O, Canada, just banned foreign home buyers
A new prohibition, enacted Jan. 1, keeps most international buyers — including Americans — from purchasing Canadian homes. But there are exceptions.
Key points:
- The Canadian government enacted the Prohibition on Purchases of Residential Property by Non-Canadians Act.
- RE/MAX Canada's president believes the prohibition will be ineffective in dealing with tight housing supply amid inflationary prices similar to the U.S.
- Redfin CEO Glenn Kelman said he was "impressed and shocked" by the move.
Canada, feeling the pressures of low housing supply and inflation, has enacted a first-of-its-kind ban on home purchases by foreigners.
Redfin CEO Glenn Kelman called it "a pretty bold move," but industry leaders and economists are not all convinced the two-year prohibition on most international home buyers, which took effect Jan. 1, will have the desired effect.
"The government wanted to show people that it is doing something about the runaway price increases, but it fails to deal with the challenges of extremely low inventory," Christopher Alexander, president of RE/MAX Canada, told Real Estate News.
Exempted from the ban are vacation homes, which are considered summer cottages and recreational housing.
Although RE/MAX Canada has been fielding questions about the prohibition, Alexander said it continues to be business as usual for his company.
The homeownership rate across Canada is at 65%. But purchases by foreigners represent only about 5% of sales nationwide, which aligns with sales volumes at RE/MAX Canada, Alexander said.
Purchasers who break the law may be subject to thousands of dollars in fines. Previously, the British Columbia government imposed a 20% tax on foreign buyers purchasing homes in major metro areas. Ontario enacted a similar tax of 25%.
Prime Minister Justin Trudeau made the ban a platform of his 2021 bid for re-election, stating on his campaign website: "The desirability of Canadian homes is attracting profiteers, wealthy corporations, and foreign investors. Homes are for people, not investors."
Kelman told Marketwatch that he was "impressed and shocked" at what Canada did.
"At one level, it's just a massive self-inflicted wound to the economy," he said. But it also shows "a real commitment to making housing more affordable for Canadians."
Alexander said the larger issue in Canada is inflation that has yet to be brought under control. Like the U.S., Canada has been dealing with higher prices for goods and services, with inflation close to 7% in November. "The purpose [of the ban] was to cool the market, which has cooled tremendously" from higher mortgage interest rates and inflationary prices, Alexander said.
International purchasers historically are drawn to Canada for its stable economy and banking system, Alexander noted. "Our government should consider giving more exemptions if they are set on keeping the ban for the next two years," he said.
Most foreign buyers purchasing homes in Canada are not from the U.S. but from Asian countries, said Brendon Ogmundson, chief economist with the British Columbia Real Estate Association. VOA News reported that Ogmundson and other economists are questioning whether focusing on the nationality of the buyer will have much, if any, effect on housing affordability or freeing up the tight inventory.
"We need to be addressing housing for low- and middle-income people," said Penny Gurstein, a housing researcher at University of British Columbia, in a story in Al Jazeera discussing the ban.
Alexander does not see the government ban on international home purchasers as an effective way to deal with higher home sale prices that have locked some low- to moderate-income consumers out of the market.
"At RE/MAX Canada, we want to reinforce that it was a politically motivated move in our opinion and too little, too late to address the real challenge of incredibly low inventory and serious demand for homes," Alexander said.