New proposed research on foreign homeownership in Canada could finally reveal the extent of the issue in our housing market. The practice of foreigners investing in Canadian real estate has long been a sore spot among domestic buyers – especially on the west coast – as it’s believed to push prices beyond the grasp of those who actually intend to live in their homes.
Former Conservative Prime Minister Stephen Harper promised to collect data on foreign ownership in the Canadian market, though he didn’t elaborate on exactly what action would be taken.
A Focus on BC Home Affordability
The issue of foreign homeownership is focused in Vancouver, Canada’s second-largest and priciest market. Recent numbers find sales in the city rose 32 per cent in January – typically a slow real estate season – with the average cost of a home approaching $2 million. Vancouver was recently ranked as the third least affordable city in the world, with the average home costing nearly 11 times the average annual-before-tax household income.
While the Canada Mortgage and Housing Corporation estimates 3.5 per cent of the market is represented by foreign buyers, those findings are widely viewed as inaccurate – and with the loonie so low, Vancouver real estate is viewed as a bargain for those equipped with U.S. Dollars.
The supply of affordable housing is now so tight that laneway homes – small houses built in backyard or garage lots – are a growing trend in the city. However, laneway houses can only be rented as they’re located on pre-existing lots, and don’t alleviate the pressure on those trying to break into the market.
What the Government is Doing About It
Vancouver residents, many priced out of the city they grew up in, have rallied against foreign investment and have demanded the government take more action. However, while a hot topic in the media, governments have been hesitant to put their money where their mouths are and introduce regulations to limit foreign home ownership.
As the B.C. Liberal government prepares to deliver its budget this month, Premier Christy Clark promises to make housing affordability a key issue. As such, she’s proposing a tax on owners of vacant properties. This in turn would generate up to $90 million towards a Housing Affordability Fund to be dispersed among local homeowners.
While the Housing Affordability Fund sounds good on paper, it comes with some potentially nasty side effects. If foreign ownership was limited, B.C. could lose up to $1 billion in real estate sales and nearly 4,000 in construction jobs, finds a six-page analysis by B.C.’s brightest – economics, academics and real estate experts.
Taxing the Issue
Vancouver Mayor Gregor Robertson has asked for a levy speculation and luxury taxes on foreign owners and speculators to keep prices from rising, but his pleas have fallen on deaf ears. Clark argues a luxury tax on foreign homeowners could hurt current homeowners; it could it cause real estate prices to appreciate at a slower rate, and could reduce the amount of equity homeowners are able to borrow from their homes.
Instead of focusing on a luxury tax on foreign investors, the government needs to do a better job of making housing more affordable for local residents. Reducing the land transfer tax for first-time homebuyers and introducing new tax credits to help with the transaction costs of real estate would be a good start.