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Conflating Condo Flipping

March 5, 2019

A recent CBC news story provides a superb, if unwitting, example of conflation: the erroneous combining of two concepts into one. Erroneous it may be, but it's a time-honoured strategy for arguing by confusion.

The story dealt with condominium flipping in Vancouver. That's the practice of buying and selling a new condo even before it's been built. According to the story, condo flippers are responsible for driving up the cost of housing in an expensive city. Furthermore, these nefarious manipulators of the housing market are not, horrors, paying tax on their ill-gotten gains.

The two concepts being conflated are that condo flipping drives up house prices and that profits are not being taxed. The only apparent relationship between the two is that the beneficiaries of this practice are contemptible brigands deserving of censure and punishment.

But are they? Let's look at the tax issue first. Yes, speculators are making money off buying and selling condos. That's what speculators do, and whether the market is condos, pork bellies, or currency futures, the principle doesn't change. Buy low, sell high is an ancient way of making a living, even if society's moral guardians frown upon it as demeaning.

Apparently, tax laws exempt condo speculators from taxation on their capital gains. Whatever your opinion of taxation, it's a reasonable argument that it should be evenly applied. There doesn't seem to be a rationale for taxing gains on speculating in, say, copper futures, and not taxing them on condo futures. If there's a loophole, it's a simple matter to close it without sending journalists into fits over the gross unfairness of profit-making.

Except that by railing over tax avoidance, journalists find cover for railing against condo flipping. Get people so mad about unfair taxation, they'll direct their anger at the speculators instead of the tax department. But why do they need cover? Because there's nothing special about speculating in property.

The argument that condo flipping drives up prices, which the CBC story pounded, confuses cause and effect. We have condo flippers and we have rising prices. Does the flipping cause the prices to rise or do the rising prices encourage and enable flipping? I will argue that if prices weren't already rising, flippers would be stuck with their condos and have to sell at a loss. That's the downside of speculation.

Why are prices rising? Economics 101 says that prices rise when demand exceeds supply and falls with the reverse. If we want prices to come down, which would make housing more affordable and end condo flipping, just increase the supply. That is, stop making it so difficult to build them. But to a journalist, that's no fun. It would kill the joy of bathing in righteous indignation.