Both the Liberals and Conservatives have pledged to ban foreign buyers from purchasing residential homes in Canada for at least the next two years.
The proposals come after the provincial taxes that were imposed on foreign homebuyers in Canada’s prominent housing markets of British Columbia and Ontario, which came into effect in 2016 and 2017 respectively. However, whether such policies can help the Canadian housing affordability crisis is up for debate.
The pledges to ban foreign homebuyers throughout the country of Canada could actually do little to help the housing affordability issue and the new rules could potentially have other negative implications.
Banning Foreign Homebuyers Will Not Solve Root Housing Market Problems
On the one hand, Canada’s housing market is booming. In 2019, home sales increased by a whopping 32%. Even since 2020, the year that Covid-19 affected all markets, home prices have risen by 32% in Canada.
On the other hand, around 81,000 people are on a waiting list for subsidized housing in Toronto. Rental prices are going up too. There are numerous reasons for the causes of unaffordable housing in Canada, but foreign homebuyers are certainly not one of the top reasons, despite politicians suggesting otherwise.
Foreign investors inflating the values of properties is not the major problem. It is simply a symptom of a system that is not working. So, it looks unlikely that a foreign home buyer ban will actually solve the problems that really exist in Canada’s housing market.
The Foreign Homebuyer Ban Could Affect Mortgage Rates
Everything has a knock-on effect. So, while it is too early to discern whether introducing a foreign homebuyer ban will cause mortgage rates to rise or fall, you should definitely keep your eye on mortgage rate trends.
The Foreign Homebuyer Ban Could Backfire
On the surface, it may sound bad that foreigners are buying properties in Canada while thousands of Canadians wait on housing lists. But look at real situations, and you will see it is not as clear-cut as that.
For instance, if someone from the United States or Russia buys a condo in Vancouver and rents it out, that is helping to raise taxes and contribute to the economy and a healthy housing market.
On the other hand, if someone from Toronto purchases the same condo as a vacation retreat and hardly ever uses it, that would harm the housing market more. It is not so much about whether a property owner is a Canadian national or not, but more about how the purchased properties are being used.
Without foreign investors in the Canadian housing market, the market could see a decline. While we can only speculate at this point, it should be clear that things are not as simple as “banning foreigners from buying properties will help the housing market”.
Canadians Could Be Banned from Buying Foreign Properties
One major issue that many Canadians are worried about is whether other countries could respond in kind. For example, many Americans buy properties in Canada and many Canadians buy homes in the United States.
If Canada stops Americans from purchasing properties in the country, it is possible that the United States would implement rules to prevent Canadians from living in favourite destinations like Florida and Arizona.
It may seem unlikely at the moment that the United States would respond in such a way, seeing as Canadians were the top foreign property buyers in the country from April 2020 to March 2021, according to the U.S. National Association of Realtors, but if Canada starts banning foreign homebuyers, it is not out of the question that Canadians will be banned from buying properties in other countries. However, only time will tell what will happen from a Canadian foreign home buyer ban.
