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Canada Moves to Ban Foreign Real Estate Buyers for Two Years

todayApril 9, 2022

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Soaring real estate prices, the second most popular topic of conversation among Canadians after the weather, loomed large in the federal budget presented to Parliament on Thursday by Chrystia Freeland, the finance minister and deputy prime minister.

Over the two years ending in February, the average house price increased by more than 51 percent, to 868,400 Canadian dollars, according to the Canadian Real Estate Association.

Among the wide array of budget proposals aimed at making housing more affordable is a two-year ban that will block most foreigners and non-Canadian companies from buying residential real estate in the country.

The idea that foreign money has helped push up prices in markets like Vancouver and Toronto has been around for some time and has become a hot political issue.

And there have been efforts to discourage it. In 2016, British Columbia introduced a 15 percent tax on home and condo purchases by foreign buyers. Late last month, Ontario raised its own tax to 20 percent and extended it to cover the entire province.

But several economists I spoke with after the budget’s release have said the effect of foreign buyers on prices is not as significant as many people may believe, even in Vancouver and Toronto. And some of the experts warn that the ban will most likely create headaches of its own — perhaps big ones.

Tsur Somerville is an associate professor at Sauder School of Business, University of British Columbia, who specializes in real estate economics. He told me that the housing price increase that took place during the pandemic contradicts the assumptions underlying this ban.

“We’ve had two years when it’s been very hard to be a foreign buyer of real estate in Canada because it’s been hard to get here,” he said. “Yet this is when house prices have had their largest increase over the last 10 years.”

Research by Professor Somerville and a colleague revealed that after British Columbia imposed its tax, prices fell by just 3 to 5 percent in Vancouver neighborhoods that were popular with foreign buyers compared with neighborhoods such buyers avoided.

In a paper published in 2020, Joshua C. Gordon, an adjunct professor in the School of Public Policy at Simon Fraser University in Burnaby, British Columbia, found that demand from people outside of Canada has indeed made housing less affordable in Vancouver and Toronto, but not in a way the budget’s sales ban will address.

Many real estate purchases in those cities, he wrote, are made by residents or citizens of Canada acting on behalf of relatives or other people living overseas, who provide the money behind the deals. Whatever form the new ban takes, it will not block such transactions.

“What matters is not so much citizenship but rather the source of funds for real estate purchases,” Mr. Gordon wrote.

Details are scarce about how the federal ban will work. The Department of Finance told me that they “will be available in the coming months.” The budget says that recreational properties will be exempt, although it does not define them; it also exempts people in Canada on student visas that lead to permanent residency, and people temporarily living here for work.

But given that real estate is a provincial responsibility, it’s unclear exactly how the federal government can regulate such sales. Gilles LeVasseur, who teaches constitutional law at the University of Ottawa, said that the regulations will most likely be created as part of the fed’s powers to create criminal law.

But regardless of the means, he said, the rule will run afoul of the Charter of Rights and Freedoms by discriminating against people on the basis of nationality. While rights are not absolute, Professor LeVasseur said that it may be difficult for the government to justify such discrimination in court.

“Is this acceptable given the fact that it’s going to penalize a certain group of people knowing that it’s not going to have a major impact on the society?” Professor LeVasseur asked.

I also spoke with Brian Higgins, a U.S. representative from western New York State who keeps a close eye on cross-border issues. He said he’s been watching for a possible ban since last fall, and has raised the issue with officials in Washington and during a meeting with Prime Minister Justin Trudeau.

The budget proposal, he said, goes too far.

“It violates the U.S.-Canada-Mexico Trade Agreement” by discriminating against American and Mexican buyers, he said.

Professor Somerville was not critical of the budget’s many house price measures, but he said that would-be buyers in Canada who find themselves priced out of the market shouldn’t get their hopes up that much will change.

“It always feels like everyone wants some magic solution that comes at no cost to them and makes housing affordable,” he said, adding, not wholly seriously: “The way to make housing affordable is to cut housing prices by 50 percent. But that kind of leads to a couple of other problems in the macro economy.”

When I’m reporting in Western Canada, I usually have the good fortune to work with Amber Bracken, a photojournalist from Edmonton. This week the photo above, which was shot while we were reporting on the discovery of human remains at the former Kamloops Indian Residential School, was named World Press Photo of the Year, one of the highest honors in her profession.

“It is a kind of image that sears itself into your memory; it inspires a kind of sensory reaction,” Rena Effendi, the global jury chair, said about the photo. “I could almost hear the quietness in this photograph, a quiet moment of global reckoning for the history of colonization, not only in Canada but around the world.”

  • In the latest of a series of measures to prop up ailing media companies in Canada, the federal government introduced a bill that will force tech giants like Facebook, Google and Twitter to pay for allowing users to share news content on their platforms. It follows similar moves in Europe and Australia.

  • A Steller’s sea eagle, native to East Asia, that showed up in Nova Scotia on April Fools’ Day isn’t lost; it’s adapting, Marion Renault writes in an article about avian vagrants.

  • Noah Reid, the 34-year-old “Schitt’s Creek” star, will make his Broadway debut this month in Tracy Letts’s new comedy “The Minutes.”

  • The chief executive of Mavrik Corporation, a Montreal-based investment company, is aboard a spaceship that lifted off for the International Space Station on Friday in NASA’s first foray into space tourism.

A native of Windsor, Ontario, Ian Austen was educated in Toronto, lives in Ottawa and has reported about Canada for The New York Times for the past 16 years. Follow him on Twitter at @ianrausten.

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todayApril 9, 2022