913:

· middle dwelling: the earliest structure was a one-and-a-half storey dwelling built in 1893 and situated in the middle of the lot; only the foundations and wall fragments remain;
· rear dwelling: the next was a one-and-a-half storey end-gable frontier-style structure erected sometime between 1901 – 1912, along the rear property line; and
· grocery store: the final addition was made in 1913, after street levelling activities in Strathcona were complete; it is a two-storey clapboard-sided grocery store with tin cornice, which abuts the Union Street edge of the property.

The latter two extant buildings are representative of architectural and historical themes unique to Strathcona including: Strathcona’s working class heritage; urban change/street levelling activities and community response; and vitality of neighbourhood through grocers and other home-based business.

Of note: the valuable “working class heritage” of Strathcona is precisely what was zoned out of single-use residential neighbourhoods of all sorts (RS, RT, and RM) in subsequent years. And supporting the renovation of the old store front required all sorts of variances from the RT-3 zoning currently in place. The administrative staff helpfully catalogued all the variations proposed:

Screenshot_2019-03-18 656-660 Union St - Designation Heritage Revitalization Agreement

That’s a lot of variance! It also demonstrates nicely just how many restrictions around development are currently in place in zoning by-laws. And this, of course, is simply to restore the “working class heritage” of the lot. Were there objections?

Oh yes:

As part of the Development Application review process, a sign was placed on the site and 47 surrounding neighbouring property owners were notified. Eight neighbours responded. Four support the project in its entirely, including the immediate neighbours to the west. The four others support the conservation component of the proposal, but have the following principal concerns:

· the proposed site coverage leaves little useable outdoor space at grade;
· the building length next to the east property line is excessive;
· entries, decks and coach house configuration would significantly detract from the privacy of the property to the east;
· the extent of proposed changes to the existing rear structure is excessive;
· the configuration of the front unit lends itself to conversion to an illegal secondary suite;
· the current difficulty of finding parking on the street will be exacerbated; and

· the proposed development is too dense relative to the single family dwellings typical of this block.

Strikingly, the neighbourhood association supported the retention (with some caveats) and the half of respondents supported the project in its entirety, with the remainder supporting parts. The most pertinent objections came from the property to the East of the lot. A variety of alterations were made accordingly. But the basics of the renovation remained, and ultimately the lot provided room for three units, subsequently stratified, and now assessed as worth $832k, $868k, and $1,100k.

That’s a lot for twenty year old dwellings, and probably well beyond “working class” territory. But most of the value, as always in Vancouver, is in the land. What do we get in allowing three households to split the cost of the land rather than one? Well, the single structure beat-up house next door (to the West, partially obscured by the tree above)  is assessed at $1,568k. Even taking into account a bit of land lift, each of the three twenty year old units created remains far cheaper than the nearly hundred-and-twenty year old unit (likely in need of some repairs?) next door.

What about that persnickety neighbour to the East? Well… about that… some dozen years after the old store front building was re-done, the lot to the East was entirely re-developed through a lot assembly with the adjoining house. Now the redevelopment of the two lots support and serve as their own heritage infill case study.

Screenshot_2019-03-18 11 03 2010-Union-st -pdf pdf

It’s pretty fancy! What’s striking is that the two lots together now support SEVEN different dwelling units, centred around an interior courtyard.

Screenshot_2019-03-18 11 03 2010-Union-st -pdf pdf(1)

And how much are these new (2013) units? They’re assessed from $523k all the way up to $1,259k (I’m assuming for the big laneway house at the back). In other words, none of these practically brand new units reach the price of the run-down old house on the lot two down. Why? Because they’re sharing land costs. Here’s what the four lots in question look like from the back, via Google Maps satellite view:

Screenshot_2019-03-18 Google Maps

Even though there’s been uplift in the land value with the permission of extra density on the two redeveloped lots, the uplift still doesn’t come anywhere near cancelling out the benefits of sharing. From left to right for the lots centred above, beginning with the partially shaded lot containing the old car covered in vegetation, here are the assessed land values for the lots:

  • one lot with one dwelling*: $1.523 million = $1,523k/unit
  • one lot with three dwellings: $2.291 million = $764k/unit
  • two lots with seven dwellings: $3.878 million = $554k/unit

Despite the benefits of sharing land, none of the ultimate unit prices (ranging from $523k to $1,259k) seem likely to provide stable and affordable housing for the working class households of today. For that, we’ll need more purpose-built rental and social housing. But both of these things become more viable when land costs can be shared across units. Maybe the best way to insure that the working class heritage of Vancouver continues on into the future is to enable and support purpose-built rental and social housing everywhere – especially in the places this kind of housing has historically been excluded. Vancouver’s re-legalization of duplexes on RS zones and moves forward on Making Room are probably good steps along the way.

 

*- It’s actually unclear how many dwellings are contained in the dwelling with the car in the backyard because we don’t know whether it’s been subdivided to contain one (or more) suites. Legally there is only one dwelling available to be owned.

 

 

 

 

 

Tax Speculations

co-authored by Jens von Bergmann & cross-posted at MountainMath

 

BC has introduced the Speculation and Vacancy Tax and instructions for filling out the declarations are in the mail. The tax targets homes in major urban centres that are left empty, or that are owned by “foreign and domestic speculators” that “don’t pay [income] taxes” in BC. The tax rate is 0.5% of the assessed value in 2018. From 2019 onward rates increase to 2% for foreigners (not permanent residents nor Canadian citizens) as well as citizens or permanent residents that are deemed members of “satellite families.” A “satellite family” is defined as a family – combining spousal incomes – where less than 50% of total worldwide income is declared (and taxed) in Canada.The portion targeting empty homes follows along similar lines as the City of Vancouver Empty Homes tax, with similar exemptions. Homes are generally exempt from the tax when owner-occupied or rented out for at least half of the year. Importantly, foreign and satellite family owners face additional burdens in renting out homes. Tenants must either be arm’s length, meaning they have no special relationship with the landlord, or, if non-arm’s length, they must be permanent residents or Canadian citizens with Canadian income at last three times the annual fair market value of the rent for the entire residential property.

The tax has been reported to affect about 32,000 homes, about 20,000 of which will be British Columbians with the remaining 12,000 foreigners or residents of other provinces, and generate around $200M in revenue. Unfortunately the province has not shared a more detailed breakdown of how many homes are in each of the category the tax targets, the empty homes, the foreign owners, or the satellite families.

Like everyone, we’re curious how it’s all going to work! Here we want to try and put out some preliminary guesses as to how many a) empty homes and b) foreign owners might get taxed. We also want to think a bit more about satellite families and imagine how possible consumption audits might work. This enables us to make some educated guesses about c) the population at risk of being audited. Surely some of those audited will either have to pay the speculation tax or end up referred for income tax avoidance. Others will have ready explanations for why their property holdings fail to match their reported incomes, likely explaining their lifestyles as products of income volatility or legal gifts (falling beyond combined spousal income). Finally, we want to address the possibility of better rental income reporting as a result of the Speculation and Vacancy Tax. Might there be even more d) revenue gained from better reporting rental income relative to direct Speculation and Vacancy tax revenue? Let’s find out!

TLDR:

We’re guessing from various sources detailed below that the BC Speculation and Vacancy Tax will identify about 8,800 properties as vacant and subject to the tax (i.e. not exempt). An overlapping 46,000 properties owned by “foreign” owners may be subject to the tax if they don’t secure qualifying tenants for their properties. Another overlapping 45,000 households may be at risk of being identified (or audited) as satellite families, mostly living in pricey single-family detached (or suited) dwellings. Around a third of these households will be headed by Canadian-born residents, and investor class immigrants will likely end up overrepresented within immigrant households at risk of being ID’d as satellite families. Metro Vancouver will be most affected by the tax. The collection of income and property value data together with the registration of tenants in rented properties will potentially bring in more revenue indirectly, by increasing compliance with reporting of rental income and reducing tax avoidance/evasion more broadly, than by direct payment of the Speculation and Vacancy Tax.

