Soaring property prices, the second most popular topic of discussion among Canadians after the weather, prompted the federal budget to be presented to Parliament on Thursday by Chrystia Freelandfinance minister and deputy prime minister.
In the two years that ended in February, the median home price rose more than 51%, to C$868,400, according to the Real Estate Association of Canada.
Among a range of budget proposals aimed at making housing more affordable is a two-year ban that will prevent most foreigners and non-Canadian companies from buying residential property in the country.
The idea that foreign money has helped drive prices up in markets like Vancouver and Toronto has long been around and has become a hot political issue.
And there have been efforts to prevent it. In 2016, British Columbia introduced 15% House and apartment purchase tax by foreign buyers. Late last month, Ontario raised separate tax to 20% and expand to the whole province.
But several economists I spoke with after the budget was released said that the impact of foreign buyers on prices was not as significant as many might believe, even in Vancouver and Toronto. And some experts warn that the ban will most likely create headaches for themselves – possibly big problems.
Tsur Somerville is an associate professor at the Sauder School of Business, University of British Columbia, specializing in real estate economics. He told me that the housing price increases that have taken place during the pandemic contradict the assumptions underlying this moratorium.
“We went through two years where it was very difficult to be foreigners buying property in Canada because it was very difficult to get here,” he said. “However, this is the time when house prices have increased by the most in 10 years.”
Research by Professor Somerville and a colleague revealed that after British Columbia imposed the tax, prices fell by only 3 to 5 per cent in Vancouver neighborhoods that are popular with foreign buyers compared with areas where Buyers stay away.
In an article published in 2020Joshua C. Gordon, an adjunct professor at the School of Public Policy at Simon Fraser University in Burnaby, British Columbia, found that demand from people outside of Canada has actually driven down house prices in Vancouver and Toronto. more, but not how budget ban sales would be addressed.
Many of the real estate purchases in those cities, he writes, are made by Canadian residents or citizens on behalf of relatives or others living abroad, who provide the money behind the transactions. Whatever form the new ban takes, it will not block such transactions.
“The problem is not so much citizenship, but the money to buy real estate,” wrote Mr. Gordon.
Details are scarce on how the federal ban works. The Treasury Department told me they “will be in the coming months.” The budget states that recreational properties will be exempt, although it does not identify them; it also exempts those in Canada from student visas leading to permanent residency and those temporarily living here to work.
But since real estate is the responsibility of the province, it’s unclear exactly how the federal government might regulate such purchases. Gilles LeVasseur, a lecturer in constitutional law at the University of Ottawa, says the regulations will most likely be created as part of the upbringing’s powers to create criminal law.
But regardless of the medium, he said, the rule will affect Charter of Rights and Freedoms by discriminating against people on the basis of nationality. While rights are not absolute, Professor LeVasseur says it can be difficult for the government to justify such discrimination in court.
“Is this acceptable given the fact that it will punish a certain group of people knowing it won’t have a major impact on society?” Professor LeVasseur asked.
I also spoke with Brian Higgins, a US representative from western New York State who keeps a close eye on cross-border issues. He said he has been monitoring a possible ban since last fall and raised the issue with officials in Washington and during a meeting with Prime Minister Justin Trudeau.
The budget proposal has gone too far, he said.
“It violates the US-Canada-Mexico Trade Agreement” by discriminating against US and Mexican buyers, he said.
Prof Somerville is not critical of many of the home price metrics in the budget, but he says Canadian buyers who find themselves undervalued out of the market shouldn’t expect much to change.
“It always feels like everyone wants some magic solution that doesn’t cost them and makes housing affordable,” he said, adding, not quite seriously: The way to make housing affordable is to reduce home prices by 50%. But that kind of thing leads to a number of other macroeconomic problems. “
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A native of Windsor, Ontario, Ian Austen was educated in Toronto, lives in Ottawa and has covered Canada for The New York Times for the past 16 years. Follow him on Twitter at @ianrausten.