The federal Liberals campaigned on, among other things, banning foreign purchases of Canadian real estate for two years, but the party reversed course this week and successfully voted against its own proposal.
Party MPs on the Standing Committee on Finance voted 6-5 against a Tory-led motion to amend the Underused Housing Tax Act that would have proscribed foreign purchases for a couple of years.
With housing affordability -- or lack thereof -- top of mind during last year’s election campaign, every party released comprehensive housing platforms designed to curb runaway housing prices. Non-resident buyers have long been blamed for stoking affordability struggles by speculating on real estate, often by keeping units vacant, and while the Liberals jumped on the bandwagon last summer, their latest pivot is laced with cynicism.
“They pandered to xenophobia but they never intended to pass it,” said Dustan Woodhouse, President of Mortgage Architects. “They had a pretty good idea that bill would never pass, so it makes it a pretty safe one to put out there.”
He added that such a proposal was out of character.
“I don’t think the notion of a foreign buyer ban was completely with the party’s politics. It seems a little incongruent this was the party pushing for that. It seems like more of a Conservative vote grab. It has that vibe to it.”
Woodhouse is dubious foreign buyers are distorting the housing market, noting that the pace of home sales in Canada has been frenetic throughout the COVID-19 pandemic during which time few immigrants entered the country.
“It is massively domestically-driven and any study that has been able to quantify foreign buyers has consistently come up around 5%,” Woodhouse continued. “[Proposing a foreign buyer ban] is pandering to xenophobia in a way; it’s an oversimplification, and real people get caught up in that politicking. It’s really unfortunate. How complicated is it to work out that a huge amount of properties that transact to foreign buyers are actually transacting to future Canadians who have been in the country for up to six years? My family has people in it who bought properties in Vancouver before they became Canadian citizens.”
It Would Have Been Toothless
Housing analyst Steve Saretsky is not surprised the Liberals changed course -- he believes that, if the party had honoured its election promise to ban foreign buyers, the legislation would have been nominal and toothless -- but he disputes the suggestion that foreign buyers aren’t influential in Canada’s real estate market.
Although somewhat dated, Canada Mortgage and Housing Corporation survey results released in late 2017 revealed that non-residents owned 4.8% of residential properties in Vancouver, although that number increased to 7.6% in Vancouver proper, and broken down by housing type, 10.6% of condominiums.
In the GTA, non-residents owned 3.4% of residences, but that number grew to 4.9% in the City of Toronto, and to 8% in Toronto proper condominiums.
“I think everybody is well aware foreign money has influence on the housing market here,” Saretsky said. “The problem is ultimately that ‘foreigners’ are actually Canadian citizens, or permanent residents. Their passports say Canadian. Often, they’re coming from overseas with Canadian passports but their businesses are overseas and they’re deploying capital here into the housing market. That’s definitely very prevalent.”
Saretsky is essentially saying many foreign buyers are Canadian passport holders who work and pay taxes abroad but purchase Canadian homes, and the phenomenon is commonplace enough to distort housing prices in major cities like Vancouver and Toronto.
In fact, when Toronto followed Vancouver’s lead in implementing a 15% foreign buyer tax in 2017 -- the latter has since increased its levy to 20% -- foreign purchasers became a notable presence in Montreal’s real estate market where no such taxes exist.
“It’s a globalist society with open markets and capital flows to safe havens, and to where people feel they can get returns,” Saretsky said. “I think the world has changed significantly from what we’re all used to, which was in the 1980s local incomes matched house prices and interest rates reflected inflation, but we’re not in that environment anymore. Everyone is still used to things working that way, but it’s just not the reality and I don’t see how it’s going to change, unfortunately.”
Disconcertingly, Saretsky added, there is no way back.
“CMHC has figured out it’s not going to change, saying, ‘Let’s incentivize purpose-built housing so the working class here can have stable housing over their heads.’ They’re trying to disincentivize everyone from owning because homeownership is shrinking, so there needs to be enough purpose-built rental housing so that our firefighters and policemen have housing over their heads. Rightly or wrongly, that’s what they’ve chosen to do.”
