Welcome to my blog on housing, culture, and design in Toronto, Ontario, Canada. Today I want to make some observations about the role of government policy in their efforts to influence the dynamics of the housing market or, perhaps better put, to influence the perceptions of Canadians on the effectiveness of government policy, particularly with respect to Foreign Buyers of Canadian Housing.
I don’t know if you agree, but it seems a villain is often being cast as the culprit for why Canadian housing prices continue to skyrocket. We’ve seen the media attacks on a variety of different groups. Here they are in no specific order –> flippers, speculators, realtors, the Bank of Mom and Dad, Airbnb and other shelter platforms, REITS and pension funds, investors, and foreign buyers.
Curb Demand Or Increase Supply?
Despite federal, provincial, and municipal governments implementing several measures for over a decade in an effort to cool our scorching housing market, the majority have been focused on the ‘demand side’ of the equation with much fewer efforts addressing the ‘supply side’. And the results? Government policies are not significantly resolving the Canadian housing crisis. More specifically, the 2017 National Housing Strategy (the federal government pledged to spend $70 billion over the next decade led by the Canada Mortgage and Housing Corporation) and the 2019 government legislation for ‘housing as a human right’ created under the National Housing Strategy Act, have not improved affordability. Nor has it demonstrated Canada’s ability to fast-track the housing (and water) we require for Indigenous, Aboriginal, First Nation, Inuit, & Métis peoples who have existed here longer than Canada, our own marginalized citizens, in addition to the immigrants we welcome, want, and need. It is a poor reflection on Canada to have such an inadequate amount of shelter in a real estate economy that has created tremendous wealth for the privileged and capitalism.
Are Foreign Buyers Scapegoats?
As long as a decade ago I was being interviewed about the rising cost of Toronto real estate in articles touting headlines like Foreign Investment Pushes Canadian Prices Up!. Although initially, who was considered a ‘foreign buyer’ was likely misunderstood both by definition and the many shades of xenophobia, starting in 2016 the province of British Columbia implemented a 15% tax for non-residents (meaning neither a Canadian citizen nor a permanent resident) purchasing a residential property located in Metro Vancouver. Two years later, the tax was increased to 20% for residences within a larger geography that includes the Fraser Valley, Capital, Nanaimo, and the Central Okanagan Regional Districts.
In 2017, the province of Ontario followed BC, imposing a 15% tax for properties located in the Greater Golden Horseshoe area that surrounds the Greater Toronto Area from Niagara to Peterborough. Two days ago, despite the data showing that only 3.8 percent of properties in the City of Toronto are foreign-owned, which is the highest percentage of foreign buyers across the province, the Globe & Mail reported that the provincial Conservative government is intending to increase the tax to 20% of the purchase price and make it applicable to all properties in Ontario. Here is that article, “Ontario To Raise Tax On Foreign Homebuyers Amid Inaction From Federal Liberals“. **Addendum – in October 2022 the provincial goverment increased the Non Resident Speculation Tax to 25% of the purchase price.**
Despite the statistics indicating foreign home buyers are what we realtors call a ‘niche market’, they remain targeted as one of the many property players having a tremendous impact on housing affordability in Canada. So much so that curbing the demand of foreign buyers became a central part of many of the party platforms during the recent Federal election campaign. Affordable housing was, and is, a major hot-button issue for voters, prompting the parties to deliver political promises to encourage supply and temper demand. The consensus, fueled by media sound bites, is that foreign buyers are paying precedent-setting sums for properties that exceed the financial abilities of most Canadians and, to add salt to our wounds, subsequently leave them vacant for extended periods of time, pushing up property values while depleting the pool of housing available for rent or purchase.
Here are my posts on the major parties’ platforms regarding housing in the last election –> What Toronto Real Estate Buyers & Sellers Should Watch For In The 2021 Federal Election and Affordable Housing Remains At The Forefront Of Federal Election Campaigns.
