Canada’s extension of ban on foreign real estate buyers labelled political, not practical
Canada’s Prime Minister Justin Trudeau meets workers as he tours new construction at Edgemont Flats housing complex during an announcement of new funding for housing in Edmonton, Alberta, Canada February 21, 2024. REUTERS/Amber Bracken
Canada’s move to keep foreigners out of its property market for two more years will do little to alleviate acute housing shortages, as non-residents were never the main driver fuelling property demand, economists and realtors say.
The surprise announcement on a Sunday morning last month to extend the ban that was first imposed in 2022 has been labelled by some as a political stunt to quell opposition pressure and show that the government is taking action on the property market, they added.
Housing affordability is emerging as a hot-button issue ahead of next year’s election, and Prime Minister Justin Trudeau’s main opponent, Conservative Party leader Pierre Poilievre, has blamed the Liberal government for the crisis.
The federal government has responded with a series of measures to boost supplies over the past year, but those actions won’t provide immediate relief. The extension of the ban 11 months before its expiry came as Trudeau’s public support tumbled to its lowest point in years.
“The politics is more important than the impact on the economics,” said Craig Alexander, president of Alexander Economic Views, an independent economic research organization.
Foreign ownership of houses in Canada has dropped to a single percentage point from 2-3% two years ago, economists and realtors estimate in the absence of any official data beyond 2021. The numbers hovered in the same range even before the pandemic, data from Statistics Canada showed.
While foreign buyers have been blamed for runaway housing prices in countries like Australia, the U.K. and New Zealand, no nation has taken a hard stand by banning foreign ownership like Canada.
The Finance Ministry last month said that foreign ownership had fuelled worries about Canadians being priced out of the housing market and increased housing affordability concerns.
Katherine Cuplinskas, a spokesperson for the finance minister, said the ministry believes Canadian homes should be places for Canadians to live in and not a speculative asset class for foreign investors.
The housing challenge in Canada will not be resolved within a year, so the ministry is extending the ban by two more years to see where the market goes, she said.
Economists and realtors say the solution is to increase the pace of building new houses then sustain it.
Trudeau has admitted that the current crisis is largely due to the lack of houses being built amid a surge in population, and has recently hit the brakes on immigration.
Since Trudeau came to power in 2015, Canada has welcomed 2.5 million new permanent residents, driving the country’s population to a record 40 million, while 1.8 million homes were built in the same period. Canada’s benchmark house price has risen by 30%, official data show.
Canada’s home-building pace has been similar to that of Australia, another country favoured by immigrants, but Canada’s increase in population has been double that of Australia.
To fix the housing shortage, Canada needs to build 315,000 new residences every year between now and 2030 to keep up with the rising population, according to Robert Hogue, assistant chief economist at RBC.
“That’s more than a third above the pace of housing completions in the past few years,” he said, adding that an extension of the ban will be a “drop in the bucket.”
Realtors also say foreigners scooped up prime and top-end residential units in the bustling localities of Toronto, Vancouver and Montreal. Hence, the extension of the ban will not increase supply for first-time home buyers, who account for close to half of all people buying houses, realtors say.
To be sure, house prices in Canada have eased 1.3% in the last year and a half, but that’s largely due to the record pace of interest rate increases by the Bank of Canada.
The Canadian Real Estate Association called the ban completely unnecessary. There is “no analysis, evidence or data” to prove that foreign ownership is affecting housing affordability, CEO Janice Myers said.
“It’s a purely xenophobic measure aimed at politically scapegoating foreign buyers that were an immaterial share of home purchases,” Derek Holt, head of capital markets at Scotiabank, said in a note.
