Elsewhere I’ve gonged the media for uncritically reporting misleading polling results, spinning headlines from them like Rumplestiltskin spinning gold from straw. It’s a problem because it actually sways uninformed viewers, listeners, and readers in ways that encourage acceptance of future falsehoods.
In this case, it might seem more comical than offensive. On first blush, you can’t fail to notice the Toronto Real Estate Board’s naked self-interest, visible behind gauzy claims to empirical research. They actually tried to allay public fears about the effects of non-resident speculation on local home prices by consulting real estate agents about it. Who would believe a real estate agent on a matter affecting their sales commissions?
The best source of data would obviously be the transaction records of actual sales, identifying the registered buyers, their financial institutions, and their primary residences. There’s nothing inappropriate about using this sales data, provided records are analyzed as an aggregate, and that no individual cases are isolated and revealed. We do this all the time in national surveys and statistical reports from CRA and Statistics Canada. There is no personal privacy under threat.
A good first step in the analysis might be a clear definition of foreign ownership and a comparison with other sources of extrinsic demand, such as non-resident Canadian speculators in Toronto’s residential real estate market. Perhaps they’d conclude that it is more meaningful to explore all categories of non-resident buyers, rather than making a bogey-man of offshore buyers, as TREB has done.
This research might entail going beyond the record of transactions between the developer and the named buyer, to examine relationships between the named buyer and their financiers – foreign or domestic. Since this would entail a lot more work, it would be worthwhile testing a small subset of the total data set to determine whether non-resident purchasing through local proxies is occurring, and then to determine whether it has a significant effect on price and supply.
Because, after all, a Calgary buyer of Toronto housing exerts the same upward pressure on pricing as a German or Chinese buyer. An American REIT, operating from a Toronto address, can give the appearance of a local buyer, even though title and profits will be held elsewhere. Local housing prices don’t discriminate between U.S. dollars and deutchmarks or yuan. Whether direct or indirect, non-resident buyers add demand pressure on a limited supply, with a predictable effect for those who must live and work here.
But that’s not where the tall foreheads at TREB started their research. Using Urbanation - a Toronto-based condo research firm - to conduct the survey, they went to their own membership, essentially asking one another to report the level of foreign buying as a proportion of their total sales. Only those who felt like responding did so, and they reported whatever they felt like reporting. Unsurprisingly, the result of the survey was exactly what TREB wanted it to be. As the headlines screamed in the papers, foreign ownership has an insignificant effect on housing demand and prices. The exact number TREB derived from this inexact method, ignoring differences between specific housing types in specific market segments and locations within the GTA, was 5.9%.
This presents three problems for me: bad data, bad analysis, and bad reporting.
First, I think that even amateur statisticians could come up with a more credible method and a more reliable result. It’s disgraceful that agencies with access to better data - e.g., StatsCan, the Canadian Mortgage and Housing Corporation, Toronto Economic Development and Culture - haven’t sought to answer this question themselves instead of abdicating to the self-interested real estate industry.
Second, I think that the addition of almost 6% in demand on an already depleted and overpriced inventory is extremely significant, despite claims to the contrary. In a surplus, a 6% increase in demand has far less impact than in a market, like Toronto, where demand exceeds supply. By analogy, adding a little more air to a deflated balloon won’t strain the rubber, but forcing just a little more air into a overfull balloon is likely to burst it. Toronto’s housing is stretched to it's limit. If housing prices are rising far faster than household incomes, as various institutions have warned, even a 6% reduction in demand could bring a lot of relief.
Third, even if TREB lacks the methodological skill of a second year statistics class, and governments, awash in development fees and campaign contributions, can’t bring themselves to analyze their own data, there’s no excuse for the media reporting TREB’s fake research as truth. Given their mandate to investigate and report on issues in the public’s interest, they should - at a minimum - control their own impulse to fill air time and line inches with cheap, corporate disinformation.
I’m not sure which of these three transgressions annoy me the most. I think it might be the media’s oblivion to data quality and corporate self-interest. For heavens’ sake, TREB announced their intention to resist Vancouver-style limits on non-resident buyers months in advance of their internal, clubhouse consultation of the matter.
This should have set journalistic antennae aquiver. But, no, they simply repeated what they heard, like parrots pandering for crackers.
Well, saltines all around! Yet even if it there was a hidden benefit in non-resident speculation in Toronto’s stressed housing stock, the Mayor, TREB, and the sycophantic media really ought to come clean with the public about the simple underlying math of residential real estate development. According to the esteemed scholar and statistician, Dr. Kevin Stolarick, every residential unit built in the City of Toronto costs more than it returns in development fees, employment, and property taxes over the life of that building. That is an unpleasant fact to contemplate, but it is a fact that won’t go away, no matter how real estate profiteers, media cheerleaders, and ingratiating government might hope it will.
It’s easy to understand how this fact can persist, unseen and unspoken, despite endless debate about City finances and real estate development. Politicians have four year terms, so they can point to a pipeline full of development applications, and claim some credit for the development fees and the expanding tax base coming in during their term. Everyone loves to count the cranes on the horizon and take comfort for the fact that each of them represents millions of dollars for labour, materials, financial services, and future property taxes.
No one wants to admit that the combination of these benefits is less than the sum total of infrastructure and servicing costs over the lifespan of each condo tower, including all the soft costs incurred to look after their many residents. Education, roads, policing, sewers, water, hydro, social services, recreation, transit, and many other municipal expenses will escalate when hundreds of people are brought to live on a plot of land that a generation ago would have housed a few dozen people at most. What politician wants to talk about this when it’s more advantageous to limit their attention to the beneficial effects of new developments occurring within their term of office?
I can’t say anything so general without stopping to answer skeptics on this score. Despite annual anguish over its structural deficit, Toronto City Council never wants to raise property taxes to anything approximating the level of surrounding municipalities because they fear the public will throw them out. Instead, they use all sorts of unsavory accounting practices and asset sell-offs to hide the simple fact that costs are rising faster than taxes and fees can offset. As the City grows, this gap widens precisely as Dr. Stolarick contends.
Some mayors are more deeply invested in this game of deception than others. Every four years, someone tries to get elected by sleight of hand, fooling voters with the illusion of mass government waste. Sometimes this legerdemain succeeds so well that they actually ride the mythical gravy train into office.
But it is nothing more than the magician’s art of misdirection. Ford promised to find $2 billion in municipal overspending, but once he got into office, his auditors at KPMG found only $27 million in potential savings. John Tory sought to balance his latest budget by simply telling every department, without consideration of growth-related demand for services, nor even inflation, to subtract 2.6% from their budgets. Denial of this most basic budget arithmetic, and the imposes a kind of cognitive dissonance on our attempts to debate important issues like the effect of extrinsic demand on local housing prices.
I understand why the real estate industry might like to perpetuate this madness, and why politicians are reluctant to jeopardize their relationships with developers. However, the media’s complacency borders on complicity. They have a mandate to uncover and illuminate, but are obscuring a vital public concern when they publish TREB’s self-serving headlines, drawn from TREB’s amateur self-survey, as if it’s headline news.