CANADA
Extension of foreign buyer ban won't solve affordability woes, economist says


Denise Paglinawan
Tue, February 6, 2024 

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Ottawa’s decision to extend a ban on foreign homebuyers for an additional two years is a reasonable move, but will not go far to address the country’s housing affordability crisis because such buyers are not a major factor to begin with, a leading bank economist says.

The plan to extend the ban, which came into effect on Jan. 1, 2023 and was set to expire on Jan. 1, 2025, was announced on Sunday by deputy prime minister Chrystia Freeland. The ban will now expire on Jan. 1, 2027.

CIBC World Markets Inc. deputy chief economist Benjamin Tal said that while the ban is “reasonable policy” and “a step in the right direction,” he does not consider it a major macroeconomic move.

“I’m not surprised whatsoever that they extended it,” Tal said, noting that foreign buyers are an easy target for a government eager to show it is taking action on housing.

Mortgage strategist Robert McLister said the foreign buyer ban is “like a magician’s handkerchief” that diverts attention from the actual problem of too many incoming immigrants relative to the number of homes built.

McLister, who write a column for the Financial Post, said that a large share of foreign buyers purchase high-end properties and banning those individuals can result in lost tax opportunities and can dampen the wealth of more affluent Canadians, who benefit from the price gains at the higher end of the real estate spectrum.

Under the ban, foreign commercial enterprises and people who are not Canadian citizens or permanent residents are prohibited from purchasing residential property in Canada either directly or indirectly.

“For years, foreign money has been coming into Canada to buy up residential real estate, increasing housing affordability concerns in cities across the country, and particularly in major urban centres,” Freeland said in a press release announcing the extension. “By extending the foreign buyer ban, we will ensure houses are used as homes for Canadian families to live in and do not become a speculative financial asset class.”

Vancouver had the largest proportion of non-resident ownership in urban Canada at 4.3 per cent In 2021, according to the latest available data from Statistics Canada. Charlottetown had the second-highest rate at 3.5 per cent, while Toronto sat at 2.6 per cent.

The ban on foreign buyers carries the potential for fines of $10,000 for violations.

Officially known as the Prohibition on the Purchase of Residential Property by Non-Canadians Act, the ban was meant to take some pressure off home prices amid an affordability crisis only made worse by the rising cost of living brought on by inflation and elevated interest rates.

Housing prices have soared over the past decade, pushing the cost of home ownership out of reach for many people.

—With additional reporting from the Canadian Press