Workers are seen on a lift at a condo tower under construction in Vancouver, on Wednesday, April 15, 2020.DARRYL DYCK/The Globe and Mail
Ottawa’s proposed ban on foreign buyers of residential real estate, included in Thursday’s federal budget plan, comes years after some provinces already hit foreign buyers with substantial property purchase taxes. The federal ban now will do little to cool the housing market, British Columbia’s minister of housing predicts, and to temper it, some critics are calling for increased regulation of the arena more broadly.
Real estate speculation by wealthy foreign owners has been blamed for driving housing prices out of reach of many Canadians. But as B.C.’s tracking indicates, the problem is not big enough to really move markets today.
“Foreign purchases are less than 2 per cent of the total market,” David Eby told reporters. “For British Columbians, they shouldn’t expect a dramatic impact, given the measures that we’ve already taken.”
The impact of a ban will be hard to measure, when provincial taxation levels are changing and mortgage rates are rising.
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But B.C.’s experience does provide some indication of the influence of foreign ownership.
B.C. sought to tackle its superheated real estate market in 2016, when it imposed a 15-per-cent foreign buyer tax on residential real estate deals in Metro Vancouver. When then-premier Christy Clark first introduced the foreign buyers’ tax, housing prices had hit record highs and housing affordability was becoming a political football. “There is evidence now that suggests that very wealthy foreign buyers have raised the price, the overall price of housing for people in British Columbia,” Ms. Clark said at the time. The response to the tax was immediate: Sales to foreign buyers dropped off, particularly in some Metro Vancouver communities.
In July of 2016, foreign buyers accounted for almost 30 per cent of real estate transactions in the city of Burnaby, and 27 per cent of sales in Richmond. In August, when the tax came into effect, foreign buyers made up one per cent of buyers in Burnaby, and two per cent of Richmond buyers.
Housing prices cooled quickly - but then began to rise again. Housing prices have since cracked new records. In 2018, NDP government increased the foreign buyer’s tax rate and widened the scope, saying “foreign demand is still putting pressure on our housing stock.” The province added a speculation and vacancy tax in 2019 which also mostly targets foreign owners and satellite families.
Jill Atkey, chief executive officer of the BC Non-Profit Housing Association, said investors are no doubt driving up home prices across the country, but foreigners make up a fraction of these home owners and have ceased to be the disruptive force they were in and around Toronto and Vancouver five to 10 years ago.
Instead of a ban, she said, Ottawa should address the distortion caused by Canadian homeowners who are purchasing second, third and fourth properties. Real Estate Investment Trusts (REITs) are also corroding affordability on a larger scale than foreign buyers, she said, and should also be more strictly regulated. REITs are scooping up rental buildings across the country with the sole purpose of driving up rents and getting a higher return on these investments, she said.
“When we look at places like New Zealand that have brought in a ban on foreign ownership, they’ve seen the same thing over the last number of years: runaway housing prices that they’re really struggling to grapple with,” said Ms. Atkey, whose organization represents some 800 non-profit housing providers on Canada’s West Coast.
She doesn’t anticipate the ban to have a large impact in Canada, but it will come in as rising interest rates begin cooling the market - making it harder to discern the effects.
“We’ve got a situation now where in most urban centres in the country - unless you are receiving some form of intergenerational wealth transfer - you’re not going to make your way into the market: you cannot save enough and fast enough in order to make your way in as a first-time homebuyer,” Ms. Atkey said. “And that unearned equity is now being transferred down through generations and really exacerbating wealth inequality in this country. And that’s the far bigger risk and we don’t see a lot of measures in this budget to stall the runaway prices or cool the market at all - that takes a lot more courage.”
Hafiz Rahman, an economics professor with Thompson Rivers University in Kamloops, B.C., said Statistics Canada pegs foreign buyers as representing five per cent of the overall market across the country, but banning them could still have an impact on prices in some larger cities.
Research published last year by Dr. Rahman and his colleague Jabed Tomal, a statistician who teaches at the same university, found that prices stopped skyrocketing in Chilliwack when the B.C. government expanded its foreign buyer tax to this Vancouver suburb in 2018, while Kamloops - a similar market further inland that has remained exempt from the levy - saw its home prices continue to rise rapidly over the next two years.
Vancouver lawyer Richard Kurland, who has been helping international clients immigrate to B.C. for 25 years, said the ban won’t have any effect. That’s mostly because even unsophisticated foreign buyers can get around it by partnering with an international student or someone with a work visa who can transfer the money from a Canadian bank account.
“It gives soundbites to politicians in order to appear as if they’ve done something,” Mr. Kurland said of the ban.
Many foreign investors have left B.C. and “shot over the Rockies” to other provinces in the past year, he said.
However, the tax burden on foreign ownership in Canadian real estate has been growing.
In an attempt to crack down on speculation in the housing market, the Ontario government introduced a tax for foreign homebuyers in 2017. In March, it increased the rate by 5 percent to 20 per cent and closed a loophole that allowed foreign students and workers to get a tax rebate on real estate purchases. Nova Scotia also just introduced two controversial tax measures: a 5 per cent deed transfer tax on homes bought by non-residents and a 2 per cent tax on properties owned by people who normally reside outside the province.
In B.C., the province collects about $100-million a year from its tax on foreign purchases, which last year represented about $1.9-billion worth of real estate sales.
Mr. Eby said he hopes the federal government’s focus on foreign buyers of real estate will be tied to greater regulation of the market.
The housing minister, who is also B.C.’s Attorney General, has criticized Ottawa for failing to put enough resources into making sure that foreign capital in Canada’s real estate markets is properly taxed. “I do hope that it means is that they will have more interest in things like beneficial ownership registries,” he said. B.C. introduced the country’s first public registry of property owners that aims to end the use of trusts, corporations and partnerships to shield transactions from public view. But it has delayed implementation.
Mr. Eby said Revenue Canada needs more resources to track the information B.C. is starting to collect. “I hope that this opens the door to them having, frankly, a heavier hand on on this kind of activity in our housing market, because up until now it’s felt like it was just British Columbia that was doing that work.”
With files from James Keller in Calgary