The Federal Government Knows The Foreign Buyer’s Tax Is Ineffective
Although the Liberal government campaigned on a promise to ban foreign ownership for two years across the country and extend the 15 percent Foreign Buyer’s Tax to also include vacant land (while excluding commercial real estate), no policy has ever been introduced. Why? I suspect it’s because the powers that be know it won’t translate into making real estate more affordable for Canadians across the country – just as it hasn’t for those regions in BC and Ontario that currently have a Foreign Buyer’s Tax – as long as Canada’s pro-immigration program has the built-in loophole that allows international investors and their children to bypass the tax if the person attends a Canadian university as an expression of interest in possibly immigrating here.
A Loophole By The Federal Government Is In The Existing Provincial Policies
The Foreign Buyers Tax in Ontario (known officially as the Non‑Resident Speculation Tax or NRST) as defined by the provincial government is (as of October 2022) “a 25 percent tax on the purchase or acquisition of an interest in residential property located in the Greater Golden Horseshoe Region (GGH) by individuals who are not citizens or permanent residents of Canada or by foreign corporations (foreign entities) and taxable trustees.”
Who must pay the tax? In addition to foreign nationals, foreign corporations are responsible for paying the NRST (more on this in my post, The Growing Trend Of Financial Landlords In Toronto Real Estate) and taxable trustees as well (a trust in which at least one trustee who is a foreign entity). When you add that 25 percent to the purchase price for the tax, then pile the other municipal and provincial taxes on top, you’re left with a significant sum – especially considering the lofty prices already in place in Toronto. These are good resources from FiveWalls and Buttonwood: “Foreign Buyer’s Tax in Canada” and “All You Need to Know About the Toronto Foreign Buyer Tax“.
Who doesn’t have to pay the tax? There are, of course, exemptions to the tax, like for spouses (if the foreign buyer is married to a permanent resident and they will both occupy it as their primary residence), refugees (if the purchaser is a foreign national on whom refugee protection is conferred), etc.
There are tax rebates? Who gets the rebates? In addition to the exemptions, rebates are also awarded to certain individuals. The most notable point in my research is that if the foreign property purchaser is enrolled in full-time studies at a Canadian post-secondary institution for two years at the time of the transaction, they receive a full rebate of the tax. With interest! Additionally, rebates are given if the foreign national pays the tax and then becomes a permanent resident or citizen within 4 years, or if a foreign national works legally in Ontario full-time for at least one year immediately following the transaction.
The Role Of International Study At Canadian Post-Secondary Institutions
International study is a brisk business in Canada, with education being sold as the first rung on a ladder towards residency and citizenship with flexible permits that lets a student stay in Canada and naturally move towards applying for permanent residency.
This fascinating article from The Walrus – “The Shadowy Business of International Education” – explores how this is happening in India, where students are being aggressively recruited to study abroad. According to this article, Canada is the third most popular country for foreign students, after the US and Australia. We are a coveted destination for education and, thankfully, for staying and using the learned skills to enrich the domestic workforce here.
International study is big business. The Federal Department of International education says that foreign students bring over a whopping $21 Billion to the Canadian economy each year. That’s more than lumber. They also support 170,000 jobs for the middle class. In Ontario, international students account for a whopping 68 per cent of college tuition, according to this Globe and Mail article, “Bulk Of College Tuition In Ontario Comes From International Students, Auditor-General Says“. That’s staggering and significant on a number of economic levels.
And this explosive growth of international study hasn’t happened by luck. This industry of student recruitment has been actively constructed with government policy. The issue here of course is that you’ve got a federal policy to boost immigration, but also provincial policies like a foreign buyer tax that penalizes the same group. And herein lies the rub: the duplicity in messaging from the government. On one hand, they implement policies that promote how they are aggressively cracking down on foreign ownership as a means to ensure affordability, while inserting loopholes that won’t jeopardize the big business generated by International Students and their families.
