© Getty Images
Justin Trudeau has promised to fix Canada’s housing problem.
For the next two years, foreigners will be banned from buying a home in Canada.
This was announced by Prime Minister Justin Trudeau, in a measure that seeks to stabilize the prices of the real estate market in the country, which is dealing with one of the biggest problems of access to housing in the world.
prices have gone up more than 20%which has led to the average for the sale of a home being almost US$650,000, more than nine times the median income of families.
But real estate industry analysts say it’s not clear that a ban like this can help fix the problem.
Data on foreign home purchases in Canada is limited, but it appears that they represent a small fraction of the market.
“I don’t think it’s going to have a huge impact,” says Ben Myers, president of the advisory firm Bullpenn Research & Consulting in Toronto, who says foreigners made up just 1% of purchases in 2020, compared to 9% in the US. 2015 and 2016.
“It’s a pretty low number and let’s face it, people who really want to buy … will find alternative ways to do so,” he added.
The analyst believes that high housing costs reflect strong population growth and a shortage of supply, due in part to rules that restrict market development.
The problems have worsened since the pandemic began in 2020, when Canada lowered interest rates to stabilize the economy, lowering borrowing costs and increasing demand.
This has happened in several countries, but according to OECD data, the disconnect between house prices and income in Canada is one of the most dramatic in the world.
campaign pledge
Trudeau promised to tackle house prices during his election campaign last year.
In addition to the temporary ban on foreign buyers, the budget proposal his administration released Thursday sets aside billions to fuel new construction and propose new programs, such as a tax-free savings account for first-time buyers.
Trudeau has also discussed banning certain bidding processes that favor investors, who, according to some statistics, account for roughly one in five homes purchased in Canada since 2014.
The ban on foreign buyers exempts permanent residents and foreign students and workers, as well as those who purchase their primary residence.
Other measures
Trudeau’s plans have been echoed in individual decisions in other Canadian regions and provinces.
In Ontario, for example, Provincial Premier Doug Ford recently announced plans to increase an existing tax on foreign buyers from 15% to 20% and expand it beyond Toronto to the entire province.
While foreign purchases aren’t the main source of affordability problems, taxing them at least raises revenue that can be redistributed to address such problems, says Steve Pomeroy, director of Focus Consulting, a housing policy firm.
“If you ban them, it really doesn’t have much of an impact on containing the rise in house prices and forgoes revenue,” he says.
New Zealand introduced a similar measure banning foreign buyers in 2018.
© Getty Images
Paul Kershaw, professor at the University of the British Columbia, Nor does he think Trudeau’s proposal can curb price increases or significantly address affordability.
“It is not clear that these measures are enough to solve Canada’s problem with high and rising house prices,” he says.
Pomeroy expects prices to decline in the coming months as the central bank raised interest rates.
The Canadian real estate market is particularly susceptible to such moves, as many buyers rely on five-year mortgages rather than the long-term mortgages common in the US and other countries.
But higher interest rates will only make housing less affordable for potential buyers trying to enter the market, he warned.
Myers said that in the long term, he expects hotter markets like Toronto and Vancouver to be dominated by renters, as regular buyers will be squeezed out of the market.
Remember that you can receive notifications from BBC World. Download the new version of our app and activate it so you don’t miss out on our best content.
https://www.youtube.com/watch?v=eeU0dpGZPZ8&t