Empty homes

How many empty homes will the tax effect? Empty homes are hard to estimate. The City of Vancouver commissioned a study based on BC Hydro data to estimate the number of empty homes in the city in a similar manner to how the tax applies, coming up with 10,800 to 13,500 empty homes in the city. In the first year, 2,538 properties were subject to the tax (roughly half declared themselves so with the rest failing an audit or failing to file or appeal). Another 5,385 were declared exempt (some of the exempt properties were not in the universe of the Ecotagious study). It is unclear how much of the difference is due to previously empty homes getting occupied or evasion. It is difficult to use this to estimate the total number of empty homes affected by the speculation tax, but one very rough estimate would be to take the number homes unoccupied on census day and scale the numbers down by a factor 8.6, roughly the ratio of the 21,820 homes unoccupied on census day in the City of Vancouver to 2,538 empty homes paying the empty homes tax.

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Overall there were 75,870 dwelling units that were unoccupied on census day in the regions where the Speculation and Vacancy Tax applies. If we use the Ecotageous study for the City of Vancouver as a guide, we would expect 41,725 empty properties using the definitions from the Speculation Tax, and 8,825 properties that will pay the tax. This might be a low-ball, given that the province has more effective means in checking for evaders entering into “fake rental” agreements and that the tax rate is lower (for the first year, and for permanent residents and Canadian citizens that make up the bulk of the affected owners in the years after) than in the City of Vancouver, and that the tax can be offset against BC income taxes, potentially inducing fewer people to sell or rent out their property in response to the tax.

Foreign owners

How many foreign owners will the tax affect? Foreign owners are defined as those owning property without being a citizen or permanent resident in Canada. Keep in mind that foreign owners won’t face any speculation tax so long as they rent out their properties to an arm’s length tenant or so long as the deal seems plausible for a non-arm’s length tenant (right now 37.7% of all secondary market renters in the regions affected wouldn’t meet the specified plausibility requirements, but that’s mostly due to their income being too low and that doesn’t matter for arm’s length tenants). Only if the foreign owner themselves occupies the property, leaves it empty, or keeps family members (like children) housed upon the property will they face the tax.

Ever since instituting the Foreign Buyer Tax in 2016, BC has been tracking data on how many purchases are made by foreign buyers. But for a variety of reasons, this kind of transaction data is a poor reflection of the number of foreign owners at any given point in time. Statistics Canada has sought to better collect data on foreign property ownership through its CHSP program, but the definitions differ from tax policy definitions. For CHSP purposes, it’s the primary residence of owners that matters rather than citizenship or permanent residence status – in other words, do owners live at foreign addresses or Canadian addresses? Some people with overseas primary residences will have Canadian permanent residence or citizenship. Some people with primary residence in Canada will not have Canadian permanent residence or citizenship (this status, for example, covered both authors of this blog post when they first moved to Canada). While imperfect, the measure of primary residence probably isn’t a terrible proxy for who will face taxation.

Extrapolating from the CHSP data for the region covered by the Speculation and Vacancy Tax suggests that 46,110 “foreign” owned properties might face the tax, in addition to the relatively small number of foreign individuals likely registering their properties through corporate ownership. It’s important to remember that there may be a significant overlap between the empty properties we looked at above and the properties of non-resident owners likely to face the tax, so these are non-exclusive categories. But we don’t yet have any good data on the degree of overlap.

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Of note, so far we can report that the impact from the Speculation and Vacancy Tax will vary widely by geography. Many municipalities have very few empty properties or foreign owners. Others, as near UBC (Metro Vancouver A) have a lot. Of course it’s worth noting that the housing around UBC is unusual for many reasons, including its student population (often boosting census unoccupied counts and highly transnational). Moreover, Electoral Area A weirdly extends into the mountains of the North Shore, where a small number of empty cabins complicate the picture, but there aren’t too many, so we don’t show that part on the map.

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Satellite families

What about satellite families? Brace yourself for a much longer discussion, necessarily delving into the definition of satellite families, the methods BC may attempt to use to audit those they suspect of being satellite families, and the limits of the information we can gather about satellite families.

In common parlance, satellite families refer to families where income earners live and work in one place while children and spouses live in another. Within the family sociology literature, this includes a variety of spousal and spouse-like relationships grouped as Living-Apart-Together (LAT). It also includes adult children being supported by parents who live elsewhere, and minor children who might be living with other caregivers (like grandparents) while receiving parental support. Within the immigration literature, satellite families might also be understood to include a wide variety of ways families work around and across borders, often sending different family members to places where they’re likely to see the most economic opportunities, but involving remittances sent back across borders for the good of the family as a whole. The Philippines and Mexico are perhaps the places most studied where families send workers abroad who return remittances back home, usually with a long term goal of reuniting the family. But other countries, including China and even Canada, have similar traditions. Satellite families create transnational ties, constituted in part through the flow of resources across borders but between family members. Vancouver likely has a lot of satellite family members engaged on both sides of transnational income sharing, both as wage earners supporting those abroad, and family members supported by those abroad.

Vancouver also has a lot of wealthy residents, including both immigrants and non-immigrants. And if there’s one thing we know about wealthy residents, it’s that they often don’t pay their fair share of taxes. In the specific context of BC’s Speculation and Vacancy Tax, the debate over satellite families has often emphasized tax avoidance. Satellite families are frequently suspected of gaming tax systems for their own advantage by deriving their income from another country, leaving it untaxed by Canadian income tax. Income tax, of course, helps to fund many services (e.g. education, healthcare) enjoyed by Canadian permanent residents and citizens. Property tax also funds many services, though as many observers have noted, BC has very low property tax rates. So it’s possible to game tax systems – entirely legally – by one family member working in a location (outside of Canada) where income tax rates are lower than BC’s and paying income taxes there, while other family members buy property and enjoy many of the services of BC, where property taxes are often lower than elsewhere. This is the situation the Speculation and Vacancy Tax is meant to correct, though of course it also potentially creates problems for transnational families who aren’t attempting to game tax systems. It also has no impact on satellite families who rent rather than own. Aside from identifying satellite families, the joining of property data with income data also has the potential to identify tax evasion. As revealed by recent CRA audits, tax evasion among wealthy Vancouverites is probably pretty common.

How many satellite families are there? We really don’t know yet. There’s no good data on the issue, especially since families filling out census forms may, or may not, choose to list members regularly working overseas as resident in BC (and census residence is different from tax residence). That said, we have a better sense of who might be at risk for either listing themselves as satellite families or being audited under suspicion of tax avoidance or evasion. But we have to make some guesses about what might trigger audits.

First, let’s remind ourselves of what data is being collected. The declaration form for the Speculation and Vacancy Tax asks about worldwide income for property owners, including the combined worldwide incomes of spouses. This is attached to property tax data from the assessment rolls. So the tax authorities should have declared data on worldwide income, income taxed in Canada, and property values. Recall that owners with less than half of their worldwide income declared in Canada are considered satellite families. Some people will identify themselves as satellite families. But in other cases, they may provide false declarations regarding their worldwide income. This opens up a variety of auditing opportunities for BC and the CRA. How will they decide who to audit for compliance?

We already know the CRA has identified lifestyle audits as a lucrative means of tracking tax evasion. We also know they’ve got a rule in place regarding rents deemed legitimate for non-arm’s length tenants. We can build on this to explore cases likely to trigger audits if undeclared as satellite families. Keep in mind there may be many explanations for discrepancies between property value and income, including family income volatility; dramatic appreciation of housing purchased long ago; or living off savings, inheritance, or gifts. But other explanations will identify home owners as “satellite families.” Of note, still other explanations may be referred to the CRA or police authorities when they suggest tax avoidance, tax evasion and/or work in illegal economies. So how many people are at risk of being audited as satellite families?

