In praise of real estate speculators

Throughout history, politicians and the public have hated speculators on the grounds that they create scarcities, raise prices and cause hardships for consumers. This view is behind the recent decision by the B.C. government to impose a tax on unoccupied housing presumed to be owned by speculators and which is expected to lower the cost of housing.

The implementation of this policy has run into a number of problems that can be solved by some tweaking of the law, but it will do nothing to reduce prices in the long-run. Speculators raise house prices when they buy and keep them empty or rent them out. The speculators realize profits only when they sell them later, at which time they lower prices. In effect, speculators do not add to the demand for and cost of housing, but only smooth it through time. The real cause of the high and rising cost of housing is a continuous excess of demand over supply.

The excess demand in Metro Vancouver is determined by the high level of immigration, which in recent years has brought 250 families to the region every week. Under the policies announced by the current government, by 2020 this number will be 375 families a week. Adding to this demand are the housing requirements of foreign students, who in 2017 numbered 130,000 and are expected to grow substantially in the future.

In principle, in a market economy the supply of housing should keep up with the growth in demand. However, as the record shows, this has not happened. The reason given by the construction industry is that it faces delays and cost-increasing obstacles due to the scarcity of building sites, zoning restrictions, regulation affecting building codes, and a shortage of skilled workers. Another reason explaining the scarcity and high cost of rents is the existence of rent controls, which lower returns from investment in rental units over their lifetime to levels at which investors are staying away in troves.

Neither demand nor supply are likely to change soon. Politicians will not reduce demand coming from immigration. Their electoral success depends too much on the votes of immigrants and on the financial support from the real estate industry, employers of cheap immigrant labour, and producers and retailers whose markets are increased by immigrants. Any politician proposing the end of rent controls faces sure electoral defeat at the hands of renters subsidized by the existing law.

Neither will there be a decrease in the number of foreign students. Public universities increase their financial resources through the tuition paid by foreign students. Many private educational institutions depend entirely on income from foreign students.

Given the prospect of future growth in the demand for and continued limits on the increase in the supply, the public will have to live with these facts unless they show their displeasure at the ballot box with the policies of Canada’s virtue-signalling elites who are lobbying for ever-larger numbers of immigrants in the future but show little concern for the blight of ordinary Canadians facing a housing affordability crisis. Asking these elites for taxes on speculators, empty housing and tougher rent controls will not do the job.

Published in the Vancouver Sun on March 25, 2018