Trudeau bans foreign home buyers in Canada as affordability fears escalate

Canadian households are also feeling the brunt of months of scorching inflation, fueled in large part by soaring food and gas prices. The annual inflation rate reached a 31-year high in March of 6.7%.

Political rivals clearly see growing fears over the cost of living as a vulnerability for the prime minister. Soaring house prices, felt by young Canadians in particular, are at the heart of the debate.

The Trudeau government used its recent budget to address concerns. Deputy Prime Minister Chrystia Freeland, who is also Trudeau’s finance minister, proposed a two-year ban on some foreign buyers in a section devoted to housing affordability.

“For years, foreign money has been coming into Canada to buy residential real estate,” the budget says of the ban, which the Trudeau Liberals promised to introduce during the election campaign this year. latest.

“This has fueled concerns about the impact on costs in cities like Vancouver and Toronto and concerns that Canadians are being shut out of the housing market in cities and towns across the country.”

Trudeau’s ban would prevent foreign business enterprises and anyone who is not a Canadian citizen or permanent resident from buying non-recreational residential property in the country for two years.

The plan, however, also includes numerous exemptions. For example, the ban would not apply to refugees, people authorized to enter Canada for emergency reasons, international students seeking permanent residence and people with work permits who are already living in Canada.

“So many new homes are seen as assets, as investments — as opposed to places to raise families and build communities,” Trudeau told reporters at a post-budget event in Hamilton, Ont.

The Liberals are not alone. During last year’s election campaign, the Conservatives also promised to ban foreign homebuyers.

A senior government official told POLITICO that while many of Trudeau’s housing affordability measures are designed to stimulate supply, the ban on foreigners is intended to combat demand.

The official, who spoke on condition of anonymity, said soaring house prices in Canada – not just in Toronto and Vancouver, but in other markets – have made the country a very attractive place to investors hoping for big returns.

Strangers, the insider said, are part of the equation.

The official pointed to a 2019 report that found 7.6% of Vancouver homes were owned by at least one non-resident. The newspaper also showed the figure was 3.8% in Toronto and 4.3% in Halifax.

The joint report by Statistics Canada and the Canada Mortgage and Housing Corporation also highlighted much higher rates of non-resident ownership in condos – for example, 11.2% in Vancouver and 7, 6% in Toronto.

The numbers increase even more when it comes to new construction, the official said.

“When you watch property values ​​rise, you see how enticing the market is,” the insider said. “It’s a safe investment, you’re pretty much guaranteed to get your money back.”

The official admitted that there is no “quick fix” to address housing affordability.

The federal ban follows the introduction of taxes in recent years on foreign home buyers in provinces such as Ontario, where the government recently announced a 20% tax increase, and British Columbia.

Trudeau, however, faces backlash for blaming foreigners as the main contributors to soaring house prices in Canada.

“It’s kind of a scapegoat that says, ‘Oh, it’s foreigners who are ruining the Canadian housing market and this is going to put it back under the control of Canadians,'” said Mike Moffatt, senior director of policy and of innovation at the Smart Prosperity Institute. a meeting. “I worry about this rhetoric. For the most part, the government was responsible for how it framed and framed this, but I share those concerns.

Moffatt added, “There’s a lot of talk here, but I don’t see much that’s really going to move the needle.”

Paul Kershaw, a professor in the School of Population and Public Health at the University of British Columbia, argues that Canadians themselves are driving up housing prices thanks to government policies that encourage them to use homes as investments .

Kershaw called on governments to introduce new public investment vehicles to incentivize Canadians to divert more of their retirement and other savings away from housing. To help more people enter the housing market, he recommends that the government reduce income taxes and increase taxes on property assets.

“Ordinary Canadians, myself included, are enmeshed in perpetuating our unsustainable and unaffordable housing system,” said Kershaw, founder of Generation Squeeze, which advocates intergenerational equity.

Foreign investors, he added, play a role in Canada’s housing affordability problems, but he called blaming foreigners a “low-hanging fruit of politics.”

“Because these are not large electoral blocs, politicians find it easy to point to these ‘bad guys’ rather than engage with the harsh truth that many ordinary, often older, homeowners are embroiled in. the problem,” he said.

Richard Kurland, a Vancouver immigration lawyer, called the foreign buyer ban a “federal sound bite” that is nothing more than “Swiss cheese legislation.”

“It’s easy to circumvent this foreign buyer’s premium by designing it to allow someone with a study permit to put their name on the transaction,” said Kurland, who has advised governments on how to close loopholes and customers on how to use them. a meeting.

At least one senior banker has voiced strong objections to Trudeau’s plan. Derek Holt, Scotiabank’s vice president and head of financial markets economics, called the two-year ban on foreign ownership a “xenophobic fantasy”.

Holt wrote in a recent client note that the policy “scapegoats people who make up a tiny slice of the local housing market.” The price spike, he argued, is being driven primarily by domestic buyers, thanks to overly generous tax subsidies and “far too low” interest rates that are only just beginning to rise in the face of the realities of the economy. ‘inflation.

“Banning foreign ownership of Canadian homes is a black mark against Canada’s international reputation,” Holt said.

Kershaw said xenophobia concerns were rightly raised in recent years when Ontario and British Columbia began taxing foreign homebuyers. But he argued government and public discourse “has been nuanced enough” to reduce the risks at a time when Canada still has lofty immigration targets.

Moffatt said Bank of Canada policy is far more likely to impact housing affordability than any government action.

The central bank, like so many others around the world, has recently embarked on what is about to be an aggressive rate hike cycle to counter inflation.

“I think this market is going to calm down a bit, but that’s going to be more about the Bank of Canada than anything else,” Moffatt said. “The government has positioned itself to be able to take credit for the price cuts, even though none of these policies really change much on the demand side.”

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