Experts say Canada’s extension of the foreign homebuyers ban will do little to quell the housing crunch the country is facing.
The federal government announced last week that it would extend the ban on foreign home buyers for another two years in a bid to help with soaring housing costs in Canada, particularly in Toronto and Vancouver.
“By extending the foreign buyer ban, we will ensure houses are used as homes for Canadian families to live in and do not become a speculative financial asset class,” Finance Minister Chrystia Freeland said in a statement Sunday.
The measure was first enacted in 2022 with an expiration date of Jan. 1, 2025, but it will now expire on Jan. 1, 2027.
Derek Holt, vice-president and head of capital markets economics at Scotiabank, criticized the extension in a note to clients on Monday.
“It’s a purely xenophobic measure aimed at politically scapegoating foreign buyers that were an immaterial share of home purchases,” he wrote.
“It is designed to politically blame foreign buyers for what is instead the total mismanagement of Canadian housing and immigration policy. Besides, ultra-loose immigration policy, including abuse of the temporary category particularly via international students, resulted in finding other ways of funnelling money from outside of Canada into local housing.”
Christopher Alexander, president of RE/MAX Canada, said he was “surprised” to hear of the extension and called it a “smokescreen” that’s masking other affordability issues in Canada.
“It's been in place for over a year now and it hasn't really contributed to a decline or improved affordability,” he said in a phone interview on Tuesday.
“It's almost insulting to think that the federal government believes that this is going to really help move the needle.”
Alexander said foreign homebuyers only represent about four per cent of home purchases in Canada. He would rather see governments focus on further cutting taxation for new builds.
“We have to build 3.5 million homes in the next eight years and between municipal provincial and federal government taxes and levies, we're looking at almost 30 per cent in some jurisdictions of the overall cost of a unit going to the government,” he said.
Alexander was referring to a 2023 study from the Canada Mortgage and Housing Corporation that found Canada needs to add 3.5 million new homes by 2030 – on top of those already planned – to achieve affordability in the country.
Taxation has been a focus of the federal government’s housing policy, having cut the GST on new rental builds, a move that Ontario later followed.
Thomas Davidoff, director of the University of British Columbia’s Centre for Urban Economics and Real Estate, believes cracking down on vacant homes, regardless of who owns them, is a better policy.
“Going after foreign buyers is pretty good politics. At the level of policy, I don't think it probably has much impact,” he told BNNBloomberg.ca in a phone interview on Monday.
“My general view is it is the use of the property that matters, not the nationality of the owner. So, an empty home owned by a Canadian is worse for affordability than a home rented out to a local, by somebody from overseas.”
Davidoff said an effective policy would also target people who own property in Canada, but don’t pay any income tax in Canada.
“I have shown that there are a huge number of people who own very expensive homes and pay next to nothing in income tax,” he said. “Because Canada is a low property tax country and high income and sales tax, our tax system invites people, whether they're residents of Canada or not, to buy real estate, but not necessarily make a living here.”
If properties were taxed at one per cent of their value, but made every dollar an income tax credit, it would raise an estimated $2 billion in taxes for Toronto and Vancouver, Davidoff said.
“That's real money and you'd probably free up some housing for the local workforce,” he said.
Karen Yolevski, COO of Royal LePage Real Estate Services, noted that housing prices in Canada have only climbed since the foreign homebuyers ban was first enacted, suggesting it’s had little impact on real estate in the country.
“Non-Canadian property ownership makes up a small percentage of the overall housing market, therefore a ban on such ownership is not likely to improve access to housing in a material way,” she wrote in a statement.
“Given the imbalance between available inventory and buyer demand, the best way to solve Canada’s housing crisis is to significantly increase supply.”
According to the Canadian Real Estate Association, the average price of a home in Canada climbed to $657,145 in December 2023.
With files from Bloomberg News