As Canada ushers in the New Year, a new policy to ban foreign buyers from purchasing residential property is causing a stir. The federal government is touting this move as a solution to make housing more affordable. However, many real estate and housing policy experts are skeptical of its effectiveness. They argue that the ban will have minimal impact on house prices due to the small share of non-resident buyers in the market and the exemptions that still exist.
Brendon Ogmundson, chief economist at the British Columbia Real Estate Association, believes that the ban is more of a political policy than an economic one. He asserts that the driving forces behind rising home prices are low interest rates and a scarcity of supply, rather than foreign investors and money. Despite limited data on foreign buyers and owners in Canada, the numbers indicate that their presence is relatively small. In provinces such as British Columbia and Ontario, where data is available, the percentage of foreign buyers is even smaller.
Vik Singh, an assistant professor in the global management studies program at Toronto Metropolitan University, emphasizes the necessity for the government to address housing concerns. However, he suggests that targeting foreign buyers may be a convenient scapegoat rather than effectively tackling the root causes of the problem.
The new ban provides various exemptions for different categories of prospective buyers. Canadian citizens and permanent residents are exempt, while international students and foreign workers are allowed to purchase one property, provided they meet certain residency requirements. Foreign nationals with temporary resident status, refugees, diplomats, consular staff, and members of international organizations living in Canada are also permitted to buy properties without further restrictions. The ban only applies to residential properties with three or fewer dwelling units, with exceptions made for less-populated areas. Recreational properties such as vacation homes are also exempt.
The government aims to enforce the ban strictly, with non-residents who violate it, as well as the realtors and lawyers who assist them, facing fines and potential conviction. The federal government can also seek a court order to sell properties purchased in contravention of the ban. However, there are concerns about the added costs and legal risks that realtors may encounter while determining the eligibility of buyers and properties.
To support the effectiveness of this ban, Canada's finance minister, Chrystia Freeland, points to New Zealand, a peer country that implemented a similar policy. However, experts in New Zealand argue that the ban had minimal impact on the housing market. Despite a significant decrease in non-resident homebuyers, house prices continued to rise, only curbed by subsequent interest rate hikes. Brad Olsen, an economist at Infometrics, an economics consultancy in Wellington, New Zealand, argues that the ban was largely a political move, driven by public perception rather than substantial evidence.
While the ban on foreign buyers may not be a panacea for housing affordability, experts propose alternative solutions. Increasing the supply of homes, particularly affordable ones, is essential to meet the growing demand. The federal government has promised to assist municipalities in expediting construction, but the types of homes built must also align with affordability goals. The government is also implementing an anti-flipping tax targeting investors who quickly buy and sell homes within 12 months.
Furthermore, experts suggest exploring additional measures, such as expanding taxes on foreign buyers to new areas or broadening taxes on empty homes beyond non-residents. Paul Kershaw, an associate professor of public policy at the University of British Columbia, proposes a modest surtax on homes valued over $1 million. This surtax could generate substantial annual revenue, which the government could invest in affordable rentals, cooperative housing units, and renter rebates.
In conclusion, while the ban on foreign buyers may be a step in the right direction, experts caution against expecting significant results from this policy alone. It is crucial to consider a range of measures, including increasing the housing supply, implementing targeted taxes, and exploring innovative funding options. By adopting a multifaceted approach, Canada can work towards achieving truly affordable housing for its citizens.
Recreational properties, such as vacation homes, are exempt from the ban on non-resident buyers.
New Zealand's government banned foreigners from buying residential property in August 2018 in an attempt to tame house prices.
New houses under construction in Airdrie, Alta., on Jan. 28, 2022.
Homes under construction are pictured in a new subdivision in the Ottawa suburb of Kanata on July 30, 2021.
