As of New Year’s Day, Canada’s ban on foreign homebuyers from purchasing residential property in Canada in a move the federal government says is aimed at making housing more affordable.
But many real estate and housing policy experts are unconvinced that the two-year ban will have much impact on house prices — given non-resident buyers make up such a small share of the real estate market, and many will still be exempt.
“I think this is very much a political policy, more than an economic policy,” says Brendon Ogmundson, chief economist at the British Columbia Real Estate Association.
“A lot of the public has been convinced over the last few years that it’s foreign investors and foreign money that are driving home prices, rather than what’s actually doing it: low interest rates and very low supply.”
There’s limited data tracking foreign buyers and owners across Canada. In the four provinces and one territory measured in the Canadian Housing Statistics Program in 2020 — the most recent year available — between two and six per cent of residential properties had at least one non-resident owner.
In British Columbia’s hot housing market, only about 1.1 per cent of transactions in 2021 involved a foreign buyer — a drop from three per cent in 2017, which the provincial government attributes to its taxes on non-residents, speculators and empty homes. Ontario’s government says it has seen “a downward trend” in foreigners buying property since it began taxing non-resident purchases in 2017.
“Whatever patchy data we have, it shows that the percentage is actually pretty small when it comes to foreign buyers,” says Vik Singh, an assistant professor in the global management studies program at the Ted Rogers School of Management at Toronto Metropolitan University.
“I think the government had to do something [about housing], and it’s easier to pick out the foreign buyer as a target.”
Finance Minister Chrystia Freeland declined multiple requests for an interview. In a statement, a spokesperson for Freeland said: “Houses should be homes for Canadians to live in and not an investment asset for foreigners.”
Information provided to CBC News by the Canada Mortgage and Housing Corporation indicates that the government has not carried out modelling that might show the ban’s potential impacts on the housing market and prices.
Who and what is exempt
Canadian citizens and permanent residents are exempt from the ban. Other prospective buyers face various different rules.
International students and foreign workers are allowed to purchase one property, as long as they have lived in Canada for a certain number of years, signalling their intention to become permanent residents.
For workers, that means having worked in Canada for three out of the four years prior to buying a property, while students had to be present in Canada for 244 days each year for the five years prior to buying. International students cannot buy a property for more than $500,000.
Foreign nationals with temporary resident status, refugees, diplomats, consular staff and members of international organizations living in Canada can also buy properties, without further restrictions.
Under the ban, non-Canadian entities, such as overseas corporations and foreign-controlled Canadian entities will be banned from buying property.
The rules only apply to residential properties with three or fewer dwelling units. There are also exceptions for residential properties in less-populated areas. Recreational properties — such as cottages, cabins and other vacation homes — are exempt.
Recreational properties, such as vacation homes, are exempt from the ban on non-resident buyers. Here, two women and a dog are pictured off Deep Cove in North Vancouver on June 29, 2013. (Jonathan Hayward/The Canadian Press)
Non-residents who buy a home in contravention of the ban — or realtors and lawyers who help them — can face a conviction, and be fined up to $10,000. The federal government can also apply to the superior court in the province where the home was purchased for an order to sell the property.
The Canadian Real Estate Association (CREA) was concerned about the added costs and potential legal risks that realtors might face while trying to determine the eligibility of buyers and properties.
“As a result of this legislation, buyers can expect realtors to ask more questions and request additional documentation from all clients,” a CREA spokesperson said in a statement.
A warning from New Zealand
Freeland’s office pointed to New Zealand’s ban on foreign buyers as an example of a “peer country” implementing a similar policy to improve housing affordability.
However, experts there say it’s fallen far short of success.
Prior to New Zealand’s 2018 ban, 2.9 per cent of homebuyers were non-residents. Their number has since dropped to 0.4 per cent — yet house prices continued to soar, reined in only by this year’s interest rate hikes.
New Zealand’s government banned foreigners from buying residential property in August 2018 in an attempt to tame house prices. The average house price in Auckland, where this photo was taken on Nov. 25, 2015, remains above $1 million. (Fiona Goodall/Getty Images)
“If you’re looking for evidence that the foreign buyers’ ban in New Zealand did anything to the housing market, you will find literally nothing,” says Brad Olsen, principal economist and director at Infometrics, an economics consultancy in Wellington, New Zealand.
“Given that there was such a small level of buying and selling that was actually happening through foreign ownership, really, this was a political move.”
Olsen was concerned Canada was making the very same move.