Wait, just a few more methodological caveats! We will try to estimate the number of households at risk of being audited or labeled as satellite families using the recently released 2016 PUMF data. 2016 data is, of course, now somewhat dated, being collected prior to a number of policy changes of interest to what we’re exploring, including (but not limited to) the imposition of the Foreign Buyer’s Tax in 2016, the imposition of the Empty Homes Tax in the City of Vancouver, and the slow roll-out of the Speculation and Vacancy Tax itself. We also won’t be able to achieve a perfect match with the regions the speculation tax applies in, having to make due with using Census Metropolitan Areas. The largest discrepancy is that this drops the Nanaimo area region. PUMF data is based on a weighted subsample, so estimates based on PUMF data are never counts as when using the census, but ranges based on different weightings. In most cases, actual census counts will be contained in these ranges, so PUMF data adds a conceptual nuance we usually don’t see when using census data. At this point it is good to remind ourselves that what we are really interested in is not the census counts but the actual numbers on the ground that the census is trying to estimate, but as usual we will gloss over this last step and be satisfied with estimating census counts. Here we will use the primary household maintainer as a proxy for the owner, and we will ignore dual or multiple ownership scenarios where owners fall into different categories. The speculation tax puts heavy emphasis on spousal income, which is different from family income or household income. That makes it a bit difficult to use census data to compare, we would need another custom tabulation to extract the income of spouses only. For this post we will gloss over this issue and just use household income instead. While family income may be closer to spousal income, we simply felt that household income is a more appropriate measure in the context of the Speculation Tax. People that favour different preferences are welcome to grab the code and make the appropriate adjustments. A related issue is what counts as a “satellite family”, in particular it is not clear if it applies to individuals who are not married or living common law. While only married (including common-law) tax residents in BC would appear to be at risk of declaring themselves part of satellite families, single individuals could also be flagged for lifestyle audits to determine tax compliance, so we include both, but we separate them. Throughout we will exclude immigrants that came in 2015 or 2016, as their 2015 Canadian income may not correctly reflect their subsequent Canadian income. Moreover, we exclude households that have moved within the preceding year, as well as properties worth less than $150,000, as these are exempt from the tax. Generally we don’t report if a category contained fewer than 30 (unweighted) cases.

Home-value-to-income based triggers

Assessed home value to income ratios could serve as a trigger for consumption based audits. But what’s a good ratio to use? For a foreigner renting out their property to a non-arm’s length tenant, the tax requires the income of a tenant to be at least three times the (fair market value of the) rent in order for a foreign owner to be exempt from the tax. We take this as a hint we can use this as an implicit definition of a satellite family. A satellite family may be identified as a household with declared income taxed in Canada that is less than 50% of three times the imputed rent. Why? There’s the expectation encoded in the non-arm’s length definition that housing costs will take up no more than one third of income. And if more than 50% of the household’s combined spousal worldwide income is declared outside of Canada, one is considered a satellite family. To estimate imputed rent we use a gross cap rate of 3%. This test is effectively asking that owner households spend at most two-thirds of their total Canadian income on shelter cost based on imputed rent.

However, this will catch quite a few “house-rich but income-poor” people. Take for example a senior that bought their house a long time ago for a lot less money than it would take today. If their house is now worth, say, $2M, then the imputed rent comes out to be $5k a month, or $60k a year, requiring an total annual income of at least $90k to pass our test. Given the fairly large appreciation of property, especially in the years before the census, it seems reasonable to adjust the trigger by how long the property has been held. The province will have the exact time the property was purchased to fine-tune this, but using census data we can only check if the person lived in the same residence one and five years prior. As we are exempting people that moved within the year before the census (analogous to the Speculation Tax exempting properties in the year they transacted), this leaves us with the five year timeframe.

Given the explosive rise in property values in the year before the census, we discount the imputed rent by a factor of 0.8 if the household maintainer moved into the property between one and five years before the census, and by a factor of 0.5 if the maintainer moved in more than 5 years before – reflecting the roughly doubling of property values within the five years before the census. We call this the adjusted imputed rent test.

Of note: our data is top-coded for dwelling-values above $2M, which can lead to some mis-classification for some properties with very high dwelling values, but ultimately different ways of adjusting for this have little big impact on the high-level numbers. We added an additional filter excluding households with household income above $90k, which softens potential issues around top-coded dwelling values.

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Combined spousal income determines satellite family status under the Speculation and Vacancy Tax, so we separate out our estimate of those failing our adjusted imputed rent test (and hence at risk of being audited) by marital status. This yields an almost identical number of single vs married or common law households failing the test, combining for around 45,000 in total. While only married (or common-law) people would seem to be at risk of being labeled satellite families given the focus on combined spousal incomes (“gifts” to children and other family members don’t count the same), it’s possible that auditors will still include single people in the pool of those at risk of being audited for tax evasion and failing to accurately report worldwide income. So we’ll keep both singles and marrieds in the analysis, but treat them separately.

Household Status

We also want to look at other statuses that might matter. Students and seniors come to mind as being particularly vulnerable to audit because of their lower incomes. In addition, seniors may be especially likely to have purchased their homes long in the past, meaning their homes may have done much more than double in value since they’ve lived in them. So let’s see what happens when we separate out these groups.

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We see that in particular single seniors make up a good portion of households at risk of being audited, but the bulk is taken up by working age population that is not attending school. Household type gives a different way to understand the makeup. If satellite families mostly involve an overseas wage earner supporting a spouse and children, do we see a lot of these types of households?

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As it turns out, there are relatively few people who report being married but living as a lone parent who fail our adjusted imputed rent to income test. There are only around 2,400 married or common law household maintainers that show up in lone parent households, making up a small proportion of those failing our test overall. But it’s possible that many respondents filling out census forms still report their spouses as belonging to the household, even if they spend a significant amount of time working overseas, so we shouldn’t count out other married and common-law categories, split between those with and without children, from being considered satellite families.

Dwellings

What kinds of dwellings are people who fail our test living in? First let’s talk about dwelling values. By our metric, the disjuncture between dwelling value and reported income triggers possible audits. Higher dwelling values have a mechanical effect on increasing the income needed to avoid an audit, so we’d expect households with higher dwelling values to be more likely to fail our test. Is this what we actually see?

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As one would expect, relatively few lower dwelling value homes are impacted. But each half a million dollar value bracket between $500k and $2M seems fairly evenly filled by about 4,000 households, jumping to higher number for homes above $2M, especially those occupied by married or common law household maintainers. Those most at risk of being audited would appear to be those living in the most expensive homes.

What structural sorts of dwellings are the people who fail our adjusted imputed rent to income test living in? Condo apartmentsSingle detached homes? Both dwelling type and condominium status will be available to government auditors. Our data only has three dwelling types: single detached, apartment and other. In our focus on owner-occupied dwellings and taken together with the condominium variable, we’re mostly separating condominium apartments from single-detached houses, with the latter showing up either as a single-detached house or a non-condominium apartment (i.e., house with a secondary suite or “duplex”). But there will be some other types of non-condo apartments and other types of structure (e.g. rowhouses) showing up as both condos and non-condos.

spec-map8

Most of those at risk of being audited would appear to live in single-detached houses, with or without suites, with condominium apartments taking a distant second. It would appear that not too many other kinds of housing will be targeted, or at least we don’t see enough of them to provide reliable estimates of their frequency. But this analysis by itself is interesting in policy terms. As a reminder, some condominium apartments will be temporarily exempted from the tax if they have restrictions on rentals – an out not available to other dwelling types (and also not available for long!) Detached houses with secondary suites have another potential loophole. Regardless of their status, property owners might be able to avoid paying the Speculation and Vacancy Tax on their house as a whole so long as they rent out one of the suites on the property to an arm’s length tenant, pointing toward the categorical flexibility houses with suites repeatedly demonstrate in policy terms.

Immigration

In the context of satellite families we often think of immigrant households. These are the households expected to maintain transnational connections, though overseas income earning may diminish with time (and generation). Of course, non-immigrants can also find themselves earning incomes (or partnered to those earning incomes) outside of Canada. Moreover, we know Canadians of many stripes and backgrounds attempt to evade taxes, just as they also have “bad years” where their incomes may drop out of the normal. So let’s look into immigration by period, including non-immigrants in the mix. How does immigration relate to risk of being audited as a satellite family using our adjusted imputed rent test?

 

landyr-1

Higher numbers of non-immigrants (i.e. Canadian born) fail our test than any ten-year immigration arrival bracket. Non-immigrants especially dominate the set of single people with lower incomes than expected by housing values, but they also appear in great numbers for married people. This is a striking finding, but also reflects the greater overall size of the non-immigrant population. Looking at immigrants by period, we tend to see what we expect: recent immigrants fail the test more often than more established immigrants. Recent immigrants failing our test also tend to be dominated by married couples, unlike what we see for non-immigrants, but this gap diminishes over time as immigrant patterns come to look increasingly like Canadian born patterns.

