Canada Bans Foreigners From Buying Property to Combat Housing Crisis

Vancouver

Countries worldwide are dealing with a housing cost crisis, and Canada is facing one of the most difficult. Home costs in Canada have jumped to heights that make purchasing real estate extremely difficult for many. According to WOWA, the average sales price of a home in Canada is around C$625,000. Although there are pockets of affordability throughout the country, big cities, such as Toronto and Vancouver, are among the world’s most unaffordable real estate markets. As 2023 begins, a new law has come into effect that the Canadian government hopes will help combat this issue.

As of January 1st, the Canadian government has imposed a law, known as the Prohibition on the Purchase of Residential Property by Non-Canadians Act, that bans people who aren’t Canadian citizens or residents, or foreign companies from purchasing residential property in the country. This ban is expected to last for two years, but includes some exceptions. For instance, the law only applies to certain cities and doesn’t extend to vacation homes in recreation areas, such as Muskoka. There are also exceptions for certain people, such as those with Canadian families or buyers purchasing multi-unit buildings.

Granville Island

So, what has made the Canadian government feel that this law is necessary? Steep housing prices are a complicated issue, and there is no single answer to this problem, but foreign investment has been a popular boogeyman for politicians and residents to blame. Data provided by Canadian Mortgage and Housing Corp (CMHC) in 2015, reported by GTA Homes, has shown that foreign investment can account for 2.4% of condo sales in Toronto, 2.3% of condo sales in Vancouver, and 6.9% of condo sales in some areas of Montreal. While these aren’t market-defining figures, the goal of this ban is to add to the home supply in Canada’s largest cities.

The main reason for the rising prices in Canada is simple supply and demand. The supply in key markets across the country simply can’t match the demand for homes, and the competition for property is driving prices past what the average Canadian can feasibly afford. In cities such as Vancouver, which have an especially pricey real estate market, supply is incredibly low. In 2022, Western Investor reported findings from a CMHC report that stated 570,000 homes would need to be added to British Columbia by 2030 to restore affordability.

Whytecliff Park

The government hopes to add to the Canadian housing supply by blocking foreign investment. Foreign buyers who purchase homes and don’t occupy them reduce the supply of homes in the market, and even if this percentage is much lower than many Canadians think, this solution could positively impact affordability. Instead of buyers purchasing homes as commodities, the government hopes this will lead to more homes being purchased by people who intend to settle down in the property.

Canada is not the first country to use such measures to try and curb unaffordability. New Zealand similarly banned foreign investment in 2018, according to the BBC, and the results have been hard to gauge. Prices have continued to climb in the small country despite the ban, although proponents could likely point to factors such as inflation and the pandemic.

Canadians may have mixed opinions on the new law, but regardless, as of January 1st, it is the new reality. There can be no question that firm action is needed to be taken to combat the housing crisis in the country, as prices in Canada’s biggest cities and their surrounding suburbs have reached stomach-turning heights. Whether this ban will help improve the problem remains to be seen.

Vancouver