Foreign Investment Is A Problem, But Not In The Way You Might Think

Housing is a perfect storm, I'm not willing to take anything completely off the table as a cause, because it's a multifaceted issue.

There's obviously a real supply shortage in major urban centres, due to low-density car-centric development and restrictive zoning. See this video on the Missing Middle from Not Just Bikes, or basically any other urbanism channel you want. Heck, even just take a drive around your city and look at all the single family homes in places near the city center that should obviously be townhouses or low rise apartment buildings.

That said, there is also good reason to believe there is an asset bubble fueled by credit, which is directly related to the policy of our central bank and financial globalization. Due to financial globalization, this asset bubble is likely to get pumped up even further by global forces and globalization makes it harder for our central bank to manage the asset bubble on it's own without damaging the rest of the economy. See this video on Financial Globalization from Money & Macro or his other video on Quantitative Easing where he talks about how it's unlikely to cause consumer price inflation but risks asset price inflation and asset bubbles.

Admittedly, this different from the normal rhetoric about "foreign investment" often touted on this sub, since the financial globalization risk I'm talking about is not the boogeyman of rich Chinese people buying up multiple houses and laundering money or immigrants doing the same. It's more like investors from the whole world each pumping a little money into the Canadian asset bubble through multiple channels, which adds up. Basically every single person in the US and Europe probably has some money invested in ways that pump up the Canadian housing bubble through their pension and other diversified investment portfolios, even if they don't know it, that's just how globalized investing works. People are leveraged and HELOCing like crazy, that's where some of that money is coming from.

That's why I think a direct tax on real estate like an annual land value tax is the best way to deflate or at least tame this bubble before it pops. It hits all money being pumped into the bubble, regardless of whether it's from foreign or domestic investors directly investing in the housing market or indirectly investing through corporations or buying mortgage bonds, etc.

A simple "foreign buyers" ban or tax just isn't going to do anything. We know that because it's literally already been tried and didn't work, which makes sense, because it only targets one avenue for foreign investment, but not all the others. Let's be real the global rich (or even the domestic Canadian rich) are not going around buying houses directly that much. They are buying companies that invest in real estate or mortgage bonds, which the Bank of Canada is buying rapidly to keep prices high and interest rates low. To truly lock out foreign investment in housing, the ban would have to be so broad and strong that it would cripple our whole economy and prevent investment in all the industries where we actually want it.

This whole bubble in blowing up because of cheap credit being pouring in and mostly it's Canadians being saddled with the high prices, increased debt, and unsustainably low interest rates. That's why we need to do something about it yesterday, because when the bubble pops, prices fall, but the debt stays, squeezing the life out of our whole economy with deflationary pressure.

TLDR: Foreign investment is partly responsible for housing prices, but a foreign ban or tax is unlikely to solve the issue.

What do you think? I feel like somehow I'll probably anger people on both sides of this issue.