Looking at the share of owners failing our test in each immigrant category, as opposed to their total numbers, helps clarify these patterns further.

 

landyr-2

Here we see that higher proportions of recent immigrant owners fail the adjusted imputed rent test than for non-immigrant owners or more established immigrant owners. Reading shares by period of arrival sideways, the evidence would suggest that more recent arrivals owning homes will likely move toward non-immigrant patterns for home owners the longer they remain in Canada. But culture and wealth of immigrants may vary with period, so there may be other explanations at play as well.

Where are those who fail our test coming from? Let’s take a look, using place of birth! Of note, sending countries vary from period to period, meaning the period analysis (above) influences the place of birth analysis (below) and vice-versa. Arrivals from China, in particular, tend to be more recent. We should remind ourselves that place of birth is not necessarily the same as the place people immigrated from. In particular in the case of China, sizable portions of immigrants arriving from Taiwan and Hong Kong were actually born in China.

 

landyr-3

Here Chinese born and Canadian born household maintainers contribute the most to owners failing our adjusted imputed rent test. But other sizable contributors to possible audits include those from Hong Kong, other East Asian countries, and the United Kingdom. The United Kingdom may seem unexpected as a group likely to face audits, but we have already seen some of the relevant cases documented in the news. Let’s look at share of owners failing our adjusted imputed rent test by place of birth.

 

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Diving into the share of owners likely to trigger audits, we see in all cases that it’s a minority of owners at risk from each country. The uncertainty ranges are too large to sensibly rank the data by place of birth. We grouped immigrants from birth places with fewer than 30 (unweighted) combined cases into larger groups. Nevertheless there are sizable proportions of owners arriving from China, Hong Kong, and Other Eastern Asian countries at risk of being audited. This likely reflects Canadian immigration programs selecting for wealth, like investor class programs, popular in these countries. Comparing investor immigrants living in the speculation tax regions to all immigrants by place of birth, we notice how the investor program leans heavily toward Pacific Rim countries.

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We know just over 22,000 property owners in Metro Vancouver were identified as investor class immigrants in 2018 CHSP data. We also know that the incomes of the investor class immigrants reported in Canada have tended to be lower than for other streams, as confirmed in the 2016 census data below.

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Looking at the adjusted family income deciles, the bottom decile is very strongly represented, with incomes slowly rising the longer the immigrants have been here. While we don’t know how these roughly 62,000 investor immigrants group into households and household types and break up into renter and the 22k owner households, this does provide more circumstantial evidence that a fair number of investor class immigrants will get caught by the adjusted imputed rent audit trigger.

East Asian ownership patterns may also reflect price discrepancies that make Vancouver real estate seem especially cheap to immigrants arriving from across the Pacific Rim. Arrival with wealth, whether from the sale of a pricey residence overseas or other sources, enables movers to quickly purchase housing in Vancouver. Once arrived, they could become satellite families by returning income earners to countries of origin where they see stronger job prospects (and less discrimination), or they could simply be living off of their savings as they adjust to life in Canada as homemaking migrants (ungated version). In this, immigrants may constitute a special case of income volatility in the years after their arrival. And of course let’s not forget that where there is wealth, no matter the source, there are likely to be attempts at tax avoidance and evasion!

Regional Variation

Lastly we quickly check on how properties likely to be declared as satellite families or audited for lifestyle discrepancies are distributed over the CMAs that we consider. Not surprisingly, in terms of sheer numbers, the Speculation and Vacancy Tax is overwhelmingly going to target Metro Vancouver. Almost all of the properties failing our test are in Metro Vancouver. Which isn’t too surprising since it’s where all the people live.

spec-map15

But what about in terms of share? Metro Vancouver is also where the highest value homes are located and the area with the most transnational ties. So perhaps it’s not surprising that the share of households likely to declare as satellite families or be audited as such looks highest in Metro Vancouver. But by share it’s more clear that Victoria, Kelowna, and Abbotsford pull at least some weight.

spec-map16

Comparing to Shelter-cost-to-income triggers

Another measure that has been in the public discussion regarding satellite families is the shelter-cost-to-income ratio. Instead of (adjusted) imputed rent, we can take the actual shelter cost from census data. This won’t be directly available to the government for audit purposes, but the government could try to approximate this using the mortgage registered against the property from their land title database.

Replacing our adjusted imputed rent with shelter cost we now can ask that owners have enough income to cover three times their shelter cost. Folding in the Speculation Tax definition of spouses having to declare at least half their joint spousal income in Canada we arrive at a shelter-cost-to-income cutoff of 66.7%. That’s something that’s reasonably easy to check in Census data, just like we did for renters near the top.

The total numbers of owner households failing the shelter-cost-to-income test is very similar to those failing our adjusted imputed rent test, but the populations don’t fully overlap as the following graph demonstrates.

spec-map17

This shows that the tests are quite sensitive to the definitions, and using these kind of tests for audits will not be entirely straight-forward. Provincial auditors will likely be busy, and will require a robust data-driven audit system in order to be effective.

Rental Income Tax Reporting Compliance

Reading through the requirements one can’t help but think that the BC government will make use of detailed individual tax return data to enforce the regulation. They may be able to use rental income on tax returns to verify the that arm’s length tenancies were correctly declared. At the same time, this should prove a very effective measure to ensure rental income is properly declared by landlords, which in turn forces proper declaration of capital gains taxes in case of a sale of a secondary residence, both of which are suspected to have low compliance. To get a rough idea of the impact, we use census data to estimate the total rent being paid by tenants. The aggregate shelter cost of tenants not in purpose-built, social housing or basement suites in our regions is $3.09B. Here we exclude basement suites because they are affected differently by the speculation tax. Rent is generally a bit lower than shelter costs, because rent may not include utilities. Combined with this, as well as tax write-offs, we assume an effectively 15% of this total is due as tax on rental income. If we take the current compliance rate to be 50%, the compliance rate that was recently estimated for artisanal landlords in London, and assume that the speculation tax increases compliance to 100%, this would generate an additional $232M of tax revenue at the federal and provincial level, which is the same order of magnitude as the projected direct tax revenue from the Speculation Tax. On top of this, declaring rental income makes it harder to evade capital gains tax at the time of sale of as secondary property.

Conclusion

The BC Speculation and Vacancy Tax has been reported to affect about 32,000 homes, about 20,000 of which will be British Columbians with the remaining 12,000 foreigners or residents of other provinces, and generate around $200M in revenue. While we’re not certain where these figures come from, given our estimates above they actually seem pretty reasonable. We’re guessing about 8,800 properties will be considered vacant and non-exempt from the tax, overlapping with 46,000 properties owned by “foreign” owners and subject to the tax if left unattached to a decent rental contract. A sizable 45,000 households may be at risk of being identified (or audited) as satellite families, mostly living in pricey single-family detached (or suited) dwellings. As we note, around a third of these households will be headed by Canadian-born residents, but it’s likely many investor class immigrants will also be hit, and the vast majority affected will be in Metro Vancouver. Finally, the tax will probably generate a lot of revenue indirectly by increasing income tax compliance, quite possibly topping its direct revenue. We’ll be watching to see how it unfolds!

For those interested in more details on our methods, or people that would like to make different assumptions and continue to investigate along these lines, the code for the analysis is available on GitHub.

What does livability mean?

Livability is a big, important concept in both planning and housing. But what does it mean? As it turns out, the concept of livability gets articulated in lots of different ways, and there’s not a great deal of agreement. In no small part, this is because people are different and want different things out of life, creating a definitional conundrum. But livability is also a really important concept. Livability sits at the heart of articulations of human rights, including the right to housing. It’s used to rank cities and set them competing with one another. It’s a key concept in planning, and embedded within a wide range of hyper-local by-laws determining how people can live.

I was recently asked to write a book chapter discussing the concept of livability, and it was actually pretty fun. Here I just want to make public my basic takeaways (spoiler alert*).

