Montreal Canada – Canada has banned most non-citizens and foreign-owned businesses from buying homes across the country, but experts doubt whether the ban alone will be able to meet Ottawa’s goal of lowering Canadian home prices.
The new housing law, which went into effect on January 1, bans “the acquisition of home ownership by non-Canadians” for a period of two years.
The measure includes exceptions for permanent residents and refugees. But homebuyers who break the law can face thousands of dollars in fines as part of the government’s effort to “curb unproductive foreign ownership.”
“Through this legislation, we are taking action to ensure homes are owned by Canadians, for the good of all who live in this country,” Ahmed Hussen, Canada’s Minister for Housing and Diversity and Inclusion, said in a statement last month.
Canadian lawmakers enacted the ban in June last year in response to rising housing costs in major cities across Canada.
Home prices have been rising for years but have soared to new highs during the COVID-19 pandemic, buoyed in part by low interest rates and higher disposable incomes.
Rents have also risen, which has prompted many people to discount prices, especially in urban areas.
Thomas Davidoff, director of the Center for Urban Economics and Real Estate at the University of British Columbia (UBC), said the new law is likely to have little effect in Toronto and Vancouver, two of Canada’s largest cities and most expensive real estate markets. Increased provincial taxes there are already targeting foreign home purchases, he said.
However, Davidoff told Al Jazeera that a reduction in demand is likely to result in lower prices overall, and the ban could impact Canadian cities that don’t already levy heavy taxes on foreign real estate investments.
“It is not a problem if there is foreign investment in the market. What is a problem [is] when there are empty houses pied a terrevacation spots,” he said.
“If someone from overseas wants to buy an apartment and rent it to a local, that’s not a problem. I think it is wrong to focus on the owner’s nationality and not on the use of the property.”
Canada’s housing market
The ban on foreign ownership is one of several housing policies passed by Prime Minister Justin Trudeau’s government, which unveiled Canada’s first-ever national housing strategy in 2017 for low-income Canadians – and offer tax breaks and other incentives for new buyers.
Affordable housing was also part of last year’s federal budget, with Trudeau saying new investments will “put homeownership within reach of more Canadians, protect renters and buyers, and expand Indigenous housing across the country.”
The new ban applies to properties with three units or fewer, and portions of semi-detached houses and condos located in and around “census metropolitan areas,” where much of the concern in recent years has been about rising costs.
In March 2021, the Canadian Real Estate Association announced that the national average cost of buying a home hit a record $524,324 (CAN$716,828), a 31.6 percent increase from 2020. This jump was primarily driven by real estate values in and around Vancouver and surrounding Toronto.
A month later, a survey by the Royal Bank of Canada found that 36 percent of non-homebuyers under the age of 40 had given up hope of ever owning a home.
“People who can’t get to the market rent, but a large part of their income now has to go to rent. We really need to address this. We need to look at housing for people with low and middle incomes,” said Penny Gurstein, director of housing research collaboration at UBC.
Gurstein told Al Jazeera that while the government’s ban on foreign homebuying “sends a message that there are concerns that global capital is pouring into our housing market,” it remains unclear what specific impact it will have on prices.
Foreign owners make up only a small portion of the Canadian real estate market. According to Statistics Canada, a government website, non-residents owned 2.2 percent of residential property in Ontario and 3.1 percent in British Columbia in 2020. The percentages were 2.7 and 4.2 in the Toronto and Vancouver metro areas, respectively.
So while some foreign capital is involved, Gurstein said other factors are at play, such as Canadian real estate investors buying up properties. She added the government could do more to address the affordability issue by allocating more funding to building cooperatives and social and community housing.
Meanwhile, steadily rising interest rates combined with slacking demand has meant prices have fallen slightly, fueling optimism.
But Gurstein said that in the long run, a move away from private enterprise will be crucial. “We need to think about housing as infrastructure, housing as a way to support other industries and not just real estate.”
“Small market segment”
Davidoff of the UBC Center for Urban Economics and Real Estate pointed to another long-term hurdle: zoning. Most of the land set aside for housing in Canada is limited to building single-family homes, which are unaffordable for most people, he said.
“And while the federal government doesn’t control zoning directly, it certainly has the power to tell the provinces, ‘You don’t get money for anything until you ban the practice of restrictive zoning in your municipalities,'” he told Davidoff. “So that would certainly be much more effective in the long run than banning foreign buyers.”
But despite the complexity of Canada’s housing problem, foreigners have shouldered much of the public blame for the housing crisis. In Vancouver, reports of wealthy mainland Chinese investors buying luxury properties have sparked a backlash against the city’s large Asian-Canadian population.
“What I’d like to say is that supporting a ban on foreign buyers doesn’t make you a racist, but if you were a racist it would be something you’d like to have,” Davidoff told Al Jazeera.
Diana Mok, an associate professor at Western University in Ontario, told Al Jazeera that by naming “a culprit” – in this case foreigners – the government is trying to show it is taking action to lower housing costs.
“It’s a small segment…that we can easily label. Call them foreigners – not us, them,” she said.
Mok said she doubts the ban will stabilize prices in the long term. Echoing Gurstein, she said a broader approach should be taken to address housing affordability, including ensuring salaries keep pace with the increased cost of living.
“Be creative and think about all sides of the problem,” she advised, “and not only [that] a single action is enough.”