Government intervention in housing
Wednesday 7 February 2024
Trudeau extends ban on foreign expats buying homes in Canada
Block on foreign buyers intended to make housing more affordable for Canadians.
Justin Trudeau has extended a ban on foreign nationals purchasing homes anywhere in Canada, in a blow to expats.
Only foreigners who are asylum seekers, some international students and temporary workers will be permitted to buy residential property in the country until 2027, the Canadian government said.
Thousands of expatriats living in Canada could be hit by the moratorium, designed to stop house prices from becoming inflated. Chrystia Freeland, Canada’s finance minister, said: “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.
“The government is intent on using all possible tools to make housing more affordable for Canadians across the country,” she added. It also applies to foreign commercial enterprises, as well as people who are not Canadian citizens or permanent residents.
The ban was originally brought in on January 1 last year, after being agreed in 2022, and was due to expire at the start of 2025. It will now be extended to January 2027, despite criticism that it has had little impact on increasing house prices.
Tom Davidoff, associate professor at the University of British Columbia, told Canadian media that it is “very hard to believe” the ban had been successful. “In the most affordability-challenged markets, it’s very hard to believe there was a lot of impact because there were so few foreign buyers to begin with,” he said.
The latest available figures from Canada’s national statistics agency, from 2021, show that prime markets in Toronto and Vancouver had relatively low foreign residential property ownership, with 2.6pc and 4.3pc respectively.
It comes as Canadians face high levels of immigration under Trudeau’s leadership, with almost one million people estimated to arrive over the next two years, according to government figures.
The controversial prime minister has set a target of attracting 500,000 new immigrants to Canada every year.
According to the 2023-2025 Immigration Levels Plan, it will welcome 485,000 new permanent residents in 2024 and 500,000 in 2025.
Canadian media previously reported that the government was warned by officials in 2022 that increasing immigration would likely make housing more unaffordable.
House prices surged 56pc between the end of 2019 and the summer of 2022, research by Oxford Economics shows, amid record arrivals from overseas.
Rents have also gone up, according to a report by the Canada Mortgage and Housing Corporation, which showed that prices had risen 8pc across 17 metropolitan areas, from C$1,250 (£736) to C$1,359 (£800) in the past 12 months.
Original article accessed at: Justin Trudeau
Discussion questions
a. Illustrate how the ban might impact on the market for the following:
i. House prices in Canada
Any diagram should indicate a highly inelastic PES, reflecting the difficulty of building new houses, particularly in rural areas, where migrants are likely to be based. This means that even a small fall in demand for housing should result in a significant fall in the price of housing, with limited change in the volume of houses purchased.
ii. Rental prices in the country
By contrast the policy, if extended, is likely to have the opposite impact on rental prices with migrants, prevented from purchasing properties, more likely to enter the private rental market, forcing up demand and therefore rental prices. In this example, property investors may also decide to purchase second properties for investment, negating the impact of the policy on housing prices.
b. Explain why Tom Davidoff, associate professor at the University of British Columbia, believes that the policy is likely to be ineffective?
The first reason is that in absolute terms the number of foreign buyers remains relatively small. For example, the passage notes that even in the 'prime markets in Toronto and Vancouver ...... foreign residential property ownership, is just 2.6pc and 4.3pc respectively'. Secondly, if migrants are prevented from purchasing properties then simply enter the private rental market and drive up rental prices, property investors may decide to purchase second properties for investment, negating the impact of the policy on housing prices.
c. Discuss whether you would support the policy or not, if applied by your own government.
This questions should be considered from the viewpoint of a range of different stakeholders including landlords, first time purchasers, renters and existing property owners.
Canadian housing market