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Wednesday, January 18, 2017
Fascinating question - Is A Ban On Foreign Buyers The Right Solution To Canada's Housing Crunch?
Instead of trying to answer all these difficult questions, should we simply just ban all international buyers? A quarter of the mortgage professionals surveyed for the Market Manuscript indicated that banning foreign buyers would help prevent a housing correction in Canada. This potential solution creates new dilemmas: In a country of immigrants, do we truly have the right to say "we were here first?" With tourism, immigration and construction being strong contributors to economic growth, do we really want to discourage potential second-home owners and future Canadians from coming here? Is it worth the potential damage to our national reputation as a welcoming nation?
More importantly: Would this solution even work?
More tepid measures to stem foreign ownership in Australia have not succeeded in slowing price growth in that market. Foreigners in Australia can purchase homes if they prove that their investment will increase housing supply, which essentially limits them to buying new homes. An outright ban of foreign buyers would likely reduce supply in Australia and Canada, where many investors like to buy pre-construction condominiums and townhouses. This decreased supply would have the opposite impact as desired, and could further drive house prices up.
Before Canadians and our government make a decision to ban, restrict or add taxes to foreign buyers, we need to consider the potential negative side-effects and consequences of such actions: less tourism, less immigration, fewer consumers, less new construction, marred reputation.
Hopefully we don't let anger prevent us from examining many of the other forces driving up house prices in Canada, and finding a solution to our mismatch of supply and demand.