Experts are skeptical that Canada’s restriction on homebuyers such as non-citizens and foreign-owned firms purchasing properties throughout the nation would be effective in achieving Ottawa’s aim of lowering Canadian property prices. A two-year moratorium on “the purchase of residential property by non-Canadians” was enacted as part of the new housing legislation on January 1.
Permanent residents and refugees are immune from the legislation. However, the government’s attempts to “curb unproductive foreign ownership” mean that homebuyers who break the rules may be hit with penalties of several thousand dollars.
Canada’s Minister of Housing and Diversity and Inclusion Ahmed Hussen stated last month that the government was “taking action” via the new law to guarantee that all Canadians would benefit from home ownership.
In an effort to curb surging home prices in key Canadian cities, lawmakers imposed the ban in June of last year. Low loan rates and rising wages contributed to a sustained increase in home values that reached a new peak during the COVID-19 epidemic. Also, many individuals have been priced out of metropolitan areas as rents have increased.
According to Thomas Davidoff, director of UBC’s Centre for Urban Economics and Real Estate, the new rule is unlikely to have any significant impact on the real estate markets of Toronto and Vancouver, two of Canada’s major cities. He claimed that the provincial government had already begun taxing foreign homebuyers of real estate in the province. Davidoff told Al Jazeera that the restriction may have an impact in Canadian towns that do not already levy significant taxes on foreign real estate investments because of the projected decrease in demand.
Foreign investment in the market is not a concern. It’s problematic if there are seasonal or second houses sitting unoccupied,” he said. It’s not a big deal if an out-of-towner wants to purchase an apartment and lease it to a local. It seems counterproductive to me to investigate the citizenship of the owner instead of the purpose of the property.
Real estate in Canada
In 2017, the government of Prime Minister Justin Trudeau released Canada’s first-ever, national housing policy, which included a ban on foreign ownership of residential real estate. New homes, including those for low-income Canadians, will be built as part of the 10-year, multibillion-dollar plan, and purchasers will be incentivized via tax breaks and other measures.
Trudeau said that these investments “will put home ownership within reach for more Canadians, protect renters and buyers, and expand Indigenous housing across the country” in the government budget from the previous year.
Much of the current worry about rising expenses has been focused on locations with a high concentration of “census metropolitan areas.” Thus the new prohibition only affects properties with three units or less, as well as portions of semi-detached houses and condos in such areas.
The Canadian Real Estate Association reported in March 2021 that the average price of a property in the country had risen to a new high of $524,324 ($716,828 Canadian). This is a rise of 31.6% from the previous year. The real estate markets in and around Vancouver and Toronto were major contributors to that increase.
According to a survey by the Royal Bank of Canada, a month later, 36% of non-homebuyers under the age of 40 reported having given up hope of ever buying a house.
“Renters, who are unable to buy, are spending a disproportionate share of their income on housing. We should be giving it a lot of attention. Penny Gurstein, head of UBC’s housing research collaboration, emphasized the need of providing affordable housing options for individuals of all income levels.
As Al Jazeera’s Jonathan Gurstein reported, the government’s ban on foreign homebuyers sends “a message that there is concern about global capital coming into our housing market.” Although it’s yet unknown what impact this would have on pricing.
The percentage of Canadian real estate owned by non-Canadians is low. Statistics Canada, a government website, reports that in 2020, non-residents held 2.2% of Ontario homes and 3.1% of British Columbia homes. The urban regions of Toronto and Vancouver had percentages of 2.7% and 4.2%, respectively.
Even while there is some international investment, Gurstein claims that other variables are at play. This includes Canadian real estate speculators snapping up buildings. She suggested that the government might do more to solve the affordability crisis by investing more in the construction of co-ops and other forms of social and communal housing. Meanwhile, falling prices as a result of increasing interest rates and falling demand have boosted confidence.
Long-term, though, Gurstein argues, transitioning away from the private sector is essential. To paraphrase, “we need to be thinking about housing as infrastructure, housing as a way to encourage other sectors of the economy and not just the real estate industry.”
Narrow market niche
According to Davidoff from UBC’s Centre for Urban Economics and Real Estate, zoning regulations provide a further long-term obstacle. According to him, most of Canada’s housing acreage can only be used to build detached, single-family houses, which are out of most people’s price ranges.
“While the federal government does not have direct control over zoning, it does have the power to tell provinces, ‘You don’t get any money for anything until you ban the practice among your municipalities of enacting restrictive zoning,'” Davidoff said. That, rather than a prohibition on foreign purchases, would have a greater impact.
Despite the complexity of Canada’s housing situation, however, immigrants have taken on a disproportionate amount of public responsibility. Vancouver’s significant Asian-Canadian community has been the target of racism. It was reported that affluent investors from mainland China were purchasing high-end residences there. Davidoff told Al Jazeera, “What I like to say is, supporting a ban on foreign buyers doesn’t make you a racist, but if you were a racist, it’s something you would like.”
Associate professor at Western University in Ontario Diana Mok told Al Jazeera that the government is attempting to demonstrate. It is taking steps to cut housing prices by singling out “a culprit,” in this example, immigrants. It’s a niche market… that’s simple to categorize. They are the ones who are the foreigners, she replied, not us.
Mok expressed skepticism that the prohibition would have a lasting effect on price stability. She agreed with Gurstein that a broader strategy is needed to address home affordability, such as ensuring that wages rise in tandem with inflation.