In 2023, 3.1 per cent of all residential properties in B.C. and 2.1 per cent in Ontario were owned by non-residents.JONATHAN HAYWARD/The Canadian Press
In 2022, as Canadian home prices soared, the federal government announced it was bringing in a temporary ban on foreigners buying property. The populist policy needs to be revamped to meet the challenges of the current market.
The foreign buyer ban, which is still in place and bans non-residents from buying residential properties with three units or less in urban centres, has reduced capital available for new housing. Instead of renewing the ban for a second time when it expires in January, Ottawa should narrow its scope and allow foreigners to buy new homes.
When home prices soared following the onset of the pandemic, offshore buyers became popular scapegoats, but in most markets, they were not a significant factor. In 2023, 3.1 per cent of all residential properties in B.C. and 2.1 per cent in Ontario were owned by non-residents.
Non-residents were a bigger factor in condo markets in big cities, where their presence did contribute to boosting prices, particularly as they tend to pay more than domestic buyers. Some were foreign investors, while others had ties to Canada, for example, parents buying a condo unit for a child studying at a Canadian university. (Temporary residents meeting certain criteria are not subject to the ban.)
During this period, some municipalities and provinces brought in their own laws to attempt to cool the market, including foreign buyer and empty homes taxes. Some of these policies are duplicative, and they are more symbolic than substantive. However they have been popular with the public: The majority of supporters of the Conservatives, the Liberals and the New Democrats have said they are in favour of the foreign buyer ban.
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It’s time for another look at the policy, given that the housing sector today looks completely different than it did in 2022. Prices have cooled, and small condo units in particular are having trouble selling.
However, that doesn’t change the fact that Canada still has a massive housing shortage, and prices remain high when compared with incomes. Even with lower levels of immigration, there’s significant pent-up demand from renters who want to buy, and young adults keen to leave their parents’ basements.
The Canada Mortgage and Housing Corporation (CMHC) estimates that in order to restore affordability, housing starts must nearly double to around 430,000 to 480,000 units per year until 2035. But housing starts remain flat, in part because developers are having trouble getting enough investors to sign on to buy pre-construction condos – typically developers need to pre-sell 70 to 80 per cent of units in a building to get financing.
It’s true that not many foreigners will be interested in buying presale high-rise condos units in Canada any time soon. The current economics aren’t appealing, given that rents typically don’t cover ownership costs, and capital appreciation is far from a sure thing. But foreign buyers’ interest could return under different market conditions.
In the meantime, Mike Moffatt, the founding director of the Missing Middle Initiative, says foreign buyers could help spur the development of needed ground-level housing, such as single-family homes and townhouse complexes. Similar to high-rise condos, townhouses structured as condominiums need to pre-sell units to get financing.
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The ban on foreign ownership has already been amended once. Initially it caused problems for commercial developers that had partial foreign ownership by ensnaring deals involving malls, grocery stores and office buildings on land that was zoned for residential or mixed use. The ban was amended to exclude these projects in 2023.
Instead of another extension when the ban expires in January, Canada should adapt the model used in Australia, which also faces housing supply and affordability challenges. Their rules prohibit foreigners from buying resale homes, while allowing them to purchase new ones.
On its own, allowing foreign money to boost new housing won’t solve affordability problems, but it will help. More also needs to be done on other factors that make new housing difficult to build, such as high municipal development charges and restrictive building codes.
The foreign buyer ban was meant to boost affordability, not to serve as a drag on new development. Adapting the Australian model is one piece of the puzzle in getting more housing built.