Canada’s effort to make housing more affordable by keeping most foreign buyers out of the market may have failed to address the problem it was designed to solve.
The federal ban, introduced more than three years ago, is set to expire Jan. 1, and Ottawa has yet to say whether it will be extended.
But Mike Moffatt, economist and founding director of the Missing Middle Initiative at the University of Ottawa, said there is little evidence the measure had much impact.
A nationwide solution to a local problem
In interview with CTV Your Morning, Moffat said foreign investment was concentrated in pockets of the country, particularly Toronto and Vancouver, while the housing market had already begun to cool down by the time the restrictions took effect.
“This was a nationwide rule designed to address problems in two small parts of the country and probably came a few years too late to really accomplish much of anything,” he said.
Moffatt also argued the policy overlooked the role of domestic investors and existing measures designed to deal with vacant properties.
More red tape, little impact
Moffatt believes some domestic investors were also buying condominium units and leaving them empty, a problem governments had already tried to address through vacant-home taxes.
“The rules were also redundant that we had a measure in place to discourage both foreign and domestic buyers from buying a condo unit, (and) leaving them empty,” he said, adding “This really just created another set of red tape, but it didn’t really seem to accomplish a whole lot.”
Should the ban stay?
With the deadline approaching, Moffatt says letting the restrictions expire could be the simplest option.
“It’s not working particularly well, and I think it’s creating headaches for talent who wants to move to Canada but can’t find a place to live.”
But if Ottawa decides to keep the ban, he said it should be changed to allow foreign buyers to purchase newly-built homes.
“This actually creates new supply,” Moffatt said, pointing to Australia as an example with an exemption for foreign investment in new construction.
More homes, not more demand
Moffatt believes foreign investors are unlikely to return to the Canadian housing market in large numbers anytime soon, but that could change if market conditions improve in the coming years.
For Canadians struggling to buy a home today, he said the bigger issue is supply.
“We certainly need more supply,” Moffatt said.
He pointed to measures such as eliminating the HST on smaller, family-sized homes and lowering development charges as steps in the right direction.
“What they do is they target new supply, they’re not out boosting the demand for resale homes, but they’re out getting more shovels in the ground.”
And that, he says, is particularly important for families facing a shortage of these homes.
“Because we still have a housing shortage, particularly when it comes to family-sized homes .... where we’re being less comfortable raising kids,” he concluded.