“It smacks of — exactly like in New Zealand — a real big political focus that makes a big splash and everyone gets quite excited … We proffered at the time [of New Zealand’s ban] that nothing would change, and nothing did.”
Unexplored options
Experts say increasing supply by building more homes faster is one obvious solution to help meet demand for housing, and the federal government has promised to help municipalities speed up construction.
But the types of homes being built also matters, says Singh. “If you build 1.5 million homes and if they’re not affordable … that’s just going to lead to investors scooping up more of the supply.”
Experts told CBC News there are still plenty of other measures the federal government has yet to explore, such as expanding taxes on foreign buyers, like those in B.C. and Ontario, to new areas, or broadening its tax on empty homes beyond non-residents.
New houses under construction in Airdrie, Alta., on Jan. 28, 2022. Experts say the federal government could be doing more to incentivize construction in order to ease housing demand and prices. (Jeff McIntosh/The Canadian Press)
Paul Kershaw, an associate professor of public policy at the University of British Columbia and his think-tank, Generation Squeeze, have proposed a “modest” surtax on homes worth more than $1 million, that would see most owners pay between $400 and $1,000 when a home is sold or inherited.
That small sum, Kershaw said, would add up to billions of dollars in annual revenue that the federal government could invest into affordable rentals and cooperative housing units, as well as rebates for renters.
“We have to rebalance and say, here’s the principle: housing is for homes first, investment second,” he said.
Kershaw is less cynical about the foreign buyers’ ban than some other experts, though rather than a silver bullet for housing affordability, he expects the ban to be “silver buckshot” at best.
“It’s one — probably modest — tool in the toolbox, whereas there are many other tools that we need to pull.”
Homes under construction are pictured in a new subdivision in the Ottawa suburb of Kanata on July 30, 2021. Housing policy expert Paul Kershaw says the federal government should consider a surtax on houses worth more than $1 million, to help fund affordable housing and renter rebates. (Justin Tang/The Canadian Press)
TORONTO – One expert predicts Ottawa‘s changes to mortgage rules will help spur demand among potential homebuyers but says policies aimed at driving new supply are needed to address the “core issues” facing the market.
The federal government’s changes, set to come into force mid-December, include a higher price cap for insured mortgages to allow more people to qualify for a mortgage with less than a 20 per cent down payment.
The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.
CIBC Capital Markets deputy chief economist Benjamin Tal calls it a “significant” move likely to accelerate the recovery of the housing market, a process already underway as interest rates have begun to fall.
However, he says in a note that policymakers should aim to “prevent that from becoming too much of a good thing” through policies geared toward the supply side.
Tal says the main issue is the lack of supply available to respond to Canada’s rapidly increasing population, particularly in major cities.
This report by The Canadian Press was first published Sept. 17,2024.
OTTAWA – The Canadian Real Estate Association says the number of homes sold in August fell compared with a year ago as the market remained largely stuck in a holding pattern despite borrowing costs beginning to come down.
The association says the number of homes sold in August fell 2.1 per cent compared with the same month last year.
On a seasonally adjusted month-over-month basis, national home sales edged up 1.3 per cent from July.
CREA senior economist Shaun Cathcart says that with forecasts of lower interest rates throughout the rest of this year and into 2025, “it makes sense that prospective buyers might continue to hold off for improved affordability, especially since prices are still well behaved in most of the country.”
The national average sale price for August amounted to $649,100, a 0.1 per cent increase compared with a year earlier.
The number of newly listed properties was up 1.1 per cent month-over-month.
This report by The Canadian Press was first published Sept. 16, 2024.
MONTREAL – Two Quebec real estate brokers are facing fines and years-long suspensions for submitting bogus offers on homes to drive up prices during the COVID-19 pandemic.
Christine Girouard has been suspended for 14 years and her business partner, Jonathan Dauphinais-Fortin, has been suspended for nine years after Quebec’s authority of real estate brokerage found they used fake bids to get buyers to raise their offers.
Girouard is a well-known broker who previously starred on a Quebec reality show that follows top real estate agents in the province.
She is facing a fine of $50,000, while Dauphinais-Fortin has been fined $10,000.
The two brokers were suspended in May 2023 after La Presse published an article about their practices.
One buyer ended up paying $40,000 more than his initial offer in 2022 after Girouard and Dauphinais-Fortin concocted a second bid on the house he wanted to buy.
This report by The Canadian Press was first published Sept. 11, 2024.
