The Canadian federal government wants to take a closer look at the extent of foreign ownership of real estate across the nation – but critics are saying their efforts won’t go far enough.
There has long been a glaring lack of data on who’s buying real estate in Canada. During the federal election campaign last autumn some politicians promised to limit the amount of foreign ownership of property in Canada – but first they had to reveal just how large the issue is.
Small Action Taken
The Liberals have made no mention of applying limits to foreign real estate ownership thus far, but they’ve made efforts to acknowledge the perception that outside investment is responsible for soaring prices in Toronto and Vancouver markets.
In last week’s federal budget, which represents fiscal year 2016-17, the newly elected Liberal government’s Finance Minister Bill Morneau allocated $500,000 to Statistics Canada to develop an approach for periodically gathering data on home purchases made by foreign buyers.
However, the allocation may be too little too late, according to The National Bank of Canada, which criticized that half a million dollars to tackle what they call “the politically delicate issue of the role that foreign homebuyers play in the Canadian housing market,” is not even close to the resources needed to gather the information.
The bank stated, “to put this allocation into context, we point out that that the average price of a detached home in Vancouver (where many foreign buyers purchase homes) is $1,816,487, according to the Real Estate Board of Greater Vancouver. This implies that the 2016-2017 budget allocation for this effort totals 27.5 per cent of the price of an average detached home in Vancouver.”
Taking a Local Look
National Bank also feels that gathering this data should not be a government-led initiative. “Ultimately, the issue of foreign capital flows into Canadian residential real estate markets is a local one, the responsibility for which lies with municipal and provincial governments. We hope they add their financial resources to this effort,” the report says.
Gathering information at the local level may also be more effective as surveyors could target areas where growth has been the most substantial. The need to understand year-over-year price growth is obvious in cities like Toronto and Vancouver, while not as pressing in, for example, northern Quebec, and that resources should be allocated accordingly.
Differing Data Sets
National Bank’s report also makes the bold statement that 33 per cent of real estate in Vancouver and 14 per cent in Toronto could be attributed to Chinese buyers in 2015. American data was used to come up with the hypothesis.
Without discounting what the National Bank is suggesting, the data only highlights the need for the federal government to put more money into understanding real estate ownership in Canada. The rumour that prices are being driven up by foreign investors, is just that – a rumour. There is no concrete data. While on the surface it may seem like the only problem foreign investors are causing are ballooning prices in Canada’s biggest cites, the bigger issue would be if investors ever got spoked that Canada’s economy was faltering and started to sell whatever property they own. That would have a tremendous downward effect on home prices. Not only do all levels of government have to have a better understanding of foreign ownership, they also have to take steps to mitigate risks of a large scale sell off.