I explored conceptualizations and metrics of livability across different scales and agencies, moving from the United Nations articulation of housing as a human right (with origins in the Habitat ’76 conference right here in Vancouver!) through the various international rankings of livability (Economist, Mercer, Numbeo) that often rank Vancouver near the top (except Numbeo), through the nation-state of Canada (that relies upon Core Housing Need as its key measure of livability as it applies to housing) to Metro Vancouver and its Livable Region strategy (again back to the 70s!) to the City of Vancouver and its by-laws specifying livability as it pertains to housing via minimum dwelling standards (applied to the whole city) and even more hyper-local zoning standards (applied lot by lot). I compared all the ways livability gets conceptualized, articulated, and put to use, as well as all the different dimensions captured by each conceptualization. Like I said, fun! Here’s the big takeaway table:

Table-blog

Don’t stare too long or you’ll hurt your eyes (though you should be able to click for a bigger version). But there are some interesting points from this comparison that reflect the fundamental tension at the heart of defining a singular concept of livability across the differences that make us human and speak to issues if scale.

At the international level, the differences between people and their living situations are all too plain. The only way to really harness livability to a common, culturally and socially inclusive definition of human rights is to keep definitions ambiguous and aspirational. As we move over into different uses for livability (e.g. commercial uses) and down in scale, we tend to get clearer articulations of livability that speak to more specific standards. Correspondingly, we start to lose some of the cultural openness to difference. We also start to see real closure emerge, with Metro Vancouver using livability as a control upon growth and the City of Vancouver’s by-laws outright excluding versions of livability deemed unacceptable. Ultimately, as livability becomes more carefully defined, it also becomes increasingly exclusionary. Put differently, the standardization of living overwhelms acceptance and inclusion for different lifestyles.

What’s that you say? Put it into an animated .gif?

AnimatedGIF

 

So be careful in working with livability as a concept. Think hard about both the inclusionary and the exclusionary aspects of relevant definitions. At the international and national levels, livability often works toward shoring up a right to housing, which is super-important.** I’m a firm believer that housing should be a right! But it’s not at all clear how you move toward defining precisely what that right entails on the ground. And in practice, the closer we get to local specifics, the more we see the articulation of livability twisted away from inclusion and toward exclusion.

 

*- for the seven people that might actually read my book chapter besides the very patient editor!

**- Notionally, that’s the work that Core Housing Needs should be doing within Canada, though it mostly just directs funding priorities. I’ve elsewhere written about both the promise and some of the problems of the Core Housing Needs measure.

There is no Brain Drain, but there might be Zombies

co-authored by Jens von Bergmann & cross-posted at MountainMath & (as of Feb 8th) updated with slightly better mortality estimation

 

Zombie attack! Zombies fleeing Vancouver want to eat your brain… drain… or something.

A couple of weeks ago The Canadian Press reported a story asserting that young professionals were leaving Vancouver because of the high cost of housing. This fits in with a common zombie refrain that we hear from the media. It’s a story that just won’t die, no matter how many times it’s proven wrong: Millennials, or young people, or boomers, or people important for some other reason are leaving Vancouver because of housing. Usually there are supporting anecdotes, and indeed, it’s not too hard to find people leaving Vancouver who will tell you about their frustrations with housing. But here’s the thing: there is almost never supporting data that actually indicates a decline in people worth caring about. Why? Two reasons. First, in growing cities, like Vancouver, when some people leave, even more people come in to replace them. Second, ALL people are worth caring about.

If we set aside that ALL people are worth caring about – just for a moment – we can take up some important questions about differences in in-flows and out-flows of people in Vancouver. Maybe there are aspects of in-flows and out-flows that should trouble us. In The Canadian Press story, we’re led to believe Vancouver is experiencing a brain drain, so that all the smartest and best people are somehow leaving and they’re either being replaced with people who are not so smart OR they’re not being replaced at all. As noted above, Vancouver is growing. So we know whoever leaves is being replaced, and then some, by new people coming in. But are the people arriving in Vancouver somehow less brainy than those leaving? We’re both immigrants to Vancouver, and quite frankly we find that a little offensive. Everyone arriving in Vancouver has a brain, so population growth cannot result in a brain drain. But we set aside, for a moment that idea that ALL people were worth caring about. So let’s try putting differences in in-flows and out-flows in slightly less offensive terms by returning to the “young professional” framework. Are people arriving in Vancouver unable to do the same kind of professional work as those who leave? Are we losing out on educational credentials?

Ideally we could easily access direct information on in-flows and out-flows to Vancouver (and in some places with population registry data, this is easily accomplished). In Canada we work mostly with census data, and the out-flow data, in particular, isn’t generally made public. But as we’ve demonstrated previously, we can compare across censuses to get net migration data broken down by age group. We just age people forward from one census to the next and compare how many we see in the next census to get a sense of how many people – in net terms – must’ve moved in or out over the years in between.

Now if we’re interested in education then it complicates age-based net migration models. After all, people can and do acquire new educational credentials as they age forward in time. That said, we can probably assume that most people who acquire university degrees and more advanced credentials do so by age 25. We’ll leave out some late achievers, for sure, but if we assume we have a pretty stable division into those with a completed Bachelor’s degree or more, and those without by age 25, then we can get a sense of how those populations change as they age forward in time. So, with apologies to late achievers, that’s what we’re going to do.

We’ve got ten year age groupings by education to work with in 2016 data. So let’s go back to 2006 data for comparison. Is it plausible that we lost a bunch of “young professionals,” defined as people with university degrees, who weren’t replaced as they aged forward and left Metro Vancouver between 2006 and 2016? Data says… nope.

Prof-Updated-Mortality2

As a matter of fact, Vancouver added a lot more young university graduates than left. Young people with university degrees continued to arrive in greater numbers than they left well through their thirties and on into their forties (we like to think of forties as young). The age labels here refer to people’s “in between” age, that is the ages they mostly passed through between 2006 and 2016 (i.e., the age range each group was in 2011). It’s only once those with university degrees hit their fifties that we start to see a roughly even net flow out of in Vancouver. What’s more, this pattern looks very similar in other major Canadian metro areas. The only exception is Montreal, where people with university degrees really do stop arriving in their forties. But it’s probably not a housing crisis driving them out.

Strikingly, across the board, young people with university degrees are far more likely, on net, to move into our major metro areas than people without university degrees. In many respects, we should expect this. Professionals, in particular, are often drawn by their economic opportunities. Once they arrive anywhere, they’re often paid well enough that they have an easier time navigating local housing markets than non-professionals. Yes, professionals may also have higher expectations about what kinds of housing they deem acceptable than others, but people adapt. One of us has written a book with that theme. In the same way that professionals may drive gentrification, professionals are actually at LESS risk of displacement out of expensive places, like Vancouver, than are non-professionals.

Let’s double-check the results for Vancouver by looking at in-flow data. The Census provides information about where people lived five years before arriving at their current destination. Do we really see a lot of professionals moving into Vancouver through their thirties and forties? Yes. In fact, for “Skill Level A Professionals” this is exactly what we see. We don’t know how many are leaving from this data, but we know a lot of professionals are arriving – more so than in other occupational skill-level categories.

occupation-inmove-2

For mobility data the age group labels refer to people’s age in 2016. For an alternative view we can group non-movers and non-migrants (people that did move but not to a different city) together and show the makeup of each skill level by mobility and age group. Again we see that professionals tend to have higher shares of migrants than other skill levels, especially in our lower two age brackets. Those in occupations requiring only a high school degree or on-the-job-training are actually the least likely to come from afar.

occupation-inmove-3

Takeaway: we do not have to worry about a “brain drain” in growing cities like Vancouver. Moreover, we don’t have to worry about professionals leaving. Due to better pay, professionals are better equipped to deal with a tight housing market than most others. Building more housing would certainly give professionals more options to choose from, and we might want to relax our millionaire zoning to direct professionals toward competing with the independently wealthy rather than the poor and working class. But it’s the poor and working class we should really be worried about losing. More housing can lead to a more equitable city with room for people who aren’t well-paid professionals or independently wealthy. And if we want to prevent displacement, we should focus more on those actually at risk. That suggests both building more and promoting a LOT more non-market and rental housing.

