In Vancouver—Canada’s most expensive housing market, where the average home costs $1.36 million Canadian dollars ($1.08 million)—many real estate ads on billboards and bus benches are written in both English and Chinese. Foreign buyers—particularly those from mainland China—have long been blamed for driving up home prices in Vancouver and Toronto, Canada’s second-priciest housing market.
This year, Canadian home prices, plus a key measure of affordability, shattered records. The average home price in Canada soared to a record $816,720 CAD ($646,809) in February—nine times the typical household income. The cost of owning a home in relation to median incomes is now at a 31-year-high, according to calculations from the Royal Bank of Canada.
Faced with a housing crisis, the Canadian government this month introduced a salvo of new measures to boost the country’s housing supply and to cool rising home prices. The headline policy? Slapping a two-year ban on foreign homebuyers. Yet experts say this measure will do little to make homes more affordable or ease the country’s housing supply crunch. Instead, they say it acts as a political ploy to shift the blame on to foreigners and plays on fears that noncitizens are snapping up Canadian real estate and driving up home prices.
Foreign ban
Canada’s 2022 budget is “about putting Canadians first by putting an end to unfair practices that lead to rising home prices,” Ahmed Hussen, Canada’s minister of housing and diversity and inclusion, said this month.
The two-year ban on foreign homebuyers will curb speculative buying that drives up housing prices and will “make property flippers pay their fair share,” the government said. The ban applies to all non-Canadians with the exception of Canadian permanent residents and individuals on work and study permits in the country.
But the restrictions will have little effect on taming the country’s red-hot housing market, given the limited number of non-Canadian homeowners in Canada.
The Canadian government doesn’t track foreign homeownership nationwide, but the total percentage is much less than most Canadians think, experts say. “People…expect [the ban] to have an impact because they overestimate how many foreign [homeowners] there actually are. If anything, [the effect] will be psychological,” says Ben Myers, president of Toronto-based real estate consultancy Bullpen Research & Consulting.
Non-Canadian buyers account for fewer than 3% of total home sales in the country, according to Steve Pomeroy, CEO of Focus Consulting and senior research fellow at Ottawa-based Carleton University’s Centre for Urban Research and Education. In Vancouver and Toronto, foreign buyers account for a bigger chunk of homeownership, but the rates are still low. In 2020, non-residents owned 4.2% of all homes in Vancouver and 2.7% in Toronto, with the majority buying condos, rather than the in-demand single-detached homes, according to Statistics Canada.
Domestic buyers have largely driven Canada’s housing market surge, and 75% of them are existing property owners who are upgrading or downsizing—or investing in additional property, Pomeroy says.
The reason foreign homebuyers attract so much attention—despite representing a small number of sales—is because they tend to purchase high-priced properties, Pomeroy says. Many of the foreign buyers are individuals or families who are planning to move to Canada, buying property for relatives who already live and work in Canada, or are Americans buying cottages and ski villas, Myers says.
How the ban will take effect at the provincial level still needs to be defined, but previous provincial measures targeting non-Canadian homebuyers only cooled home prices temporarily. British Columbia was the first to introduce a 15% non-resident tax on house purchases in August 2016. Ontario followed suit with the same rate in April 2017. In the months that followed, housing prices and sales declined noticeably, says Murtaza Haider, a professor of data science and real estate management at Toronto’s Ryerson University and research director of the Urban Analytics Institute. But the price drop was short-lived, and home prices in the two provinces have surged since 2018, he says.
Political posturing
Like many advanced economies worldwide, the Canadian government is prioritizing efforts to placate citizens frustrated by soaring home prices.
The government is acting to address “resentment” among Canadians who believe deep-pocketed foreigners are driving up home prices, Haider says. Myers says the policy is more “political posturing” than a real remedy for the crisis. The government knows the ban will have a minimal impact on taming the country’s housing market, but it plays well politically to show that the government cares about Canadians who aren’t able to afford a home, he says.
Plus the ban shifts the blame elsewhere with “no consequences, as [foreigners] don’t vote,” Pomeroy says. In the last two decades, foreigners have become the scapegoat for Canada’s home price increases, particularly those of Asian descent in Vancouver and Toronto, Myers says.
The ban could also lead to unintended consequences. Canadians may be surprised if other governments, like the U.S., also start endorsing bans on foreign homeownership and “restrict Canadians from acquiring U.S. Real estate,” Haider says. Canadians are the top foreign buyers of real estate in the U.S., according to real estate industry body the National Association of Realtors (NAR). A “large number” of Canadians have snapped up properties in Florida and other warm states, says Haider.
What could ease Canada’s housing market frenzy are higher borrowing costs and an increase in the country’s supply of homes, which the government also addressed in its 2022 budget. Still, government measures to support new homebuyers—like a new tax-exempt savings account for Canadians under age 40 to buy their first home—could boost demand even further.
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