Market Insight for July 31

The Liberal government has not yet confirmed whether it will extend Canada’s foreign homebuyer ban, despite internal briefing documents warning that the clock is ticking if the policy is to be renewed through the current regulatory process before it expires on January 1st, 2027.

The federal ban generally prevents foreign nationals and commercial entities from buying residential property in Canada. It was introduced as part of the government’s broader effort to address the country’s housing supply shortage.

Unless the government takes action, the ban, which came into effect in 2023, will automatically end on Jan. 1, 2027. Under the current rules, people who are neither Canadian citizens nor permanent residents are generally prohibited from buying residential property in urban areas across the country.

What the ban covers:

Target homes: The restrictions apply to residential properties containing three or fewer dwelling units, including detached homes and condo units, located within census metropolitan areas or agglomerations.

Penalties: Anyone who violates the legislation can face a fine of up to $10,000, and a court can order the property to be sold.

Exemptions: The rules do not apply to Canadian citizens, permanent residents, certain work or study permit holders, or purchases involving vacant land and multi-family buildings with more than four units.

The ban appears to have had a relatively limited measurable effect. In British Columbia, for example, foreign buyers accounted for just 1.1 per cent of home sales in 2021, while average Canadian home prices increased by more than 20 per cent during the ban period.

Rather than simply extending the existing rules, the Carney government is considering whether a different approach to foreign investment in Canadian housing would make more sense.

Housing Minister Gregor Robertson has previously indicated that the government is looking at policies in other countries, including Australia. Its system includes exemptions for certain new housing and vacant land purchases.

Under the Australian model, exemptions can include:

• investments that increase housing stock by more than 20 units;

• purchases intended for large-scale redevelopment that increase the availability of housing, including retirement villages, assisted living facilities and student accommodation;

• purchases of new builds; and

• purchases of vacant land.

The Canadian system differs from Australia’s approach. In Australia, certain exemptions generally require approval from a review board before a purchase can be completed. Canada’s legislation, by comparison, allows some categories of purchases to proceed without individual, case-by-case approval.

A briefing note obtained through the access-to-information system warns that extending or changing the ban through regulations would involve a public consultation process. That would include publishing the proposed changes in the Canada Gazette and allowing time for public feedback.

According to the briefing note, that process “typically averages 18 months.”

That could push the regulatory process beyond the current expiry date. The government could, however, pursue a legislative route instead, although the briefing note does not examine that option.

The document also points to polling suggesting the ban remains popular with Canadians. At the same time, most outside analyses have concluded that foreign buyers represented only a relatively small portion of home purchases, estimated at between two and five per cent. The briefing note also says foreign buyers have tended to concentrate their purchases in the luxury housing market.

The ban was originally scheduled to end on Jan. 1, 2025, but the federal government extended it in February 2024. Several organizations representing realtors and housing developers have pushed for the restrictions to be removed.

In a statement, Robertson’s director of communications, Jenna Ghassabeh, did not confirm whether the ban would be extended. She said the government’s priority remains increasing the supply of homes available to Canadians.

“The government of Canada is committed to ensuring that homes in Canada are first and foremost for housing Canadian families, and not speculative investments,” she said. “Our government recognizes the need for more affordable housing, and the impact that supply has on housing affordability in many parts of the country.”

Critics of the ban argue that foreign buyers were not the main factor behind rising home prices. One argument is that government charges, fees and taxes played a much larger role in pushing up prices, particularly in Canada’s most expensive housing markets.

The policy may be popular with the public, but that alone does not necessarily make it effective policy, critics argue.

Mike Moffatt, founding director of the housing think tank Missing Middle Initiative, said Canada could learn from Australia’s approach because it allows foreign investment to help fund the construction of additional housing.

He said the goal of the Canadian ban was largely to prevent foreign capital from coming into the country and purchasing existing homes. However, he noted that the situation is different when overseas investors are providing capital that helps create new housing.

Moffatt said the ban likely provided a small boost to housing affordability but stressed that it was introduced under very different market conditions from those facing Canada today.

Since taking office, Prime Minister Mark Carney’s government has taken a more pragmatic position on foreign investment. Robertson has suggested that offshore capital could help address some of the gaps in Canada’s housing market, while the federal government has also indicated it is considering changes to the tax system aimed at attracting significant foreign investment.