With the Federal Liberals’ vanity election of last Monday completed with a cost of $610 million to do nothing more than maintain the status quo, many people in the country are now wondering what proposed measures will be effective for increasing housing affordability in Canada. No doubt that $600+ million could have been better spend in many ways – including in investing in affordable housing starts or providing $ incentives to developers to build affordable housing complexes – but as we all know fiscal propriety or accountability is never going to be part of a Liberal government.
However, it is what it is and people who are struggling to get into the housing market are genuinely wondering what is coming with regards to policy designed to increase the supply of affordable housing in the country. One of the proposals made by the Liberals was a temporary ban on foreign buyers, with the idea that insulating the housing market to be more exclusively for Canadian citizens is going to be beneficial and will ‘cool’ the market in a way that will appease the thousands of Canadians who are anxious and uncertain about their ability to ever afford their home.
This issue is about prospective homebuyers first and foremost, but there are many different groups of other people who are affected by all of this in roundabout ways. Realtors feel a pinch too when there are fewer qualified and / or willing buyers, and there’s fewer homes being put on the market as owners doubt their own abilities to afford something else unless they are ‘downsizing’. Our online real estate lead generation system here at Real Estate Leads is ideal for countering that lack of new clientele, leveraging the power of Internet Marketing to identify and deliver people who are genuinely ready to make a real estate move.
If we are to swing back onto track here though, there are economics experts who say that yet again the Mimbo and his policy makers in Ottawa are set to miss the mark again, and that this foreign buyers ban may actually backfire on them. Here’s why.
24 Month Ball Drop?
The idea of banning foreign buyers from purchasing homes in Canada for 2 years builds upon provincial taxes imposed on foreign homebuyers in the hottest housing markets in British Columbia and Ontario in 2016 and 2017. Both have done little to improve housing affordability.
Most notably is the way that Americans will be lumped in with the group of ‘foreign buyers’ that most Canadian take exception to but aren’t particularly keen to own up to it. There are many Americans who buy property in Canada, and it would be very disadvantageous if their government was to do the same to Canadian buyers who would like to buy a home in the USA.
You can be sure that such a move will not go unnoticed in America, and it will not be favorably received in any way, shape, or form. Let’s keep in mind that quite often Canadians are the foreign buyers elsewhere and to be given a taste of our own medicine would taste very good at all.
Less of a Factor
Next, the truth of the matter is that foreign ownership of homes in Canada is not nearly the problem it’s made out to be by some people. Let’s consider a study by Statistics Canada in 2017 that determined non-residents owned only around 3.4% of all homes in Toronto and 4.8% of ones in Vancouver. Sure, that number has probably gone up in the last 4 years, but not much. Let’s consider as well that condos were the most popular housing segment for foreign buyers, with non-residents owning 7.2% and 7.9% in Toronto and Vancouver.
The detached homes that so many people decry for the lack of supply are basically unaffected by home ownership in the big picture – 2.1% for Toronto and 3.2% for Vancouver. Fact of the matter is the vast bulk of the demand for detached homes comes from Canadians living in Canada, especially as more and more people migrate to these desirable locations.
Banning foreign buyers may mean greater access to condos for prospective homebuyers, but the young professional with a young family who needs more space isn’t going to benefit from this move much if at all.
Looking in the Mirror
Let’s again not look past the fact that Canadians are the top foreign buyers of property in the United States. Between April of last year and March of this year Canadians put US$4.2 billion into the purchase of American residential real estate, and that works out to 8% of all non-U.S. citizens or Green Card holders who purchased homes in the continental USA over the course of that year.
A foreign homebuyer ban that puts the brakes on the reciprocal nature of this between countries isn’t going to an administratively punitive one necessarily, but it’s going to put a strain on it and the irony is that this group of buyers is NOT the one that people in Canada want to have in their sights when it comes to disadvantaging foreign buyers.
What is for sure is that we’d see significant bipartisan opposition from Congressional representatives in both the U.S. House of Representatives and the U.S. Senate, and any taxing or enforcing other penalties on Canadian owners of U.S. property would quickly become an issue of contention that the Feds will have to deal with as a fallout of their short sighted decisions.
The only solution to improve housing affordability in Canada is to increase supply, and that’s because negating demand from one group does nothing to mediate demand coming from elsewhere – in this case, within the country and from Canadian citizens or ones that have interests in purchasing homes that are not based in any investment thinking. That is literally hundreds of thousands of people if not millions, and that’s the reality of the situation.
The impact of preventing those who are not Canadian citizens or permanent residents from buying homes in Canada would be negligible at best. What is also true is the nationality of a homebuyer matters far less than the purpose that newly-purchased home will serve. It is a known fact that Canadians buy properties with idea of having them appreciate in value and rent them out at market rates just as readily as foreigners do, and that it’s not a ‘level playing field’ is also untrue when you consider many Canadian are equally as financially qualified to be doing so as the foreign buyers.
Same goes for those who buy properties and leave them vacant (tax or not) in order to preserve the value of the home. Is that harmful? Yes it is. Is it just as common with domestic buyers as it is foreign buyers? Yes, it is.
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