Canada to Ban Foreign Homebuyers for Two Years

Canadian Primer Minister Justin Trudeau announced a two-year ban on foreign homebuyers on April 7 (Flickr).

Canadian Prime Minister Justin Trudeau announced on April 7 that certain groups of foreigners would be banned from buying houses for the next two years. The ban, which is intended to slow Canada’s rapidly rising housing prices, leaves many experts raising doubt about its effectiveness.

The ban was passed as part of Canada’s 2022 federal budget, which was approved on April 7. The budget included several other measures designed to cool down Canada’s housing market, including $4 billion ($3.18 billion USD) to support the construction of new housing and $1.5 billion ($1.2 billion USD) over two years dedicated to affordable housing units.

International students, foreign workers, and foreign citizens who are permanent residents of Canada are exempt from the ban, as well as people who are looking to purchase their primary residence.

Since the start of the COVID-19 pandemic in February 2020, housing prices rose by 50 percent in Canada. In the past year alone, housing prices have increased by nearly 20 percent and were accompanied by a rise in rent prices. Lower interest rates are partly to blame; Canada lowered interest rates to stabilize the economy in response to the pandemic, thus lowering borrowing costs and increasing demand for housing.

The number of foreigners purchasing homes in Canada has decreased in recent years, accounting for nine percent of home purchases in 2015 and just one percent of purchases in 2020. Since foreign buyers represent such a small share of Canada’s housing market, many experts predict that the ban will have minimal impact on demand for housing.

Excluding foreign buyers may reduce the price of higher-end housing, as foreign buyers tend to offer far higher bids than Canadian buyers. However, many experts agree that the ban does little for first-time and middle-income buyers. The average home price in Canada is nearly nine times the household income, representing one of the most dramatic gaps between home prices and incomes in the world. Some suggest that measures designed to increase housing supply would be more effective at driving down housing prices than a ban on foreign buyers.

Trudeau promised to address housing affordability as part of his election campaign in 2021. The housing ban and funds to support the construction of new housing included in the 2022 federal budget appear to represent steps taken by Trudeau’s government to fulfill this campaign promise. On the campaign trail, Trudeau also touted a ban of blind bidding for houses. Banning the practice of blind bidding —which favors investors over individual home buyers—would likely drive down housing prices, as it forces potential buyers to offer as much as they can.