Canada proposes ban on foreign home buyers

image of house keys

Since the pandemic, Canada’s housing market has suffered from a low supply of available homes and soaring housing costs that have increased by more than 20%. House prices are now more than nine times household income.¬†Data published by the OECD suggests this is one of the most dramatic differences between house prices and income in the world.

As in Australia, the UK and elsewhere in the world, the methods employed to help stabilise the economy, such as lowering interest rates, have lowered borrowing costs but at the same time increased demand for property.

Interest rates have now begun to rise and house price increases are expected to slow down as a result. However, this is expected to have a greater effect on housing habits in Canada than in the UK. Mortgages in the country are commonly held over a five year contract period, rather than the longer-term arrangements more common in the UK.

In a further attempt to tackle housing affordability  prime minister, Justin Trudeau, has proposed banning overseas buyers from buying homes in Canada. Other countries have previously attempted to deter foreign property buyers in order to control house prices, including New Zealand in 2018.

Mr Trudeau said that some existing bidding processes had encouraged investors and this sector had accounted for 20% of home purchases since 2014. He proposed banning these processes, as well as setting aside billions of dollars to fund new construction of property and introducing tax-free savings schemes for first time buyers.

Some regions of Canada have already taken action in an attempt to deter buyers that were not local. For instance, in Toronto there are plans to increase an existing tax on foreign buyers from 15% to 20% and expand it to the entire province of Ontario.

However, it is not thought that banning foreign property buyers and investors will significantly affect the property market. According to research, the number of foreigners purchasing Canadian property has dropped from 9% in 2015/16, to just 1% in 2020.

Bullpen Research said that population growth was a stronger driver of house price inflation in the country, and the shortage of supply was largely due to restricted rules of development.

As one housing policy firm put it: “unless you’ve got born into the right family, the prospects for young buyers are quite dim.”