Experts argue the move offers little solution to the housing shortage
In a move that has stirred controversy, the Canadian government has decided to extend its ban on foreign buyers in the real estate market for an additional two years. This decision has been met with scepticism by economists and realtors who argue that foreign investors were not the primary cause of the housing demand surge.
The unexpected announcement came on a Sunday morning last month, with critics labelling it more as a political manoeuvre than a practical solution to the nation's acute housing shortages. The timing is particularly notable as housing affordability becomes a central issue ahead of the next year's election, where Prime Minister Justin Trudeau faces significant opposition from Conservative Party leader Pierre Poilievre.
"The politics is more important than the impact on the economics," Alexander Economic Views president Craig Alexander said. This sentiment reflects a broader consensus among experts who believe the ban will have minimal effect on resolving the housing crisis.
Foreign ownership has been a contentious issue, which economists and realtors estimate has fallen to a mere single percentage point from 2-3% two years ago. Statistics Canada's figures from before the pandemic showed similar levels of foreign ownership.
Finance ministry spokesperson Katherine Cuplinskas defended the extension, stating, "Canadian homes should be places for Canadians to live in and not a speculative asset class for foreign investors." The government views this measure as necessary to address the affordability concerns and to provide a more stable housing market for Canadians.
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However, experts claim the solution lies in increasing the construction pace of new houses.
"That's more than a third above the pace of housing completions in the past few years," RBC assistant chief economist Robert Hogue said, highlighting the need for Canada to build 315,000 new residences annually until 2030 to keep up with population growth.
The ban's extension is seen as insufficient by many, including realtors who point out that foreign buyers typically target prime residential units in major cities like Toronto, Vancouver, and Montreal, leaving a gap in the supply for first-time home buyers.
Critics also argue that the recent ease in house prices by 1.3% over the last year and a half is mainly due to the record pace of interest rate hikes by the Bank of Canada, rather than the impact of foreign buyer restrictions. Janice Myers, CEO of the Canadian Real Estate Association (CREA), called the ban "completely unnecessary," citing a lack of evidence to support the claim that foreign ownership is significantly affecting housing affordability.
Scotiabank head of capital markets Derek Holt went further, describing the measure as "a purely xenophobic measure aimed at politically scapegoating foreign buyers that were an immaterial share of home purchases."
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