Canadian home prices continue to rise, particularly in Toronto and Vancouver. How much of an impact do foreign buyers have on the astronomical prices? Long-time realtor Bob Hutchings argues they are playing a significant role in making homes unaffordable for too many young people, while Philip Cross of the Macdonald-Laurier Institute says the real culprit is a lack of supply to meet the demand of immigrants flocking to Canada’s largest cities.

Affordability is one of Canadians greatest concerns and the largest factor causing this predicament is the high cost of housing in many parts of Canada.

Of course, this translates into exorbitant rates for rental properties as well. Some unfortunate residents are paying over 50 per cent of their income for shelter. Many more are paying well over the universally acceptable top rate for housing of 30 per cent of one’s income.

This makes it improbable for many to feed their family without the use of food banks and it certainly makes it almost impossible for those beleaguered individuals and families to spend anything on any form of recreation that is want of the human condition.

All respective governments have failed to address the growing issue of affordability for many years. Although widely refuted, non-residents buying up large swaths of real estate in Canada has undoubtedly contributed to this rise. In Vancouver as much as 20 per cent of new condo sales have sold to non-residents. Many are left vacant lowering the supply and increasing the price of rentals and resales.

All major cities in Canada should be checking hydro rates belonging to homes: if hydro used is low then it is most likely vacant. In Toronto, some buildings have vacancy rates as high as 15 per cent. This certainly does not help the desperate renters.

In Vancouver, they are currently charging one per cent of the homes market value to vacant owners. It should be much higher. All vacant homes should be taxed heavily; say four times the normal rate.

Most recently, Canada Mortgage and Housing Corporation has downgraded Toronto region housing from a high risk red zone to a moderate yellow zone: meaning the area is less vulnerable to price increases and overevaluation that exceeds income levels.

Tell that to the many people in competitive bid situations in the GTA. Many recent sales have gone for $200,000 to $1 million over asking price. This raises prices artificially; people now expect the “new” price for their humble abode.

Both the Golden Horseshoe and the Greater Vancouver areas have put into effect a 15 per cent foreign buyers tax but this is not stopping the majority of non — residents from buying. Most poor souls in these areas are simply not on the same playing field as those from abroad.

Paying hundreds of thousands over the list price is not an issue with many of them. With the current unrest in Hong Kong and uncertainty existing in many other countries, foreigners want to park their money in a safe place.

What needs to be done, and with some great urgency, is to pass a law stating that non-residents can no longer buy in Canada, or, at the very least, have a 50 to 75 per cent tax on foreign buyers.

In New Zealand they have already made it illegal for non-residents to buy real estate. They were finding that as much as 25 per cent of properties in certain areas were being sold to foreign investors. They did leave it open for Australians and some larger commercial projects to be bought by non-residents but not single family dwellings. Australia, too, has much more rigid rules for foreign ownership.

Here in Canada we would obviously leave it open for American and Mexican non-residents to buy, although it is highly unlikely most could afford to do so.

These factors not only make it difficult for Canadians to buy a home but it also has the effect of a brain drain to the U.S. Many young professionals are looking to the States as a place to call home because the cost of living is substantially less in many cities.

Non-residents buying property in Canada has certainly been contributing greatly to the rising cost of real estate. Non-residents do not contribute to our society. They do not live here, do not work here, do not volunteer here and do not spend money here, other than to park it buying homes in a safe haven.

It is time for our government to consider what is best for Canadians. It is time to put the brakes on foreign ownership.

Bob Hutchings is a real estate broker working in the GTA for over 35 years.

Loading... Loading... Loading... Loading... Loading... Loading...

Since 2015, house prices have taken off, especially in Toronto and Vancouver. As a result, average home prices in both cities are approaching $1 million, extinguishing the dream of home ownership for many young people.

Not for the first time, politicians reacted to this affordability crisis by scapegoating a small group of people who don’t vote in elections; non-residents living abroad who buy homes in Canada fit this bill perfectly. B.C. introduced a 15 per cent tax on non-resident property purchases in April 2016, matched by Ontario in April 2017.

Unfortunately, taxing or even banning non-residents from buying homes hardly addresses the real reasons behind soaring house prices and in practice is not likely to be easily enforceable.

What is driving the surge in homes prices? Consider its origins. House prices were stable in Vancouver and rising moderately in Toronto leading up to 2015. Prices took off starting in 2015 when two things happened simultaneously as a result of the crash in oil prices:

First, the Bank of Canada cut interest rates, making house buying more attractive to all Canadians.

Second, the influx of immigrants became more concentrated in Toronto and Vancouver because the economy weakened in the oil-producing provinces. As a result, demand for housing in these two cities accelerated.

Non-residents were not to blame for the sudden rise in demand beginning in 2015. StatCan data show that non-residents appear to own only 3.4 per cent of properties in Toronto and 4.8 per cent in Vancouver, skewed more to the market for condos than single-family homes. The Bank of Canada’s interest rate cut and the concentration of immigrant flows in Vancouver and Toronto were what fuelled demand, not non-resident purchases.

Share your thoughts

Normally, a surge in prices would eventually self-correct by drawing more supply into the market. However, this mechanism was short-circuited by misguided provincial and municipal policies, including zoning regulations and rent controls that limited the ability of builders to boost supply to meet higher demand. The inevitable result of surging demand and limited supply was soaring home prices.

Even if we wanted to finger non-residents as a major source of rising demand, taxing home purchases by non-residents or banning them altogether is not the solution. It is hard to design a tax or ban that would be effective.

A small tax does not discourage non-residents from buying in a market where prices are soaring anyway, and where the Canadian dollar price looks cheap to people in other countries because of the devalued loonie.

A large tax or outright ban gives non-residents a major incentive to find a Canadian to pose as the buyer, and then rent or give the property back to the ultimate buyer abroad (especially if the Canadian resident posing as the buyer is a relative already in Canada to study or work).

The only sustainable long-term solution to soaring home prices in Toronto and Vancouver is to loosen the regulations stifling supply — a process underway at least in Ontario — while reining in demand.

The ideal way to check demand is raising domestic interest rates or boosting the exchange rate to increase the Canadian dollar price to non-residents. However, the Bank of Canada is reluctant to do either because it does not want to raise the exchange rate and smother a recovery in manufacturing exports it hopes will offset lower oil prices.

Rather than normalizing interest rates, various levels of government have tried to restrain demand with a grab bag of policies including tougher mortgage regulations (deeply resented by Canadians living outside of Toronto or Vancouver) and taxes on non-resident home purchases and vacant homes.

Even then, housing policies often work at cross-purposes, as the federal government also increased the incentives for first-time buyers to purchase homes even while impeding other sources of finance.

The result was a band-aid solution that only capped prices at a level that leaves housing unaffordable to the next generation of prospective homeowners.

Restricting non-resident purchases has proven difficult to enforce without addressing the fundamental sources of the imbalance between surging demand and lagging supply in English Canada’s two most populous cities.

Philip Cross is a senior fellow at the Macdonald-Laurier Institute.

Read more about: