There’s a pretty straightforward reason why you can’t afford a home.

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Real estate speculators are snapping up properties and selling them once the price rises. They earn a huge financial return, pay little in taxes and price ordinary people like you out of your city.

The common wisdom in Vancouver — and increasingly Toronto — is that the majority of these speculators come from overseas. Yet recent housing data suggests many, if not most, speculators may be Canadian.

Developers argue that we have a supply problem. Prices are so high because there aren’t enough properties on the market. But roughly one unit of housing was built for every person projected to move to Metro Vancouver in 2016. The region may be overbuilding by 50 per cent, according to the real estate news site Better Dwelling.

Yet home prices keep rising. “We suspect that buyers motivated by expectations of capital gains have played a prominent role,” RBC Royal Bank notes. Or in other words, speculators are outbidding the people who are actually looking for homes.

Who are these speculators? Nine months after the BC Liberals brought in a 15 per cent tax on foreign real estate buyers, out-of-country sales are at relative low levels.

Some foreign buyers may be exploiting loopholes in the law. But there’s a simpler explanation for why an average Metro Vancouver house still sells for $1.5 million. “There’s a great deal of domestic speculation in the housing market that is totally unaddressed by the foreign buyer tax,” NDP housing critic David Eby has argued.

Far from stopping speculation, Canada appears to encourage it. Historically low interest rates set by the Bank of Canada make it relatively risk-free for speculators to borrow large sums of money and invest in real estate — driving up prices in the process. Better Dwelling calculated that from 2005 to 2013, a 41 per cent increase in borrowing in Vancouver was matched by a 41 per cent rise in home prices.

“That’s a hell of a coincidence,” Better Dwelling founder Stephen Punwasi told The Tyee. And simply building more and more condo towers won’t do much to address it. “There’s a deeper problem in the situation and I don’t necessarily think it’s all foreign buyers... We’re not building for people, we’re building for speculators.”

An exact breakdown of Canadian versus foreign speculators in Vancouver doesn’t seem to be publicly available. Yet a Real Estate Board of Greater Vancouver survey has suggested that close to one-quarter of its realtors’ clients are Canadian investors. These are people who buy homes for the purpose of making money, rather than to live in them.

Investing isn’t inherently bad for affordability. An investor who buys a second home and rents it out, for instance, is creating important housing supply. “Markets don’t have to worry too much about these people,” Punwasi argues.

But investors who speculate on the real estate market are different. “They don’t rent [property] out because they need to liquidate it whenever they find a ‘peak,’ or if the market turns south,” Punwasi wrote recently. “Some speculators I know couldn’t even tell you where their property is located, it’s just a piece of paper they plan on trading… The ability to borrow cheap money is crucial to their operation. The money needs to be cheap enough that returns will easily eclipse the cost of borrowing.”

The federal government is trying to clamp down on speculation. New rules make it harder to get a mortgage. Foreign residents will now have to pay bigger taxes for selling homes they don’t live in though speculators can find ways around the tax.

And the new federal rules, along with foreign buyers taxes in B.C. and Ontario, overlook the economic conditions that allowed house prices to rise so dramatically in the first place.

“Despite all the noise about a possible solution,” private investor Soheil Karkhanechi argued this spring, “few seem interested in what is always and everywhere the underlying cause of economic bubbles: speculative behaviour fed by inexpensive credit.”

The price it costs to borrow money from a bank is determined by federal interest rates. In Canada, they’ve been in a freefall for decades, from a high of 16 per cent in 1991 to 0.5 percent this year. Now consider that the average annual return for investing in a condo tower or apartment complex in Vancouver was 14 per cent last year. “It was almost stupid to not buy property at these rates since it was almost free money,” Punwasi wrote.

With speculators competing for property to invest in, prices rise. Or in the technical language of Vancouver real estate firm Morguard: “Strong fundamentals will attract investment in a market that continues to generate attractive returns. Therefore, upward pricing pressure is likely to persist.”

This means that speculators get richer and regular people find it harder to afford homes. Take the Strathcona Village project on East Hastings, for instance. Two years ago, condos were sold for $450 per square foot. The same unit now sells for $770 per square foot. At the Independent Tower at Main Street and Broadway, prices have climbed from $672 to $900 per square foot in the same time period. The result has been “a surge in assignment sales of condos in sold-out but uncompleted Vancouver towers, with investors hoping to catch the uplift in value since the condos were first sold,” wrote Business in Vancouver. Out-of-country buyers can do this largely tax-free, thanks to an exemption in B.C.’s foreign buyer’s tax for un-built condos. And Canadian speculators, of course, never had to worry about the tax to begin with.

This type of speculation appears to be rampant in Vancouver. “Informal buyer surveys conducted by major condo developers regularly indicate that over half of the units in concrete condominiums downtown, at urban nodes and near rapid transit, are purchased by investors and that they are the driving force in that market,” local real estate consultant Richard Wozny wrote in a recent report. “It is reasonable to conclude that housing prices are being impacted by investors who very effectively compete with those trying to buy a home they can live in.”

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For the past few years, all the focus has been on foreign speculators. Investment from countries like China has been a major driver of Vancouver’s housing market. Yet Canadian speculators may be an even bigger driver. “Everything we see suggests that there is a whole lot more domestic investment activity in the real estate sector than foreign investment activity,” Evan Siddall, president of Canada Mortgage and Housing Corp. has said. “This buy-and-flip mentality that happens in higher priced markets like Vancouver and Toronto only make the affordability problem worse.”

When developers — and their allies in the BC Liberals — argue we lack housing supply, they aren’t necessarily referring to people’s shelter.

What they really mean is we lack enough properties for speculators to invest in. And with interest rates staying at record lows and policies that largely ignore Canadian speculators, our cities are unlikely to become affordable to regular people anytime soon.

“You’ll never be able to fulfill speculative demand if the cost of housing always goes up and the cost of borrowing is really low,” Punwasi explained. Speculators will keep buying up property: “There’s almost no risk associated with that.”