Canada Moves to Ban Foreign Real Estate Buyers for Two Years

Soaring house prices, the second most popular topic of conversation among Canadians after the weather, figured prominently in the federal budget presented to Parliament on Thursday by Chrystia Freeland, Minister of Finance and Deputy Prime Minister.

In the two years ending in February, the average home price rose more than 51%, to C$868,400, according to the Canadian Real Estate Association.

Among the wide range of budget proposals to make housing more affordable is a two-year ban that will prevent most foreigners and non-Canadian businesses from buying residential real estate in the country.

The idea that foreign money has helped drive up prices in markets like Vancouver and Toronto has been around for some time and has become a hot political issue.

And there have been efforts to discourage it. In 2016, British Columbia introduced a 15% tax on home and condo purchases by foreign buyers. Late last month, Ontario raised its its own 20% tax and extended it to the whole province.

But several economists I spoke with after the budget was released said that the effect of foreign buyers on prices is not as large as one might think, even in Vancouver and Toronto. And some of the experts warn that the ban will most likely create headaches, possibly big headaches.

Tsur Somerville is an associate professor at the Sauder School of Business at the University of British Columbia, specializing in real estate economics. He told me that the increase in housing prices that has taken place during the pandemic contradicts the assumptions behind this ban.

“We had two years where it was very difficult to be a foreign buyer of real estate in Canada because it was difficult to get here,” he said. “Yet this is when house prices saw their biggest increase in the last 10 years.”

Research by Professor Somerville and a colleague found that after the tax was imposed in British Columbia, prices fell only 3-5% in areas of Vancouver that were popular with foreign buyers compared to the neighborhoods these buyers were avoiding.

In a 2020 paper, Joshua C. Gordon, adjunct professor at the School of Public Policy at Simon Fraser University in Burnaby, British Columbia, found that demand from people outside of Canada has indeed made housing less affordable in Vancouver and Toronto, but not in a way that the budget sale ban will fix.

Many real estate purchases in these cities, he wrote, are made by Canadian residents or citizens acting on behalf of relatives or others living abroad, who provide the money behind the transactions. Whatever form the new ban takes, it will not block these transactions.

“What matters is not so much citizenship as the source of funds for property purchases,” Mr Gordon wrote.

Details are scarce on how the federal ban works. The Ministry of Finance told me that they “will be available in the coming months”. The budget says recreational properties will be exempt, though it doesn’t define them; it also exempts people in Canada on student visas leading to permanent residence and people living here temporarily to work.

But since real estate is a provincial responsibility, it’s unclear how the federal government can regulate these sales. Gilles LeVasseur, who teaches constitutional law at the University of Ottawa, said the regulations will most likely be created as part of the federal powers to create criminal law.

But whatever the means, he said, the rule will violate the Charter of Rights and Freedoms by discriminating against people on the basis of nationality. Although the rights are not absolute, Professor LeVasseur said it could be difficult for the government to justify such discrimination in court.

“Is this acceptable given the fact that it will penalize a certain group of people knowing that it will not have a major impact on society?” asked Professor LeVasseur.

I also spoke with Brian Higgins, a US Representative from Western New York who follows cross-border issues closely. He said he had been monitoring a possible ban since last fall and had raised the issue with officials in Washington and during a meeting with Prime Minister Justin Trudeau.

The budget proposal, he said, goes too far.

“It violates the United States-Canada-Mexico trade agreement” by discriminating against American and Mexican buyers, he said.

Prof Somerville was not critical of the many home price budget measures, but he said potential buyers in Canada who find themselves out of the market shouldn’t hope that will change.

“It always feels like everyone wants a magic bullet that costs them nothing and makes housing affordable,” he said, adding, not quite seriously: “The way to make the affordable housing is to reduce housing prices by 50%.But this leads to a few other problems in the macroeconomy.

When I’m reporting in Western Canada, I’m usually lucky enough to work with Amber Bracken, a photojournalist from Edmonton. This week, the photo above, which was taken while we were reporting on the discovery of human remains at the former Kamloops Indian Residential School, was named Global Press Photo of the Year, one of her profession’s highest honors.

“It’s a kind of image that sticks in your memory; it inspires a kind of sensory reaction,” Rena Effendi, chair of the global jury, said of the photo. “I could almost hear the stillness in this photograph, a quiet moment of holistic consideration of the history of colonization, not just in Canada but around the world.”

  • In the latest in a series of measures to support struggling media companies in Canada, the federal government has introduced legislation that will force tech giants like Facebook, Google and Twitter to pay to allow users to share news content on their platforms. It follows similar movements in Europe and Australia.

  • A Steller’s eagle, native to East Asia, that showed up in Nova Scotia on April Fool’s Day is not lost; it adapts, writes Marion Renault in an article on wandering birds.

  • 34-year-old “Schitt’s Creek” star Noah Reid will make his Broadway debut this month in Tracy Letts’ new comedy “The Minutes.”

  • The chief executive of Mavrik Corporation, a Montreal-based investment firm, is aboard a spacecraft that lifted off Friday for the International Space Station in NASA’s first foray into space tourism.

Originally from Windsor, Ontario, Ian Austen was educated in Toronto, lives in Ottawa and has reported on Canada for The New York Times for the past 16 years. Follow him on Twitter at @ianrausten.

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