Methods

There are some details to be explained when computing net migration data for professionals. We already noted that professionals might get degrees at some later stage in life, but that tends to bias our estimates toward lower professional in-migration. Furthermore, when computing net migration one needs to kill off an appropriate number of professionals to account for mortality as Nathan has explained in details before. We use BC mortality rates for the appropriate years and age groups for this, but that probably over-estimates mortality as educated people tend to have lower mortality rates. This would bias our estimates toward higher professional in-migration. We could adjust for that by reading into the literature to figure out the appropriate fudge factor, but the effect is so small that we just ignored this. We made some adjustement to how we compute mortality rates and now assume a 20% reduced mortality rate for people with bachelor or above, and according higher mortality rates for people below a bachelor. This is a very rough approximation of the impact of educational attainment on mortality.

Those interested in even more details we direct to the code for the analysis, where Jens is teaching Nathan how to code with R.

Ottawa Talks Housing

Back in November of 2018, I visited Ottawa for the CMHC’s National Housing Conference and presented preliminary results from my working paper (co-authored with Jens von Bergmann and Douglas Harris) on Who lives in Condos? In my last blog post (also up at MountainMath), we detailed how condos were used for metro areas across Canada, as well as how we arrived at our estimates. Here I’m following up with video of our full panel at the conference, “Building an Affordable Future for Rental Housing,” as well as our full powerpoint, both made available via CMHC.

My talk runs from the 10.00 minute mark till about 19.15. Other panelists include Marika Albert, new policy director for the BC Non-Profit Housing Association; Catherine Leviten-Reid from Cape Breton University; and Jacob Cosman from Johns Hopkins. The panel was moderated by Zahra Ibrahim. It was a great panel, even though I had a nasty cold and I wish we’d had representation all across Canada.

In case my talking head doesn’t do it for you (with a wicked cold, no less), here are the slides I refer to during my talk (or tap image below).

condos-cmhc-lauster-et-al

Here’s the full program with links to all of the other great panels.

And for good measure, here’s a picture I took in Ottawa outside of the Arts Centre hosting the conference. Ottawa, you’re beautiful! Though you are also very, very cold in November.

ottawa

How are condos used?

Comparing How Condos are Used Across Canada

Co-authored by Jens von Bergmann; Nathanael Lauster; Douglas Harris (Cross-posted at mountainmath.ca)

Condominium apartments are fascinating! At their heart lies a relatively recent legal innovation enabling individual ownership of units in multi-unit developments. Since their arrival, condominium apartments have become places to build homes, sources of rental income, sites of speculative real estate investment, and experiments in private democratic government. They’re also in the middle of many on-going debates about housing and the future of cities in Canada and around the world. In 2018, we formed a team to study condominium apartments and how they were being used in order to better inform public and academic debates. Team members include data analyst and mathematician Jens von Bergmann, sociologist Nathanael Lauster, and law professor Douglas Harris. We recently presented some preliminary findings at the National Housing Conference in Ottawa and we’re looking forward to continued research collaboration.

Here we make public some basic information about the development and use of condominium apartments across different metropolitan areas in Canada.

unnamed-chunk-2-1

The first thing to note is that the legal architecture of condominium is deployed across a broad range of structure types. In addition to apartments, developers commonly use the condominium form to subdivide row houses, and occasionally single-detached houses (as in some gated communities). Nevertheless, condominium is used most commonly to subdivide ownership in low-rise and high-rise apartment buildings, and that’s what we focus on here.

The next thing worth noticing is that condominium is much more common in some metro areas than others. Vancouver jumps out for the proportion of its apartments – and housing stock overall – owned within condominium. Calgary and Edmonton also rely heavily on condominium to subdivide apartment buildings, although these sprawling metro areas are dominated by single-detached houses, much more so than Vancouver, reducing the overall prevalence of condominium.

We know that condominium apartments are exceptionally flexible forms of housing, but how are they being used across different metro areas? What proportions are owner-occupied? Rented? Occupied temporarily? Unoccupied?

We couldn’t extract data to answer the last two questions from the census because condominium status is recorded by respondents. However, using a variety of datasets, we figured out a transparent and replicable (if somewhat complicated) method for estimating temporarily occupied and unoccupied condominium units.

The answers to these questions about how condominium apartments are used speak to important elements in popular discourse and public debate. Since provincial governments introduced a statutory form of condominium in the late 1960s, developers have built condominium buildings rather than purpose-built rental apartments across much of Canada. Does this also mean that the proportion of owner-occupiers increases while that of renters decreases in cities where condominium developments proliferate? Or do owner-investors rent out their condominium units, augmenting the existing rental stock?

condo_usage-1.png

Our findings on how condominium apartments are used are really interesting! In all the metro areas we analyzed, the modal use of condominium apartments is owner-occupation. As a result, it appears that condominium apartments are enabling more homeowners to live in increasingly dense cities.

However, condominium apartments also make up a substantial proportion of the rental stock in many metro areas. While many condominium apartments are rented, relatively few show up as vacant (i.e. empty but listed as “for rent”) at any given point in time. Here we distinguish these rare vacancies, which are good for renters, from unoccupied condominiums. In tight markets such as Vancouver and Toronto we see effectively non-existent condominium apartment vacancy rates, comparable to purpose-built rental vacancy rates.

The least common use of condominium apartments is as a temporary residence (where owners declare their principal residence as somewhere else in the census, but occupy the unit occasionally).

Finally we get to the “empty condos,” or those that show up as unoccupied in the census. Overall, we estimate that between 10% to 23% of condominium apartments were unoccupied in 2016, depending upon the metropolitan area. We don’t know why so many condominium apartments appear to be unoccupied, but it likely relates to their newness and to their inherent flexibility as property. Flexibility can show up in the census as “unoccupied” directly, as when owners use condominiums as second homes, and indirectly, as when condominium apartments are left empty in order to facilitate transactions between uses. We suspect that condominium apartments may cycle more frequently than other forms of property between different uses and occupants, thus creating transition periods without occupants and inflating the proportion of unoccupied units. For instance, condominium apartments can more plausibly be re-claimed for owner’s use than purpose-built rental apartments, cycling in an out of rental supply and potentially creating less stable rental housing.

Strikingly, Vancouver and Toronto stand out as having the lowest proportion of unoccupied condominium apartments, a finding that may be somewhat counter-intuitive given the public attention that vacant units have received, rightly or wrongly, in both cities. When metropolitan areas rely upon condominium apartments as a key form of new housing supply, they should take the flexibility of the form into account. However, it appears that the proportion of unoccupied units in the housing stock will rise as the proportion of condominium apartments in the housing stock increases because condominium apartments are more likely to be unoccupied than purpose-built rentals, a pattern also noted with respect to other flexible housing forms, such as secondary suites (especially basement suites, which show up as units in a “duplex” in the census). This means that even though a smaller proportion of condominium apartments are unoccupied in Vancouver than elsewhere in Canada, a larger proportion of Vancouver’s housing stock shows up in the census as unoccupied.

In Canada’s three largest metropolitan areas, a pretty simple rubric applies: for every ten condominium apartments built, six are owner-occupied, three are occupied by renters, and one is unoccupied. In Calgary and Edmonton, add a renter and take away an owner-occupier. The data for the other cities we surveyed is available in the graphic above. As a bonus, we also provide a comparison with estimations from 2011 data to show changes over time in the graphic below.

2-1

In Vancouver, where condominium apartments have been an established part of the housing market for longer than in the rest of the country, there is very little change in the occupancy pattern between 2011 and 2016. In other big metropolitan areas, it appears that condominium apartments are increasingly used as rental stock. In most cases, the proportion of empty condominium apartments appears to be decreasing, something that may reflect the lingering effects of the 2008-09 property market crash. However, this is all very preliminary. But we’ll keep looking at the details as we proceed!

Methods

We mixed two data sources to arrive at these estimates–the Census and the CMHC Rental Market Survey–and that made coming up with the estimates a little more complicated. There are several assumptions that go into the estimates, and there are several issues with mixing the data that we set out below.

