Because Canada will ban foreigners from buying homes in the country for two years

For the next two years, foreigners will be banned from buying a home in Canada.

This was announced by Prime Minister Justin Trudeau, in a measure aimed at stabilizing the prices of the real estate market in the country, which is facing one of the greatest problems of access to housing in the world.

The prices have increased more than 20%which brought the average home sale to nearly US $ 650,000, more than nine times the average household income.

But real estate analysts say it’s unclear whether a ban like this will help solve the problem.

Data on overseas home purchases in Canada is limited, but they appear to represent a small fraction of the market.

“I don’t think it’s going to have a huge impact,” says Ben Myers, president of Toronto-based consulting firm Bullpenn Research & Consulting, who says foreigners accounted for just 1% of purchases in 2020, compared to 9% in the US. 2015 and 2016.

“That’s a pretty low number and let’s face it, people who really want to buy … will find alternative ways to do so,” he added.

The analyst believes that high housing costs reflect strong population growth and a shortage of supply, in part due to rules that restrict market development.

The problems have worsened since the start of the pandemic in 2020, when Canada lowered interest rates to stabilize the economy, lowering financial costs and increasing demand.

This has happened in several countries, but according to OECD data, the disconnect between house prices and income in Canada is one of the most dramatic in the world.

The ban on foreign buyers exempts permanent residents and foreign students and workers, as well as those who acquire primary residence.

campaign commitment

Trudeau promised to address housing prices during his election campaign last year.

In addition to the temporary ban on foreign buyers, the budget proposal released Thursday by his administration sets aside billions to power new construction and propose new programs, such as a tax-free savings account for new buyers.

Trudeau also discussed banning certain bidding processes that favor investors, which, according to some statistics, account for about one in five homes purchased in Canada since 2014.

Other measures

Trudeau’s plans have been reflected in individual decisions in other Canadian regions and provinces.

In Ontario, for example, Provincial Premier Doug Ford recently announced plans to increase an existing tax on foreign buyers from 15% to 20% and extend it beyond Toronto to the entire province.

While overseas purchases aren’t the main source of accessibility problems, taxing them at least increases the revenue that can be redistributed to address those problems, says Steve Pomeroy, director of Focus Consulting, a housing policy firm.

“If you ban them, it doesn’t really have a big impact on containing house price increases and giving up revenue,” he says.

New Zealand introduced a similar measure banning foreign buyers in 2018.

Justin Trudeau has promised to solve Canada's housing problem
Justin Trudeau has promised to solve Canada’s housing problemGetty Images

Paul Kershaw, professor al University of British Columbia, Nor does he think Trudeau’s proposal can curb price increases or significantly address affordability.

“It is unclear whether these measures are sufficient to solve Canada’s problem with high and rising house prices,” he says.

Pomeroy expects prices to fall in the coming months as the central bank has raised interest rates.

The Canadian real estate market is particularly susceptible to such movements, as many buyers rely on five-year mortgages rather than the common long-term mortgages in the United States and other countries.

But higher interest rates will only make homes less affordable for potential buyers looking to enter the market, he warned.

Myers said that, in the long run, he expects warmer markets like Toronto and Vancouver to be dominated by renters, as regular buyers will be kicked out of the market.

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