Politics has made the Foreign Buyer’s Tax a significant platform pandering to the public to garner votes under the appearance of trying to cool the market while retaining a very clear mandate to allow foreign ownership to continue when foreign buyers can get a tax rebate (paid with interest, in fact) if they are a student. Or, more specifically, a wealthy foreigner can buy a dwelling and register its ownership in the name of their child to occupy while they attend a post-secondary institution in Canada to bypass the tax. Why? Because statistics show that Canadian Housing has historically increased in value for over two decades, which makes it an intelligent investment that can offset or eliminate the expenses of living abroad when sold.
However, I also want to point out that despite the issues associated with implementing any Foreign Buyers Tax, it has drawn attention to the need for greater transparency across the country (not just BC) in terms of who is buying what and where.
Well-Known Workarounds Pose New Issues
Sadly, exemptions often create loopholes – and the loopholes around this tax are significant, as the title of this article so aptly expresses: “Douglas Todd: Vancouver Realtor’s Advice On ‘How To Avoid Foreign-Buyers Tax’ Points To Larger Problem“.
With the existence of “experts” on how to guide buyers around this tax, how effective – or fair – can it really be? This type of exploitation is fuelled by the fact that it’s well-known how difficult it has been to track foreign ownership in this country, and consequently the opportunity for fraud and money laundering in addition to exacerbating the supply problem.
In BC, for example, you can avoid the tax by buying a commercial property, or by buying a property outside of the metro Vancouver area. And posts like this one, which lays out investing strategies for foreigners in Canada, are rampant: “Canada: A New Frontier For Real Estate Investors“.
Other Influences Contributing To Unaffordability
It seems convenient for the government to lay the blame on foreign ownership for the hot housing market and lack of supply, but there are a number of other factors that contribute heavily to housing unaffordability that weren’t part of the election campaign, particularly as the issues that came to light when implementing a Foreign Buyers Tax drew attention to the need for greater transparency across the country (not just BC) in terms of who is buying what and where.
For example, the ability to purchase in relative anonymity – like with numbered companies and/or trust funds – can support the practice of shadow flipping which is when a property is purchased from a developer and sold to another buyer(s) before the dwelling is completed and the ownership is registered on Land Titles.
Furthermore, housing has increasingly become financialized by corporate landlords. Pensions funds and REITs are a much bigger threat to the Canadian family because they have deeper pockets, larger portfolios, and the benefit of an extended timeline to turn a profit. It’s unlikely real estate has ever been a level fair playing field for all interest groups, but capitalism today trumps shelter as a right, and continues to rein as Canadian shelter becomes hostage to The Growing Trend Of Financial Landlords In Toronto Real Estate.
What About Canadian Snowbirds?
This article from BNN, “How A Foreign Homebuyer Ban In Canada Could Backfire“, which was released prior to the election, brings forth an interesting perspective. What if other countries responded in kind with the erroneous targeting of foreign buyers – namely, Canadians who own properties in the US? Given this CBC article reminds us that Hundreds Of Thousands Of Snowbirds Are Expected To Flock South After Spending Last Winter Hibernating, Canadians represent the largest proportion of foreign owners in the US. What would happen if the U.S. starting tacking on hefty foreign ownership taxes? When you add that extra cost, along with currency fluctuations that work against the Canadian dollar, there could be significant fallout. That may or may not happen, of course, but it adds interesting context to the argument.
This article also brings forth another good point. It’s not necessarily where a buyer hails from, but what the intent for use of the property is. If a dwelling is purchased and then enters the rental pool versus bought and left vacant it has very different impacts on the market. And, of course, that impact is highly dependent on where the property is located and how much need there is for accommodations. But what it doesn’t address is what impact does it have on the local population if the buying pool has access to more capital and can therefore displace the resident population? This is the crux of what any Foreign Buyer Tax represents, as Canada and other developed nations have to focus attention on controlling the amount and flow of capital into their shelter markets from global interests by policy intervention (all other property markets are open for business, incidentally) that, as a byproduct, shifts solving the housing crisis to managing it more passively and indirectly through policy.
