Homeownership in Canada has been a hot topic within the 2021 federal election as the national housing market continues to see rising property prices and falling supply. With voting day less than a month away, the country’s major political parties have each laid down their strategies to mitigate the country’s chronic housing market problems.
Earlier this week, the Liberal government announced their official housing plan. If re-elected, the party would introduce a number of measures aimed at boosting home ownership and supply, including adding 1.4 million homes, rent-to-own projects and the creation of a Home Buyers’ Bill of Rights that would place a ban on blind bidding.
“Owning a home shouldn’t be out of reach and renting shouldn’t be so expensive for young Canadians,” said Prime Minister Justin Trudeau in a party statement on Tuesday. “They shouldn’t be losing bidding wars when they see houses sitting empty next door. Or having to move hundreds of kilometers away from their communities just to pay their rent.”
The Liberal’s housing plan also details the temporary ban of new foreign ownership for the next two years in a move to “ensure Canadians have more access to purchasing homes.” A national tax on non-resident, non-Canadian owners with vacant and underused housing, which was first outlined in the 2021 Budget, would be expanded to include foreign-owned vacant land in urban areas.
Plans to control foreign property ownership have also been reported across the other two major party platforms this election. Erin O’Toole’s Conservatives pitched a similar policy to the Liberals in their platform released last week, which would bar foreign investors who are not living in or moving to Canada from purchasing homes for a two-year period. If elected, Jagmeet Singh’s NDP party would see the implementation of a 20 per cent foreign buyers tax on residential property purchases made by foreign corporations or people who are not citizens or permanent residents of Canada.
To understand more about the real estate industry’s reaction and insights to the Liberal’s newly-released foreign home ownership plan, Livabl spoke with Michael Ferreira, managing principal of Urban Analytics, to get his thoughts on the policy. Urban Analytics is a market intelligence company that provides new multi-family and rental apartment project data to industry stakeholders in multiple Canadian cities.
Livabl: If re-elected, the federal Liberal government says that they would ban new foreign home ownership for two years. What is your general take and reaction to this proposed policy?
Michael Ferreira: Frankly, this reeks of uninformed politics, of a Prime Minister trying to win a majority by any means necessary, even at the expense of stirring up xenophobic sentiments towards foreigners or immigrants from visible minorities who are able to purchase homes in Canada.
Our ongoing research and feedback from market stakeholders indicates that as has been the case since the start of 2020. The overwhelming majority of current homebuyers are local and are either Canadian citizens or have permanent residency status.
L: What has been the reaction from the real estate community on this policy, particularly in large urban centres such as Toronto and Vancouver?
MF: There has been a proverbial shake of the head at why this policy would be suggested now given the very limited amount of foreign buyer influence in our markets over the past 18 to 20 months.
Many also question the rationale behind the substantially increased targets for new immigrants to the country over the next three years while also restricting foreign purchasing during this time. If they’re not going to allow these new immigrants to purchase until they become citizens or obtain their PR status, they’d be well-advised to develop a plan to significantly increase the rental housing supply, which is already virtually non-existent in the markets most new immigrants look to settle in.
L: Do you believe that this policy would have the desired effect of protecting Canadian ownership rights while alleviating prices and speculation, specifically in larger cities that tend to attract foreign ownership?
MF: No, it would not. The challenge in many of these markets is the supply and demand imbalance that exists. There is simply not sufficient new supply being added to the market to satisfy current demand, and that’s before the new increased immigration begins to take hold.
L: If the policy was implemented, do you think that the impact would be minor or significant?
MF: It would be very minor, particularly given the fact the market is being driven by domestic buyers.
L: It was also announced in the Liberal platform that the upcoming tax on vacant housing owned by non-resident, non-Canadians would be expanded to include foreign-owned vacant land within large urban areas. Why do you think this policy would be extended to this part of the market? How could this affect Canadian developers?
MF: This policy would likely limit, or at the very least drastically delay, new supply from being developed as the foreign owners of these properties would delay the start of any construction on the land until market conditions allow for the higher costs to be recouped, or until the foreign owner of the property either sold the property to a local developer or secured a partnership with a Canadian entity to mitigate the tax exposure.
Either way, it will delay the development of much-needed supply in the market. It could present opportunities for Canadian developers to either acquire the properties or form a partnership with the foreign-owned entity.
L: The Conservative party put forward a similar promise in their recently-released platform, which would ban foreign investors not living in or moving to Canada from buying homes for a two-year period. The NDP is proposing a 20 percent foreign buyers tax on residential property purchases by those who are not citizens or permanent residents.
Why are policies around controlling foreign ownership an area of interest between the three major parties in this election? Why is a stance on the housing market a crucial element of each political party’s campaign?
MF: The party leaders and their strategists clearly see these policies as a way to pander to the sentiment of some voter groups who continue to blame the influence of foreign buyers for rising home prices. Again, the fact prices have risen steadily since the start of COVID when markets have [been] driven primarily by local and domestic buyers suggests how limited the influence of foreign buyers is in the market.
L: In regards to housing, are there any additional areas of the Liberal party’s newly-released platform (or the other major political parties) that stand out to you?
MF: What stands out most is what all policies are missing, and that’s a plan to incentivize a massive increase in the new supply of for-purchase, and in particular, rental housing for all sectors of the market, affordable and otherwise.
The majority of the policies are penal and demand-focused. While there is talk of increasing the supply of affordable housing, which is much-needed, there is no mention of increasing supply across all sectors of the market that would meet not just current demand, but the demand that’s expected from the new immigrants the Liberal government has increased the annual targets for.
The industry has been banging the drum to have the construction of new rental apartment developments GST-exempt for years. This single policy would increase the viability of new rental projects, particularly in the most supply-challenged markets across the country and thereby ease the tremendous pressure on rents.
