For years, even before the coronavirus pandemic, many public policymakers and housing advocates claimed that foreign investors contributed to the skyrocketing cost of home ownership in Toronto and Vancouver. At a time when Canadian real estate prices have skyrocketed since the beginning of the COVID-19 public health crisis, lawmakers are looking closely as possible solutions, with some suggesting non-resident buyer bans could cool the hot market.
According to the latest data from Statistics Canada, non-resident owners account for an average of nearly three per cent of housing stock. This is up from the pre-pandemic rate of 2.3 per cent.
Where are foreign investors dropping their capital in the Canadian real estate market? While Toronto and Vancouver are on the list, some other jurisdictions are surprising: Halifax, St. John’s, Windsor, Whitehorse and Nanaimo. In total, non-resident owners hold about $156 billion in housing.
Whether the rate of foreign ownership is contributing to the nation’s housing affordability crisis or not can be debated. Still, officials at all three levels of government are taking some action to address the matter.
A Realistic Look at Federal, Provincial Non-Resident Buyer Bans
In April, Prime Minister Justin Trudeau and his Liberal government announced that Ottawa would prohibit foreign investors from acquiring residential properties in Canada for two years as part of broader efforts to cool down the housing industry. The rule will be applied to condos, apartments, and single residential units.
“For years, foreign money has been coming into Canada to buy residential real estate,” the 2022 Canadian budget stated about the ban. “This has fuelled concerns about the impact on costs in cities like Vancouver and Toronto and worries about Canadians being priced out of the housing market in cities and towns across the country.”
Trudeau and the government Grits also unveiled several other policy prescriptions, including higher taxes for individuals who sell their homes within a year, billions in new housing development, and adjustments to the first-time homebuyers tax credit.
The policy tools were outlined in response to a skyrocketing housing market that has since relatively cooled down. But it is not only the federal government that has instituted similar mechanisms to help douse the red-hot real estate sector. Two provinces have targeted non-resident homebuyers, so let’s look at what officials have been doing in these two areas.
In Ontario, the provincial government increased the speculation tax on non-resident homeowners to 20 per cent, up from the previous 15 per cent. In addition, the levy will now be applied to the entire province as it had only been relegated to the Greater Golden Horseshoe region in the southern part of Canada’s most populous province.
The government of British Columbia raised the Foreign Buyers Property Transfer Tax for foreign nationals, foreign corporations, and taxable trustees. This means that anyone who is not a Canadian citizen or permanent resident must pay a tax equal to 20 per cent of the purchase prices.
Here is a list of localities where the tax is applied:
- Greater Vancouver Regional District
- Capital Regional District
- Fraser Valley Regional District
- Regional District of Central Okanagan
- Regional District of Nanaimo
Will These Tactics Work?
On the one hand, the latest legislative pursuits by the federal government make it seem that lawmakers are doing something about the sizzling real estate market. On the other, many housing experts concur that this will not achieve much, especially regarding its chief objective of lower home prices.
Some industry observers note that the measure is nothing more than “scapegoating.”
“This is kind of scapegoating that, ‘Oh, it’s foreigners ruining Canada’s housing market, and this is going to put it back in the control of Canadians,’” Mike Moffatt, senior director for policy and innovation at the Smart Prosperity Institute, told Politico earlier this month. “I do worry about that rhetoric. For the most part, the government’s been responsible in the way that they couch and frame this, but I do share those concerns.”
But could public policymakers achieve anything at all with intervention? It depends on what Ottawa does moving forward, analysts note. For example, some recommend the government cut income taxes and raise taxes on property wealth. Or as another example, many real estate experts contend that it is critical to bring more supply to the country. So, since the foreign home ownership ban will only target demand, the supply aspect of the discussion will not be addressed by banning foreigners from purchasing detached homes in Vancouver or condo units in Toronto, experts argue.
Perhaps the Canadian government can take a victory leap because there has been some easing in home prices. According to the Canadian Real Estate Association (CREA), the national average home price climbed just 7.4 per cent year-over-year in April to a little more than $746,000. This has been considerable easing after multiple months of double-digit price growth.