Back in 2023, the Canadian government decided to put a ban on non-Canadians buying residential property in the country. Although it was meant to last only two years, the recent extension to 2027 has people debating whether the ban is doing what it was intended to do.

Some experts and industry leaders have also called for the ban to be abolished altogether, which begs the question: Why was the ban implemented, and is it really accomplishing what the government set out to do with it?

Why the ban?

Canada’s housing affordability crisis is hard to ignore. When the ban was first implemented, officials believed that it would cool the market and make it more affordable for Canadians to purchase residential properties.

The ban's intent was positive: to reduce home prices so Canadian families could enter the real estate market. However, only 2 to 6% of residential properties were owned by foreign investors or non-residents in 2022. Domestic investors, or Canadians who owned more than one residential property, had far more of an impact, owning roughly one third of all homes in the country.

Its effects on the real estate market

It was thought that foreign investment drove up housing prices. However, because of their low level of ownership when compared to Canadian investors, it wasn’t foreign buying that led to the rising costs. Even when the foreign buyer ban came into effect, house prices dipped slightly, but there is more to the story.

Instead, lower interest rates, fewer new builds, and dual-income households carried far more weight in explaining the steep rise in home prices between 2015 and 2022. For example, between those years, the population growth almost doubled the number of new home builds.

On the flip side, foreign buying wasn’t completely faultless, as many people rushed into markets thinking that they’d better get into a home now before they’re all bought up by investors, which increased demand and home prices with it. When the demand for homes rises faster than the number of homes available, prices increase.

However, these effects were highly localized to more urban centres, such as Vancouver and Toronto, rather than Canada-wide.

Should the government get rid of the ban?

Many people who oppose the ban still see supply as the main issue behind today’s home prices. Developers of new home builds, whether they be condos, townhouses, or residential freeholds, often rely on foreign investment to get the capital to start the build in the first place. So the idea is that if the ban is lifted, foreign investment can resume, and new builds can increase supply.

Some other countries, such as Australia, offer strategic foreign buying plans that Canada could use as a template: allowing foreign investors to put their money into new builds and increase supply. After all, with more supply, prices tend to decrease.

Given that foreign home buying didn’t play a significant role in rising housing prices, and given the potential affordability downsides tied to the ban, continuing it is thought to prevent house prices from becoming more affordable than to increase the number of Canadians who can comfortably get into the real estate market.

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