Foreign home buyer ban may do little to lower prices

The federal government unveiled the details of a two-year ban on foreign home buyers set to kick in on January 1st (and as last-minute Christmas shoppers, we really get leaving the announcement to the very last minute).

What happened: The regulations will bar non-Canadians (anyone who isn’t a citizen or permanent resident) from purchasing houses in Canada for the next two years, with some exceptions.

  • Foreigners will still be able to buy recreational properties and buildings with four or more units.
  • The rules also include carve-outs for non-Canadians working or studying in Canada who meet certain criteria, along with refugees.

Why it's happening: The foreign home buyer ban is intended to lower housing prices by reducing demand in the housing market.

Yes, but: There’s not much evidence that foreign buyers are a significant source of housing demand in Canada anymore. 

  • The most recent data shows home purchases by foreign buyers make up just 1% of sales in BC and 2% in Ontario, the country’s two hottest housing markets.
  • “Foreign buying was a bigger issue back in 2016, 2017. But this latest run in real estate was fuelled by domestic buyers,” BMO economist Robert Kavcic told The Globe & Mail.

Bottom line: In our higher interest rate world, the prohibitive cost of Canadian housing relative to other markets is likely a much bigger curb on demand than a ban on overseas buyers who are often looking for a return on investment rather than a place to live.