In a forthcoming blog, I’m going to explore, how over the past 50 years the Canadian government has changed its position as the country’s leader in actively creating much-needed shelter for its citizens that – over a span of 5 decades – removed itself as the largest direct participant in building affordable housing to instead replace it with a focus on policy intervention to regulate the broader free property market. Unfortunately, governments don’t build much housing anymore. Instead, they dictate and regulate how new and existing shelter is used and by whom. I’m only observing this. It’s just the way it is at this moment in time. And I’m intrigued (and a little concerned) on what direction government and the free market will veer on the path ahead!
*ADDENDUM* April 2023 – A few weeks ago, Finance Minister Chrystia Freeland tabled a new federal budget that was accompanied by an announcement of amendments to the Prohibition on the Purchase of Residential Property by Non-Canadians Act. According to a statement by CREA, they can be broken down as follows:
The announced amendments include:
- Enable more work permit holders to purchase a home to live in while working in Canada.
Amending the exception for temporary workers to enable work permit holders with 183 days or more of validity remaining on their work permit or work authorization to purchase a residential property.
- Repealing existing provision so the prohibition doesn’t apply to vacant land.
Repealing the vacant land provision from the definition of residential property so that the prohibition does not apply to the purchase of vacant land zoned for residential and mixed use.
- Exception for development purposes.
This exception allows non-Canadians to purchase residential property for the purpose of development. The amendments also extend the exception currently applicable to publicly traded corporations under the Act, to publicly traded entities formed under the laws of Canada or a province and controlled by a non-Canadian.
- Increasing the corporation foreign control threshold from 3% to 10%.
Increasing the control threshold from 3% to 10% so that any corporation or entity with 10% or more direct or indirect ownership of shares or ownership interests by a non-Canadian is subject to the prohibition.
For a complete look at the full budget in document form – including new Canadian Housing Measures – follow this link: Budget 2023.
Here are some additional posts related to the Canadian Housing Crisis:
–> The Growing Trend Of Financial Landlords In Toronto Real Estate
–> The Role Of Fiscal Stimulus During COVID-19 And Toronto Real Estate
–> The Affordability Conundrum For Toronto House Buyers: Location, Condition & Costs
–> Dear Urbaneer: Why Are There Bidding Wars For Toronto Real Estate During The COVID-19 Pandemic?
–> Dear Urbaneer: So Why Are There New Airbnb Regulations For Toronto?
–> ‘PUSH’: A Documentary On Rising Real Estate Prices
–> The Other Side Of Rent Control And Toronto Real Estate
–> Why Does Homeownership Remain A Priority For Canadians, Despite The High Costs?
–> With 65,000 Vacant Units, Will A Vacancy Tax Be Helpful To Toronto Real Estate?
–> 7 Reasons Why Toronto Real Estate Prices Have Skyrocketed Over The Past Decade (posted in 2017)
–> Foreign Buyers, Property Prices, And Toronto Real Estate
–> Foreign Buyers, Inadequate Policy, And Canadian Real Estate
–> Reverence For The University Of Toronto: An Important Canadian Institution
Buying or selling a home in a swiftly moving market required data-driven strategy distilled from years of experience in the real estate trenches. With decades of real-time real estate under my belt, along with a dedication to market research and studying trends, my team and I are here to help!
My team and I are here to help!
With decades of experience navigating the ever-changing Toronto real estate market, a commitment to promote the sale of properties like yours with interesting and relevant information, and the ability to guide Buyers with credible insights and well-informed guidance, we are here to help without pressure or hassle.
Thanks for reading!
-The Urbaneer Team
Steven Fudge, Sales Representative
& The Innovative Urbaneer Team
Bosley Real Estate Ltd., Brokerage – (416) 322-8000
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*Love Canadian Housing? Check out Steve’s University Student Mentorship site called Houseporn.ca which focuses on architecture, landscape, design, products and real estate in Canada.