Overview

We cut the condominium stock into five different categories. The numbers of units occupied by owners and renters are straight-up census estimates from 98-400-X2016219 and 99-014-X2011026. To estimate the unoccupied units and the units occupied by temporary residents we used a custom tabulation of Structural type by Document type. We received this cross tabulation from Urban Futures, which one of use has worked with before on secondary suites. Both of those variables–the categorization of the dwelling type as well as the decision to label a unit without a census response as empty or occupied by someone who did not respond–is made by the enumerator. This allows us to ascertain the structural type of unoccupied units, and we can also get that information for units that are temporarily occupied.

So, we know how many apartment units were classified as unoccupied or temporarily occupied. To estimate how many condominium units fall into that category we need to make some assumptions. First, we assume that the apartment stock consists of three distinct type of units: condominium units, purpose-built rental units and non-market housing units. That’s not quite accurate. For example a single-family home with two secondary suites will be classified as an Apartment, fewer than five storeys if the census found the suites. These do exist in Vancouver, and elsewhere, but their numbers are small.

Given those three types of apartment units, we need to understand how many of the unoccupied and temporarily occupied units fall into each category. The CMCH Rental Market Survey has annual estimates of vacancy rates and universe size for the purpose-built rental stock. We take those estimates, only counting apartment units, to attribute unoccupied units to the purpose-built rental stock. In Vancouver, with its extremely low vacancy rates, this is a fairly small number. In Halifax, that number is comparatively larger. Further, we assume that the non-market units have a vacancy rate of zero, so that there are no empty non-market units. What’s left over we assign as empty condominium apartments.

Finally, we use the estimate of vacant condominium apartments and those on the rental market from the CMHC Secondary Market Rental Survey, using their estimates of the condominium vacancy rate and the condominium rental universe. The vacancy rate is not available for all years and all CMAs. We have marked the CMAs with an asterisk in case the data was not available and back-filled it with our estimate of the condo rental universe and the Rms vacancy rate. We have seen previously that the Rms vacancy rate tracks the secondary market vacancy rate reasonably well.

Attributing the temporarily occupied units gets even harder, but the numbers are smaller so getting things a little wrong has less impact. Here we again assume that no temporary residents live in non-market housing, and we assume they are equally likely to live in a condominium apartment (as owner or renter) or rent in purpose-built. That is a bit of a judgement call, but the details of these assumptions don’t make much of a difference to the numbers, and we invite people to grab the code if they would like to adjust the assumptions.

There are several issues when mixing CMHC Rms data with census data. For one, both are point-in-time estimates for slightly different times. The census is pegged in early May, the Rms for October. There may be fluctuations in temporary and unoccupied units, in particular in areas dominated by universities such as Waterloo, with the census being outside of the regular semester and the CMHC survey within.

Next comes the geographic problem, with CMHC switching to new census geographies at the end of the year, so the rental universe still reflects the previous census geography. Montreal is one such example where the CMA changed 2011 to 2016 as we have explained before. That leads to problems when estimating the rental universe, but the effect is moderated when focusing on the empty units.

Another issue is that the definition of apartment that CMHC uses differs slightly from the census.

Finally, for estimating the vacant condominium apartments that were on the rental market we used the CMHC rental condo universe estimate and not the one we derived from the census. There appear to be some differences in how CMHC and the census estimate rented condo units, with CMHC relying on surveys of property managers. In BC that likely involves tallying up units for which Form K was filed, likely leading to CMHC under-estimating strata rentals.

It is instructional to compare the two different estimates.

unnamed-chunk-7-1

With the exception of Hamilton, the census condominium rental estimates are higher, in some cases substantially so. To shed more light on this we also compared the estimates of overall condominium apartments.

unnamed-chunk-8-1

We looked at two separate census estimates: the occupied (by permanent residents) units that come straight from the census by filtering occupied units for apartments that are stratified, and the overall condo estimate that we derived by adding in vacant and temporary units. With the exception of Montréal the census estimate of occupied units only comes quite close to the CMHC condominium universe estimate. The differences are worth looking into in more detail at some point.

Waffle graphs

To communicate the makeup of condominium apartments we settled on a custom version of a waffle graph. Displaying proportions on a square grid makes it easier to read them compared to pie charts or tree graphs. The 10×10 layout rounds numbers to percentage points, which is the appropriate level of accuracy given the uncertainty in the data and is intuitive to understand. When rounding to the nearest percentage, the numbers don’t always add up to 100. So we don’t do traditional rounding but round with the constraint that the total adds up to 100 while minimizing the \(l_\infty\) error.

This does introduce potential problems when comparing across time or across geographies, where theoretically we could see an increase in the number of squares in one category although the actual estimated share dropped. This will only happen under very specific circumstances, and we checked that this did not occur in our graphs.

Reproducibility

The code underlying this post is available on GitHub, as are the parts of the custom tabulation for 2016 and 2011 used in this post. Part of the Statistics Canada data we used requires conversion from XML into more manageable data format which, for performance reasons, requires python to be installed next to R that runs the rest of the code.

When journalists attack!

Public intellectuals beware! Not everyone agrees with you, and some will be nasty about it. So how does it work when muck-raking journalists attack?

First some context: an observation of mine on twitter led to a little dust-up concerning the discourse around “foreign money” in Vancouver. I quickly muted the conversation, but it summoned many trolls, including the ghost of Margaret Wente (which paradoxically made me feel all warm & fuzzy, like I’d done something right). South China Morning Post reporter Ian Young, one of the chief troll-masters, decided to put out the equivalent of a journalistic hit on me. I suspect this is a pattern with Ian, given his past attacks on other public figures he disagrees with (like UBC’s Tsur Somerville). So I’m posting my responses here for future reference. Hopefully this will serve three purposes: 1) it may help keep Ian honest in his muck-raking; 2) it may have broader lessons for other academics who dare raise their voices in the rough and tumble public sphere; and 3) some people might actually be interested in my answers to Ian’s questions.

How things unfolded: After an initial relatively professional inquiry about getting my input on general issues (foreign money, racism, real estate), Ian sent me the following questions, which focus less on my input and more on my conduct, including both my tweet (which brought all the trolls to the yard) and my participation as an expert witness in a court case challenging BC’s foreign-buyer tax. But it doesn’t stop there. Read on if you’re also interested in strata wind-ups, because there’s a part two to the journalistic hit-story where Ian dives even deeper to try and find dirt on me!

Ian’s initial questions [in bold]:

  1. In your affidavit in the Jing Li case, you say the role of “foreign buyers” in the Vancouver real estate market has likely been exaggerated. How big a role do you think “foreign money” – specifically, Chinese money (brought by both immigrants and non-immigrants) –  plays in the Vancouver real estate market?

“Foreign money” is a problematic and sloppy concept, especially as applied to the wealth immigrants bring with them. I think immigrants play a strong role in driving Vancouver real estate, and we attract a disproportionate share of wealthy immigrants. We can talk immigration policy, and while I’m generally pro-immigrant (and an immigrant myself), I’m on the record against “investor” immigration programs. But when people immigrate to Canada, I no longer think of their wealth as “foreign.”

It would appear from data I’ve seen and analyzed, as compiled by the CMHC and Statistics Canada, that the role of people investing in Vancouver real estate while living elsewhere is a real but relatively small part of the local market. The evidence suggests local investors are far more prominent.

As for the issues of tax avoidance and money laundering (that people sometimes pretend only apply to “foreign money”), I take it for granted that these are bad things that should be ended regardless of how big a role they play in real estate.

 

  1. Can you elaborate on the role of racism in the debate over foreign money and Chinese money in the Vancouver affordability debate?

I believe a number of different logics or motivations have driven the debate over “foreign money,” which as I’ve mentioned, I consider a problematic and sloppy concept. Many people are drawn to the “foreign money” explanation as a ready answer to their understandable confusion over prices that keep them from obtaining housing they feel like their parents might’ve been able to afford or that they could still easily obtain in other parts of Canada. They’re looking for answers – especially answers that don’t make them feel like failures for not achieving their particular homeownership goals, which are often associated with middle-class success, becoming an adult, and being a good parent. In this sense, there’s a real moral and personal element to debates over housing. And people are right to look beyond their own circumstances for explanations into Vancouver’s affordability woes. It’s a very sociological instinct!

