[ska]

Like most econ-101 reasoning, the "eventually" is doing a lot of work here.

From a policy point of view, it's easy to see why the picture is a bit trickier. Allowed to proceed unchecked, the underlying mechanism you describe will displace a pretty large fraction of the current population, especially as the offshore money fundamentally doesn't bring in much local economic activity after the new construction. These are the people you represent as a government, not the putative future immigrants and speculators.

"Surely it would be wasteful for a while" here represents a multigenerational disruption to a large fraction of your voting public, the majority of whom will see little or no benefit from the incoming money, and the overwhelming majority of whom will see negative impacts.

[eisbaar]

Why would it displace people, if you build cheap houses to sell to Chinese Investors?

That an influx of money doesn't benefit the economy would also be interesting for most Western governments. "Stimulus" by monetary means seems to be a very popular approach currently. (I don't know, but it seems debatable).

I also don't think prices are going up only because of Chinese investor. I also live in a city with the problem of steeply rising prices (Berlin, Germany), but the fact is simply, it is a very popular city with many people wanting to live here.

[ska]

There is a lot of research on this you can follow up on but short story on your first two points is a) a combination of old stock sales and rezoning is pricing existing residents out of neighborhoods, and b) the money isn't effective as stimulus, it's "parked". Besides the fact that "trickle down" theory has proven a failure at this point, there is no local value to a non-resident whose economic activity is done elsewhere not living in housing that is also not rented.

I think your last point is clearly true also, but the balance isn't obvious.

[eisbaar]

Research in that area is unfortunately very politically loaded. I don't think simply claiming "there is a lot of research" in such a politically disputed subject is sufficient.

As for b), if a Chinese investor buys some house from a Canadian, why is the money parked?

Trickle down or not, it seems in general if you can sell something (in this case houses to Chinese people), it is good.

If you build houses to sell to Chinese people, you also employ people from the building industry, for example. I'm not convinced that "trickle down theory" is the correct theory to apply there.

Special issues presumably arises with land and housing as a good - you shouldn't simply sell all your land to some foreign powers, presumably. Still, in general it holds.

If you worry about land area, you could build a huge skyscraper in a corner of the town that doesn't disturb too many people, and sell the flats to Chinese investors. Very little land use, huge margins.