Now that the dust has settled from the holidays and we’re back into the swing of things, we’re reminded that January 1st, 2023 wasn’t just the first day of the new year; it was also the first day of Canada’s new foreign buyers ban. The ban was passed through parliament last summer and is now officially in place prompting many Canadians to ask, “what does this mean for me?” Unfortunately, the answer isn’t so simple.
What Is the Foreign Buyers Ban?
Before we jump into the implications of the ban, it’s important to understand what the ban is and why it was introduced. Home prices skyrocketed during the pandemic. While homeowners were happy to see the value of their investments climb, many Canadians saw this as a mounting housing affordability crisis.
To combat this crisis, parliament introduced the Prohibition on the Purchase of Residential Property by Non-Canadians Act. This effectively prevents a person or business outside of Canada from purchasing a dwelling within Canada, including houses, townhouses, and condos. By excluding foreign buyers, the government is attempting to curb demand, increase housing inventory, and drive home prices down.
How Will This Impact the Housing Market?
In my opinion, it won’t. At least not that much. Many new buyers have already flooded into the market in one way or another. They may be students, or workers waiting to obtain their permanent residency. Economist Benjamin Tal noted that of the new immigrants Canada is expecting over the next few years, 70% of them are already here. Whatever we lose in foreign investments will be made up by a large cohort of newcomers looking to buy homes. As a result, inventory levels might not change all that much.
So Why is the Government Doing This?
One could argue that the ban is nothing more than a PR stunt. Critics claim that we’re in the midst of a housing affordability crisis, and a ban like this shows that the government is doing something about it. If true, this seems extreme given the potential blowback.
The US and other countries could potentially retaliate with a ban of their own prohibiting Canadians from purchasing properties in their countries. This would have a huge impact on Canadians. Canadians are the largest foreign purchasers of US properties, accounting for up to 50% of all foreign purchases in Arizona and Florida. A move like this would turn the tide on a historically fruitful relationship.
The Bottom Line
The foreign buyers ban won’t do nothing, but it won’t be as seismic as some critics claim. Canada’s inventory is tight with or without foreign investment. As rates level out and eventually lower, and as more immigrants begin to purchase homes, I believe the market will stay strong for the foreseeable future.
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Steve Garganis: 416-224-0114; email@example.com