Canada Extends Foreign Home Buyer Ban

Canada’s government has extended through the end of 2026 a controversial ban on foreign home buyers that took effect last January after years of debate.

“For years, foreign money has been coming into Canada to buy up residential real estate, increasing housing affordability concerns in cities across the country, and particularly in major urban centres,” Chrystia Freeland, Canada’s deputy prime minister and minister of finance, said in a news release yesterday. “Foreign ownership has also fuelled worries about Canadians being priced out of housing markets in cities and towns across the country.”

The Prohibition on the Purchase of Residential Property by Non-Canadians Act forbids non-citizens from buying residential property in most urban areas, though it includes a long list of exceptions. Property in many rural and “recreational” regions is exempt; most students, refugees, permanent residents, spouses of Canadian citizens, and some temporary workers in Canada may still buy homes.

While the government says the ban will help ease Canada’s severe housing crunch, critics in the real estate industry counter that the prohibition is misguided―and ineffective.

“The newly announced two-year extension is completely unnecessary, considering the fact there is no analysis, evidence or data from Statistics Canada, CMHC [Canada Mortgage and Housing Corporation] or Finance Canada, to support the government’s intended impact on housing affordability in Canada,” said Janice Myers, CEO of the Canadian Real Estate Association (CREA), in a statement Monday. “If the government decides to move forward with this baseless extension, CREA urges them to consider recommendations including exempting pre-construction financing, defining and exempting recreational property, including CUSMA [Canada-United States-Mexico Agreement] exemptions, and giving provinces input to tailor to their housing market requirements,” she added.

Don Kottick, the president and CEO of Sotheby’s International Realty Canada, agreed.

“Canada’s housing market has been driven almost entirely by the housing needs and demands of locals, as well as by population gains due to in-migration of Canadians from other cities, and through immigration,” he told Mansion Global in an email. “The extension of the foreign buyers ban will continue to have little or no impact on housing affordability and housing prices. This policy has only confused and frustrated those from other countries with crucial skills, talent and capital that Canada has been striving to attract and retain.”

The ban has also chilled luxury home sales in key markets like Toronto, said Maureen O’Neill, manager of Sotheby’s International Realty Canada in Toronto. “People who want to sell houses for more than C$5 million [US$3.92 million] can no longer rely on the buyers they used to count on globally,” she said. “It’s another extra burden on selling a house.”

That burden may soon get even heavier; Toronto’s mayor last week endorsed a 10% tax on foreign home buyers in that city, Canada’s largest. The province of Ontario already imposes its own 25% “non-resident speculation tax” on foreign buyers.

Though Canadian data on non-resident buyers is limited, the CBC last year reported that in British Columbia―one of the nation’s hottest housing markets―only about 1.1% of transactions in 2021 involved a foreign buyer, a drop of 3% in 2017. At the time, Ontario’s government told the CBC it had seen “a downward trend” in foreigners buying property since it began taxing non-resident purchases in 2017.

There has been a substantial increase in the number of Australians earning high incomes who are renting their homes instead of owning them, and this may be another element contributing to higher market demand and continually rising rents, according to new research.

The portion of households with an annual income of $140,000 per year (in 2021 dollars), went from 8 percent of the private rental market in 1996 to 24 percent in 2021, according to research by the Australian Housing and Urban Research Institute (AHURI). The AHURI study highlights that longer-term declines in the rate of home ownership in Australia are likely the cause of this trend.

The biggest challenge this creates is the flow-on effect on lower-income households because they may face stronger competition for a limited supply of rental stock, and they also have less capacity to cope with rising rents that look likely to keep going up due to the entrenched undersupply.

The 2024 ANZ CoreLogic Housing Affordability Report notes that weekly rents have been rising strongly since the pandemic and are currently re-accelerating. “Nationally, annual rent growth has lifted from a recent low of 8.1 percent year-on-year in October 2023, to 8.6 percent year-on-year in March 2024,” according to the report. “The re-acceleration was particularly evident in house rents, where annual growth bottomed out at 6.8 percent in the year to September, and rose to 8.4 percent in the year to March 2024.”

Rents are also rising in markets that have experienced recent declines. “In Hobart, rent values saw a downturn of -6 percent between March and October 2023. Since bottoming out in October, rents have now moved 5 percent higher to the end of March, and are just 1 percent off the record highs in March 2023. The Canberra rental market was the only other capital city to see a decline in rents in recent years, where rent values fell -3.8 percent between June 2022 and September 2023. Since then, Canberra rents have risen 3.5 percent, and are 1 percent from the record high.”

The Productivity Commission’s review of the National Housing and Homelessness Agreement points out that high-income earners also have more capacity to relocate to cheaper markets when rents rise, which creates more competition for lower-income households competing for homes in those same areas.

ANZ CoreLogic notes that rents in lower-cost markets have risen the most in recent years, so much so that the portion of earnings that lower-income households have to dedicate to rent has reached a record high 54.3 percent. For middle-income households, it’s 32.2 percent and for high-income households, it’s just 22.9 percent. ‘Housing stress’ has long been defined as requiring more than 30 percent of income to put a roof over your head.

While some high-income households may aspire to own their own homes, rising property values have made that a difficult and long process given the years it takes to save a deposit. ANZ CoreLogic data shows it now takes a median 10.1 years in the capital cities and 9.9 years in regional areas to save a 20 percent deposit to buy a property.

It also takes 48.3 percent of income in the cities and 47.1 percent in the regions to cover mortgage repayments at today’s home loan interest rates, which is far greater than the portion of income required to service rents at a median 30.4 percent in cities and 33.3 percent in the regions.

Canada Extends Foreign Home Buyer Ban

The law that forbids non-residents from acquiring homes in most areas has affected the luxury end of urban markets, experts say

This may be contributing to continually rising weekly rents