The trademarks MLS®, Multiple Listing Service® and the associated logos identify professional services rendered by REALTOR® members of CREA to effect the purchase, sale and lease of real estate as part of a cooperative selling system.
On Sunday, February 4th 2024 the finance minister of Canada Chrystia Freeland announced that the ban on foreigners buying residential properties in Canada has now been extended by 2 years (that is until January 1st 2027). The government cited ongoing housing affordability concerns and the desire to ensure homes are used for residency rather than becoming speculative assets as reasons for the extension. Which if you remember is the exact reason they gave when they originally banned motion on January 1st 2023.
In a way, the statement itself is an admission by the Federal government that the ban did not yield any substantial results in the past year. But then again is one year enough for it to tackle a crisis that has been going on for more than 20 years now? Well, that is exactly what The Canadian Home is trying to answer today.
The dynamic nature of the Canadian housing market and the many influencing factors make it challenging to pinpoint the exact effects of the ban. However, there is still data that helps us to paint a good overall picture.
First of all the Canadian Real Estate Association (CREA) data shows only a 3.4% decrease in foreign ownership transactions in the first half of 2023 compared to 2022. Although this is a good decline it's still not enough to tackle the ongoing housing crisis.
Secondly, the national home price index initially dipped by 2.5% following the ban's introduction. However, prices have since bounced back and are rising again in some major markets like Toronto and Vancouver. The Royal Bank of Canada (RBC) suggests the initial price dip might be due to broader market fluctuations rather than solely attributable to the ban.
Lastly, if we look at its impact on affordability the ban has not resulted in a notable improvement. Homeownership rates for Canadians remained relatively unchanged after the ban, and housing affordability remains a significant challenge, with the National Bank of Canada reporting a record-low affordability index in Q3 2023.
Critics argue that the inclusion of certain groups like international students and temporary workers dilutes the ban's impact, as data suggests non-Canadian buyers only represent a small fraction of real estate transactions. Experts question the ban's ability to tackle housing affordability, especially considering non-Canadian buyers accounted for just 5% of home sales in 2021. Some view the ban as more of a political gesture than a substantial policy intervention.
Concerns over housing affordability have prompted calls for action from political leaders like Conservative Leader Pierre Poilievre, who labelled the situation as "housing hell" and proposed measures to boost housing developments. The federal government has engaged in discussions with major cities to tie federal funding to zoning reforms and pro-building policies. Suggestions for improvement include stricter measures such as higher taxes and buyer restrictions, similar to those in Hong Kong and Singapore. Additionally, some experts advocate for a shift towards regulating property usage rather than ownership to address housing challenges more effectively.
Irrespective of whether the ban is a political move or not the past year has made one thing abundantly clear. The affordability crisis is too big of a beast to be hunted by just one right move. Its impacts are too many to count and reforms at multiple levels of the housing market have to be made if we want any shot at beating it.
We at The Canadian Home suggest these solutions:
A well-designed tax can deter investors who buy and flip pre-construction units before completion, increasing available inventory for genuine buyers. This could potentially curb price inflation driven by speculative activity. The tax could generate significant funds for the government to invest in building affordable housing units, providing down payment assistance programs, or improving rental affordability measures.
This bold step eliminates competition from both foreign buyers and work permit holders in the pre-construction market, potentially slowing down price hikes attributed to these demographics. It aligns with the narrative of protecting domestic housing stock for Canadian residents, potentially making way for a lot of public support. Reduced foreign investment in pre-construction could redirect funds towards other sectors of the economy, diversifying its base.
A cap on owned properties, particularly for large investors, could prevent them from hoarding homes and taking them off the market, increasing availability for individual buyers. This measure could combat the issue of large corporations such as black rock holding onto vacant properties, limiting housing options for residents.
Tightening Canada's mortgage stress test could benefit the housing market in the long run. Fewer buyers, especially first-timers, might struggle initially, but overall demand could be dampened, potentially leading to more affordable prices and a more sustainable market. Investors might shift focus, impacting specific segments, while sellers in certain areas might adjust asking prices. This could create a two-tiered market with short-term volatility but ultimately contribute to long-term stability and reduced risk.
The Canadian housing crisis has left many wondering if a true solution even exists. The government's extended ban on foreign homebuyers, initially intended as a silver bullet, has yielded lacklustre results. Experts remain unconvinced, pointing to its limited impact and the vast web of factors influencing affordability.
While the data offers insights, it paints an incomplete picture. The true cost lies in the human stories: young families squeezed into basements, dreams of homeownership fading, and communities fractured by displacement.
The road ahead will undoubtedly be challenging. It demands collaboration between governments, communities, and individuals. Embracing innovation, data-driven decision-making, and a willingness to experiment will be crucial.
Ultimately, finding a solution requires acknowledging the housing crisis as more than just a market anomaly. It's a societal issue with profound human consequences. Only by recognizing its complexity and committing to a multifaceted approach can we truly pave the way for a future where home is attainable for all.
