New Zealand announced this week that it would ban foreigners from buying existing homes, in a rather draconian move that aims to tame rapidly rising home prices across the country.
Like Canada, the Asia-Pacific nation has become a popular destination for foreigners to park their money, in the form of property. In Auckland, New Zealand’s biggest city, average house prices have hit the $1 million mark, essentially pricing most of the country’s population out of its urban-most housing market.
The government of New Zealand did in fact impose a tax on foreign buyers, similar to the one instituted by both Ontario and British Columbia, but that didn’t seem to have a lasting effect on calming home prices.
A comparable pattern is playing out in Vancouver — the foreign buyers tax that was imposed last August cooled the housing market for about six to eight months, before prices started climbing again. Toronto is roughly seven months into this identical tax experiment. The market has yet to heat back up, but if it does, that may beg the question: should Canada completely ban foreigners from purchasing existing property?
“I think most Canadians would actually be in favour of a rule like this, but it is a big mistake because foreign buying is relatively insignificant, and not the real reason why prices were going up so rapidly,” says Rob McLister, founder of mortgage rate comparison website RateSpy.com.
The most recent data from Ontario’s Ministry of Finance indicates that foreign buyers contributed to 7.1 percent of purchases in the City of Toronto proper, and 4.7 percent in the Greater Toronto Area, indicating how small a role international investors actually play in Toronto’s housing market.
“People think it is a problem that it is not. Banning foreign buyers will trigger more of a correction than many people actually want,” McLister says. He also points out that almost 68 percent of Canadians own homes, and an unnecessary intervention in the market would mean that the government would directly be harming Canadians’ biggest asset: property.
But BMO’s Deputy Chief Economist Douglas Porter does not view New Zealand’s new housing rule as particularly radical. “There are actually countries out there than ban foreign investors on existing homes. I don’t know where I would land on the debate at this point, but it is an actual tool in some governments to address overheated housing markets.”
In Australia for instance, non-resident investors are barred from buying resale homes, unless they plan on occupying them full-time. In Singapore, there are heavy restrictions on real estate purchases by foreigners — they are allowed to buy condominium units, but not houses, and not apartments or houses built by Singapore’s Housing Development Board, which are restricted exclusively to local Singaporeans.
Porter argues that the issue of an overheated housing market is only really a problem in a couple of Canadian cities — Toronto, Vancouver, and perhaps Montreal. “It’s not a ban that can be imposed nation-wide because there are actually many parts of the country where home prices are depressed — they would probably welcome foreign investors with open arms.”
The most recent data from the B.C. government does, however, show that the number of foreign buyers in Vancouver are slowing on the rise again. Foreign buyers made up five percent of homes bought in the Greater Vancouver Area in September, the highest they have been since August 2016, when the 15 percent foreign buyers tax was imposed. Last September, they were between three and four percent.
When contacted by VICE Money on this very subject, a spokesperson of B.C.’s Ministry of Finance ruled out a ban on foreign ownership of homes. She did, however, indicate that her department would be “reviewing the tax system and evaluating existing and proposed housing tax measures.”
“If policymakers determine that the current 15 percent tax is not helping deter foreign buyers, then perhaps they could consider increasing the tax rate,” says Porter.
But McLister believes that any kind of additional government intervention targeting foreign buyers is severely misguided. “Banning foreign buyers… that’s like an artificial economic blockade,” he says. “The economic impact of giving out the message that foreigners are not welcome here will be huge.”