In Canada, housing is generally unaffordable. Most Canadians searching for rental housing or looking to become first-time homeowners will attest to this fact, and it is supported by the data. The home price to income ratio and rent price to income ratio demonstrate that both purchasing and renting homes in Canada is unaffordable compared to the housing costs of most similarly-developed countries.  

As housing costs have continued to rise, demands for the Federal Government to take action to combat unaffordability have become louder and more numerous. On January 01, 2023, the Prohibition on the Purchase of Residential Property by Non-Canadians Act went into effect. The ban will be in place for two years, unless it is extended further.

The federal legislation bars anyone who is not a citizen or permanent resident from purchasing existing residential real estate within Canada. The ban extends to companies that are not incorporated in Canada, companies not listed on a Canadian stock exchange, as well as those that are not controlled by a Canadian citizen or permanent resident. The legislation makes various conditional exceptions for groups including refugees, international students, diplomats and members of international organizations, non-Canadians who are married to Canadians, as well as non-Canadians working in Canada. Those who violate the ban, as well as those that aid or abet a violation can be fined up to $10,000 under the act. The objective of the legislation is to lessen the extremely high cost of homeownership and housing. 

This is not the first measure implemented to lessen foreign demand for residential real estate in Canada. In some provinces, policy-makers have sought to address the housing crisis by levying a significant tax on top of the standard land transfer tax for foreign buyers. For instance, Ontario’s Non-Resident Speculation Tax was increased to 25% in 2022. B.C. has implemented a 20% tax on foreign purchasers of real estate, however it is only applicable to properties located in certain regions of the province. 

While it is appealing to attempt to simplify the housing crisis in Canada as the result of foreign investors pricing Canadians out of housing, the data suggests the problem is more complicated. According to Statistics Canada, the percentage of residential properties owned by non-Canadians varies by province, but generally falls between the range of 2% and 6%. While these are not insignificant figures, it is evident that foreign buyers only represent a fraction of the overall demand for Canadian real estate. Therefore, the ban will be most impactful in regions where foreign demand for real estate is most concentrated, and will most likely have a limited effect on the overall housing market. 

The federal ban is described on the Liberal Party website as a “temporary measure to help stabilize the housing market coming out of COVID-19.” The housing crisis predated the Pandemic, thus it is unlikely that housing will become affordable as the economy recovers post-pandemic. For the foreign buyer ban to have any meaningful impact on the housing market, it will likely have to be in place for longer than the planned two year term, to ensure that foreign ownership remains at its current levels. There is no reason to believe that real estate in Canada will cease to be an attractive asset to foreign purchasers by 2025. If the ban is lifted as planned in 2025, demand will recover and the long-term effect of the policy will be negligible.

The unaffordability of housing in Canada is driven in large part by the shortage of housing. This shortage was exacerbated by the Pandemic, which slowed construction projects due to public health measures, staffing issues and supply chain disruptions. To increase the supply of housing, Canadian municipalities could consider changing zoning regulations to ensure they are favourable to high-density housing projects such as townhomes and condos.

Housing unaffordability is also driven by speculative purchases of real estate by domestic investors. To lessen the pressure of these investors on the housing market, the Land Transfer Tax could be increased, to discourage large investors from engaging in frequent speculative purchases of housing. The Federal Liberals have committed to “undertake a review of the tax treatment of large corporate owners of residential properties such as Real Estate Investment Trusts (REITs) who are increasingly trying to amass large portfolios of Canadian rental housing, putting upward pressure on rents.” Reforming the tax code in this area will certainly be far more complex than implementing an outright ban on the purchase of real estate by non-Canadians. However, a reformed tax code in this area will have a more lasting and wide-reaching impact on housing affordability in Canada. 

As is the case with so many policy challenges, the Canadian housing crisis is a complex problem that will require nuanced solutions. The ban on foreign buyers will have a limited impact on housing affordability in the short-run, but is nonetheless a worthwhile first step in addressing the housing crisis in Canada, as long as it is followed by other policy measures in the near future.