Photo: James Bombales
This week, new data revealed fewer foreign buyers were investing in Canadian real estate than many industry players had thought. Now, one expert is saying that the data is further proof that foreign buyers aren’t to blame for the housing affordability crisis.
Foreign buyers make up less than 5 per cent of homeowners in the GTA and GVA, according to a joint report from Statistics Canada and the Canada Mortgage and Housing Corporation, released on Tuesday.
“The data from Statistics Canada lets us separate the facts from the unjustified fears,” writes Carrie Law, CEO of Chinese real estate website Juwai.com, in a statement. “Now, it’s clearer than ever that foreign buyers are not the problem in Canada’s home markets.”
As prices rose to record highs in Vancouver and Toronto, foreign buyer taxes were introduced in August 2016 and April 2017, respectively, in an attempt to cool the markets. Yet in Vancouver, prices have already returned to where they were before the tax, and many economists predict that Toronto could be heading in the same direction.
So if foreign investment isn’t to blame for housing affordability in these cities, what is?
“Foreign buyers are just a straw man for a country that refuses to recognize that cheap credit for local investors is the real reason prices are rising,” writes Law. “There has always been one fundamental truth in the housing market: access to cheap loans drives up prices.”
Law is referring to Canada’s interest rates — the Bank of Canada’s overnight rate sat at a historically low 0.5 per cent earlier this year, when prices in Toronto were rising fastest.
“It’s not foreign buyers, it’s not cosmology, it’s quite simply credit. Low interest rates push prices up,” writes Law.
Her theory will soon be put to the test. The Bank of Canada has already raised the overnight rate by 50 basis points this year and is expected to hike it further in 2018. This, combined with a new national mortgage stress test set to come into effect on January 1, is expected to significantly lower buyers’ purchasing power and subsequently cool the market.
“The easy fix to the affordability crisis is making local investors pay a higher rate and put down more money on each investment property they buy,” says Law.
Many in the industry agree with Law’s assessment. According to Toronto-based realtor Ralph Fox, the recent data release confirms his belief that foreign buyers were never the cause of high prices in cities like Toronto.
“This data completely lines up with everything I’ve seen in my work,” he told BuzzBuzzNews. “There’s been this great hysteria about foreign buyers, and policymakers have rushed in to try and appease it. But we’re undergoing an affordability crisis that’s driven by the fundamentals.”
As for whether higher interest rates and new mortgage rules will succeed in cooling the housing market, many economists think they will — at least, for awhile.
“Royal LePage anticipates that the new [mortgage stress test] will slow the housing market, particularly in the first half of 2018, as buyers adjust both their expectations and finances,” reads a recent report from Royal LePage. “[However] demand from migration, alongside demand from millennials who are increasingly becoming of home buying age, will continue to outpace supply.”