Canadian Home Ban Controversy: Can London Replicate this Foreign Investor Freeze for Housing Success?
Drastic Measures
Canada has a housing problem. Soaring prices have put homes beyond the reach of the average salary earners. The solution - helping with mortgage rates, encouraging more private house building in hot spots, making public land available for housing, urging local authorities to build more public housing? No, Canada has decided to reject these tried-and-true policies. Instead, it has banned foreign investors from buying houses in the country.
This recently enacted ban has caused critics to argue that it is a mere ‘political attack’ that fails to tackle other contributing factors, such as the prolonged period of low interest rates and the inadequate housing supply. The latter can exacerbate affordability gaps and negatively impact communities. Nevertheless, the Canadian government has prioritised addressing overseas real estate investment as a solution. This move was inspired by Ontario’s experience when it introduced a tax on non-resident buyers, which led to a price drop, making a nationwide ban a viable option.
Intended to cool down the real estate market, these measures will be put in place for two years, focusing on properties above 400,000 CAD, benefiting end-users and first-time buyers. Vancouver, the most expensive city in Canada– second only to San Francisco when referring to North America as a whole, is hence an extremely competitive place to reside. It faces the Pacific, and all the Asian overseas investment that it sustains. It is very constricted by the stunning backdrop of mountains. Being geographically blocked from anything but upwards expansion complicates things. Similar price increases have been marked in Toronto, where housing is scarce and expensive. However, there are markets where you can find homes that are below the national average, including Quebec, Saint John, and Alberta.
Gauging the extremity of this new approach is still relatively unclear. But, as the wealth gap expands and the idea of affordable housing gradually becomes a thing of the past, is this eco-political policy something for other nations to consider?
Ontario to London
Take London, for instance, could Westminster learn from Canada’s bold move? Could the world’s largest exporter of financial services consider implementing similar restrictions on foreign real estate investment, and get away with it? In light of the ongoing housing crisis in London, it is essential to explore alternative, innovative solutions beyond traditional policy measures. However, the swinging city’s reputation as a safe haven for investors during economically unstable times may hinder such a move. It has long been argued that the capital spends too much time providing a means of financial shelter over human shelter. With over 42 per 1,000 homes gathering dust, London remains at the top for the highest proportion of empty houses in Britain. Whilst politicians, news reporters and other critics deplore the detrimental impact of rising prices, it seems little has been done, mild or drastic, to mend the ongoing crisis. The tax system has been scrutinized by discouraged workers and entrepreneurs, suffocating stamp duty laws, and a widening demand/supply imbalance which will take years to fix.
In contrast, Canada’s measures prioritise the needs and interests of the public and present potential blueprints for other nations to adopt. However, other directions could have been taken, such as increasing public housing or improving mortgage assistance programmes. Although Canada’s recent policy may be viewed as narrowly focused, it nonetheless sets a noteworthy example that merits serious consideration by nations, such as Britain, seeking substantive progress in regaining popular favour.
Whilst solely targeting foreign investment is not a complete or even viable solution, to what extent would these restrictions be able to boost housing affordability at any level? Foreign investment is often blamed for distorting real estate markets by inflating housing prices and subsequently overshadowing the needs of local residents. But economists emphasize that focusing on foreign investors diverts attention from the fundamental issue of supply and demand. The foreign buyer may not provide relief for average Canadians, particularly first-time buyers, as overseas investors often target luxury properties. However, referring to the price cap, how much will it aid the average first time buyer, when the average first-timebuyer in Canada spent 340,000 CAD? There is a risk that by capping overseas investment at 400,000 CAD, these investors will instead acquire a greater number of lower priced properties to amass a larger portfolio, instead of luxury homes.
Plot-holes and Loopholes
Exceptions to the ban, such as recreational properties like cottages and vacation homes, present potential loopholes. Defining a vacation home’ and ensuring exemptions aren’t exploited are concerns that must be addressed. What instantly jumps out here is the opportunity for a loophole interpretation. What exactly constitutes a ‘vacation home’? What measures can be put in place to ensure this exemption is not exploited? The housing crisis is further exacerbated by tax loopholes for second homes and the high demand for holiday properties. In the UK, Cornwall provides an example where it has been coping with worsening affordability and rapidly rising rents, as well as disgruntled locals who feel the proud identity of their coastal havens is being lost to AirBnBs.
It is reasonable to anticipate similar impacts across Canadian tourist destinations. Ontario’s foreign buyer tax may have been successful, but circumstances have changed significantly since then, including the pandemic recession, an increased interest in immigrating to Canada, and don’t forget the effects of Supreme Courts overturning of Roe v. Wade! A lot can happen in six years, and leveraging Ontario’s past success as the sole justification for such a controversial policy was always going to undermine its basis, as well as cause controversy worldwide.
Finding Middle Ground
At first glance, a viable compromise for both Countries would be to implement additional taxes and fees for overseas buyers to help promote economic growth across the country. This could reduce the reliance on overseas buyers without entirely diminishing the incentive to invest, whilst also laying the groundwork for a levy that could be dedicated to funding construction of affordable homes.
This could reduce an influx of buyers whilst not entirely diminishing the incentive to invest. The UK, an A-list attraction for foreign investment, now has a new tax system which is both perplexing and discouraging for buyers. Because of this, bespoke tax advice is now critical to evaluate financial positions. Did the Canadian government ever consider this option?
This foreign buyer ban raises more questions than answers, leaving many to wonder if it’s a necessary intervention or an aimless distraction riddled with the very loopholes critics warned about – a mere political stunt. London, on the other hand, could learn from the criticisms levied at Canada’s ban to future-proof against similar kickbacks. This could be viewed as less of an exclusionary measure and form of bias. The UK is proudly diverse and multi-cultural. A ban would block would-be residents from purchasing homes to live in. Thus, it is a delicate issue that could be weaponised to exploit people’s prejudices.
Perhaps this is the type of radical change that is needed in the UK, but governments generally make policy decisions based on a variety of factors, including economic conditions, political considerations, and a range of public opinions. It is a complex topic that shouldn’t be fully backed without thorough analysis - only by observing the impact it has on the Canadian housing market can an informed judgement be made on its efficacy.
London has retained the top spot as the most attractive city for foreign investment in Europe. The UK would not want to lose that or the revenue that comes with it. As for Canada, only time will tell whether the ban proves effective in addressing Canada’s housing crisis. We will wait and watch.
