The New Temporary Ban On Foreign Homebuyers Explained. Will It Make An Impact On Housing Affordability?
On January 1, 2023, the government of Canada’s Prohibition on the Purchase of Residential Property by Non-Canadians Act came into play. It was passed by Parliament in June 2022, but came into effect this month, and will be enforced for 2 years.
Under this Act, non-Canadians cannot directly or indirectly purchase any residential property defined as : a detached home containing not more than 3 dwelling units, a semi detached house, rowhouse unit, residential condominium unit or other similar premises.
The Act includes an exception for any residential property found outside the Central Metropolitan Area (CMA) or Census Agglomeration (CA) as identified in Statistics Canada’s Standard Geographical Classification 2021. A CMA has a total population of at least 100,000, of which 50,000 or more live in the core area. A CA has a core population of at least 10,000.
The Act will not apply to indigenous peoples, individuals with temporary work permits residing in Canada, refugee claimants, accredited members of foreign missions in Canada and international students if they meet certain criteria.
Any person or entity that knowingly assists a non-Canadian in buying a home while the ban is in effect will be fined $10,000 if convicted of violating it.
The impact of this measure
Housing affordability has been a hot topic in Canada for the last 5 years, and municipal, provincial and the federal government have made affordable housing a mainstay of their election platforms.
Home prices have skyrocketed over the past few years and foreign buyers have been an easy scapegoat. Anti-foreign buyer sentiment has gained political momentum and the Act was one of the current Liberal government’s election pledges. Many real estate and housing policy experts believe that the 2-year ban will have a minimum impact on house prices, given the fact that non-resident buyers make up such a small share of the real estate market.
During 2020 and 2021 when COVID 19 closed the borders to outsiders, foreign buyers disappeared entirely from the real estate market. The property price boom that followed in the ensuing year was fueled entirely by domestic buyers.
According to Statistics Canada, in 2020, non-residents owned 2.2% of residential properties in Ontario and 3.1% in BC. The percentages were 2.7 and 4.2 in the Toronto and Vancouver metropolitan areas, respectively.
The real problem lies in the chronic lack in the supply of housing. Zoning restrictions and difficulties that developers have faced in building more housing has been a constant hurdle, and the impact is now being felt on a massive scale. Governments at all levels are now recognizing this and there is a scramble to make things right – something that should have been addressed many years ago.
With immigration reaching record levels as the government encourages more skilled immigrants into this country, housing affordability will be an ongoing issue due to lack of supply, despite “politically correct” moves such as the new housing law prohibiting the purchase of property by non-Canadians.
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