But blaming foreigners isn’t helpful and the distinction between foreigners and foreign money isn’t very clearly drawn, just as blaming Chinese people isn’t helpful and the distinction between Chinese people and Chinese money is fuzzy at best. Racism certainly plays a part in the popularity of “foreign money” discourse, and Vancouver has a long and troubled history there. But we’re also in a very broad-ranging and very real populist moment where a generalizable xenophobia has taken root around the world. It takes different forms in different places, but it troubles me wherever I see it. Then there are also dynamics that are quite specific to Vancouver and its waves of immigrants from Hong Kong and Mainland China (and to a lesser extent, from Taiwan). Many people from Hong Kong are understandably worried over the future of their home city, seeing both Hong Kong and now Vancouver as threatened by Mainland China. These worries are frequently expressed through anti-Mainlander prejudice. I don’t think the term “racism” captures all of these logics or motivations, but it’s part of a somewhat toxic brew that in Vancouver is often targeted at Mainland China and Mainland Chinese.

 

  1. Can you explain the continuum of racism in BC and what role it plays in government policies and public opinion relating to real estate here?

As you suggest in your questions, the debate about “foreign money” and “foreign buyers” was also particularized by many people as a debate about “Chinese money” and “Chinese buyers.” People moved back and forth between identifying Canadian sovereignty (vs. foreign) as their primary concern and targeting a particular nationality (“Chinese”) as a concern. My understanding is that anti-Chinese sentiment takes many forms, including those driven by race-logics and racism (and particularly prominent in Vancouver’s past), and those driven by logics and motivations internal to the Chinese diaspora that aren’t racial in nature, but rather reflect tensions with the Mainland. Anti-Chinese sentiment has historically played a very strong role in government policies in Vancouver and BC more broadly. Both governments have acknowledged and apologized for this, but I believe it would be naïve to suggest anti-Chinese sentiment no longer plays a role in driving policy.

 

  1. Regarding your “national socialism” tweet…were you offering a sincere observation, or being deliberately hyperbolic?

[See tweet here]

It was a sincere observation, but couched as a worry rather than an accusation. Indeed, I went out of my way to grant good motivations to those involved in the discussion. My worry involved an underlying transformation in logic. Socialist logics focus on privatized wealth & related inequality as a problem. National socialist logics veer far to the right by twisting concerns about inequality to focus on particular groups of people, demonizing them as enemies of the nation and identifying their wealth or perceived power alone as the problem. To return to our local discussion, it isn’t hard to find far-right, pro-fascist organizations cheering on discourse about “Chinese buyers” and “Chinese money” being to blame for Vancouver housing woes.  To put this in very simple and personal terms: if you think “foreign money” is the problem and you focus on the money part, I’ll be with you. If you think “foreign money” is the problem and focus on the foreign part, I won’t. This relates to what I think of as quite important underlying shifts in logic that are very pertinent to the present moment in time.

 

  1. Where do you want the policy debate over real estate affordability in Vancouver to go? What areas deserve more emphasis than addressing foreign money and foreign buyers in the market, as a means of improving affordability, and why?

The most important aspects of affordability in Vancouver often get the least amount of attention. Those people currently marginalized by the market distribution of housing, including the homeless and those living in core housing need, should receive the most attention. They are the ones for whom housing is a life and death matter. Temporary Modular Housing is a great move here, and that and related programs should be expanded. Next we should focus on renters. They’re the ones in dire need of more options (Vancouver’s vacancy rate being at 1%) and at most risk of falling into core housing need. There are lots of policy options here, and we should be creating way more social housing options, including a big expansion of non-equity cooperatives. We should also encourage and enable many more market options. Far behind these groups, we get to owners and those desiring to own. There are real benefits to having a very large and broad range of property owners rather than letting property ownership accrue only within a very small and select class. There are also real benefits to having lots of different kinds of housing stock that enable a broad range of options for people to pool their resources together and buy housing, while also encouraging more environmentally friendly lifestyles. I don’t think we need any more programs encouraging and promoting home ownership, which is too often where affordability debates take us, but I don’t think it should be discouraged either.

 

  1. What were the circumstances that led you to provide your affadavit in the Jing Li case?

I was approached by the law firm representing Jing Li to act as an expert witness in the case. Representatives of the firm very clearly and repeatedly assured me that as an expert witness, my duty would be to the Court rather than the law firm or their client. This was an important part of my decision to accept the role of expert witness. Through my work as an expert witness, I carried out research to answer questions posed to me by the law firm (through my letter of engagement), with my obligation being to provide truthful and well-researched (“expert”) answers to the Court.

 

The story continues

These were Ian’s first questions, and I initially agreed to delay blogging my answers until around the time Ian’s article came out. But after his first round of questions, Ian sent me follow-up questions focused solely on my conduct and concerning my former strata association’s wind-up and sale. He’d tracked down the buyers of the strata and apparently identified them as the very personification of evil “Chinese money.” So he sent me targeted questions about this being an unidentified conflict of interest influencing all of my public commentary. “It turns out that disagreeable professor was being paid by ‘Chinese money’ all along! Now we’ve got him!”

It’s a bit of a scoop! But not in the way Ian thinks. As I’ll discuss below, the strata wind-up was a complicated process that I felt ambivalent about, and I knew very little about the ultimate buyer. I’ve been planning on blogging about the experience of being part of a strata wind-up from the inside, but I’ve delayed for a variety of practical reasons. Now my story is in danger of being scooped by someone else! So let me tell you a little bit about what went down before Ian does whatever he’s going to do with his take.

 

What about my strata wind-up and sale?

My partner and I were initially quite angry when news broke that our strata council was considering looking at winding up the strata and putting it on the market. We liked our townhouse just fine, and we hadn’t been there very long. Ours was a mixed strata, comprised of townhouses and a low-rise building. The main issue seemed to be that the low-rise building was worried about their expenses, which were treated separate from ours, and wanted to compare estimates for fixing the place with what they could get for selling the place. We initially took this to suggest that the low-rise hadn’t been keeping up their building the way they should, and it didn’t seem fair that we in the townhouses should have to sell to cover their expenses. But then the possibility for big money from a sale also started getting thrown around in a lot of conversations with neighbours. Some were very excited by the prospect. Others were noticeably distraught that they might have to leave. After much discussion and many meetings, the strata as a whole voted to market the place to see how much it could sell for. Working with Colliers, we ended up with an offer that entailed a lot of money (around twice our assessed values). We knew very little about who made the offer, but the realtors told us it was a new developer with interests both in Canada and China. Then we had a vote on whether or not to accept the offer and wind-up the strata. My partner and I were conflicted in our voting. A lot of money was on the table, but we really liked our place and sympathized with those who wanted to stay. In the end our vote didn’t matter. The vote to sell easily met the threshold required under the new strata wind-up regulations.

There were minor complications throughout – it’s a big and involved process to wind-up and sell a strata – and we still weren’t certain the deal would go through for several months after the vote. In fact, we kind of hoped the deal would fall apart (especially when the flowers came out in our little townhouse yard!) But eventually all the t’s got crossed and the i’s dotted. And now we’re renters! (We negotiated a period of time in which we could rent back our properties while looking for someplace new to live).

Overall, the strata wind-up and sale is something that happened to us, rather than something that we actively sought. We weren’t at all certain we wanted it to go through. I learned lots from it, but it did not otherwise affect my public commentary* and I did not know who the beneficial buyers were until Ian sent me their names, nor have I ever had contact with the beneficial buyers. As in most real estate transactions, their identities were never anything more than a curiosity throughout the process. I remain curious, as ever, about what they’ll do with the place once we’ve all left. Until then, speaking as a tenant, if Ian wants to dig up dirt on my new landlords, I’ve got no problem with that.

 

*- There is one exception regarding the strata wind-up and sale affecting my public commentary! My partner and I are dual-citizens, and as a result we’ll be paying capital gains taxes on the sale to the USA, where sales of principal residence are not exempt from taxation. We don’t mind this in principal, and we kind of feel like windfall gains should be taxed. But we really, really wish our taxes were going to Canada. So its possible my advocacy for taxing the profit on sales of principal residences in Canada has been strengthened by the strata wind-up. Take my money Canada! Please!