Homes and Condo Mississauga

Ban Foreign Homebuyers From Canada? Be Careful What You Wish For


No matter how small it is, New Zealand is something of a forerunner. It is credited as the first sovereign country in the world to give all women the voice (back in 1893) and the first country to move to an eight-hour working day.

So when the country officially passed a ban on foreigners who bought most home types this week, it got the attention of policy makers in other countries, not least in Canada.

Like Canada, New Zealand has seen house prices rise in recent years, with the average price of a detached house in Auckland, not long ago exceeding the psychologically significant NZ $ 1-million mark . ] (about C $ 864,000). And like Canada, the country has seen an explosion of interest from foreign buyers.

The head of British Columbia's Green Party, Andrew Weaver, reiterated this week's appeal to the county to follow New Zealand's leadership.

"We know what the problem is, we know the cause of the problem," said Weaver, as quoted by the CBC . "There is a lot of offshore money flowing to Metro Vancouver … what that has done is spewing speculation."

Weaver might have a comment about speculators but are foreign buyers really the problem? And would banning them from the market make a big difference?

Low impact

A lot of evidence suggests that non-resident buyers in recent years have only been a secondary factor in generating house prices in Canada. And the experts at HuffPost Canada agreed that a ban would generally have little impact on the market.

A ban on foreign buyers "would create an initial reflex reaction with a drop in sales," wrote TD chief economist Beata Caranci. in an e-mail to HuffPost. But "because we are in a strong demand market, sales would level off and recover."

So no help from the affordability front then.

Earlier on HuffPost Canada:

Meanwhile, foreign buyers & # 39; Taxes implemented in and around Toronto and Vancouver & # 39; seem to have done the bulk of the work in reducing foreign demand ;, says Stephen Brown, Canada's senior economist at Capital Economics in London. "A complete ban would only remove those last foreign buyers."

The proportion of homes sold to non-resident buyers has fallen in the Toronto & Vancouver region since the taxes of foreign buyers were implemented there. In Greater Toronto, foreign buyers accounted for 2.1 percent of all sales earlier this year, down from 5.9 percent just before the foreign buyer tax was introduced in the spring of 2017.

The new taxes have pushed some foreign buyers to other markets, including Montreal, which recently reported a rise in sales to non-residents, and to Ottawa, which now has a larger share of foreign buyers than Toronto.

But foreign buyers, at least in Canada, do not seem to be the crux of the affordability problem. In a recent survey, Canada estimated Mortgage and Housing Corp. that three-quarters of the run-up in Vancouver house prices from 2010 to 2016 can be attributed to mortgage interest rates, rising incomes and a fast-growing population

] Market psychology plays a major role

Equally important is that the CMHC notes that "continued price growth excessive optimism among market participants. " The rise in house prices is taken for granted by home buyers and house sellers. "

The optimistic long-term expectations of Canadians for house prices distort the market and make it more risky, the CMHC said in the June report

In other words, we Canadians – buyers and sellers ran home with dollar signs in their eyes – are more responsible for the affordability crisis we are in than any foreign buyers.

Longer housing market crashes

And in the longer term, Canadian homeowners may regret non-residents pushing the housing market altogether.

"While foreign buyers are not welcome at the moment in the eyes of most people, in the event of an economic downturn and a slump in the wage, they can prove to be a useful source of funds to prevent housing prices from falling too far, wrote & # 39; Capital Economics & # 39; Brown in an e-mail to HuffPost Canada. That "could have adverse effects on consumer spending and banks."

A ban on foreign buyers "could lead to more extensive weak markets once they occur," suggested Caranci from TD Bank. She noted that the government could withdraw the ban in bad times, but it would have a "credibility problem" – foreign buyers would suspect that they would be excluded if the market were to improve.

So things can become messy – and unpredictable. All in all, it might be better to focus on other ways to address affordability, such as stimulating spending on affordable housing, or allowing homes with higher densities in neighborhoods with low density. The closer we look to foreign buyers in Canada, the less convincing the argument that they are the problem.

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