It’s no secret house prices are soaring in Toronto and Vancouver. We hear about it every day. I blog about it all the time. At last count, a single-family detached house in Vancouver averaged $2.23-million, and in Toronto, the average is $1.05-million.
There have been a number of culprits blamed for the rapidly inflating prices. Rock-bottom mortgage rates might have encouraged buyers who otherwise couldn’t afford a house to jump into the market. Limited land availability, especially in Vancouver, is keeping supply low. And investment from overseas, it’s alleged, is increasing competition for buyers.
But is foreign investment in Canada’s real estate market actually a bad thing?
That’s the debate that’s been heating up this summer (although it’s been going on for much longer than that), and it’s caused a lot of tension in certain markets. In June, a survey by Angus Reid showed almost two-thirds of Vancouverites believed high house prices were being caused by foreign investment. Shortly after, activists held a rally in downtown Vancouver demanding the government collect more data on the subject.
Since then, the media has posted varying estimates of the actual numbers of foreign-owned properties in Vancouver. More recently, the issue came up in the federal election campaign as Conservative Party leader Stephen Harper pledged to invest in researching the impact of foreign ownership on housing affordability in Canada. The other party leaders haven’t gone as far as to make any specific promises on the subject, but it’s a sure enough sign that it’s an important issue for Canadians.
While Harper claimed that 15% of downtown condos are vacant, the Canada Mortgage and Housing Corporation (CMHC) has said the rate of foreign ownership is less than 2.5%. Others have claimed that the highest rates of foreign ownership are in luxury properties and that foreign investment probably hasn’t impacted the kinds of homes average Canadians are buying.
Some have also made the claim that foreign investment in Canadian real estate is good for the economy. In areas that rely heavily on tourism, for example, foreigners who are wealthy enough to purchase property and visit frequently have significant impact on local economies.
In Montreal, realtors expressed their concern that putting limits on foreign ownership could hurt the housing market there. New rules aimed at cooling things off Vancouver, where house prices are up 8.9% since last year, could be detrimental to Montreal, where prices have only increased 0.7% in the same time frame. Nobody actually knows whether foreign investment is propping up that market, but it would appear the real estate market there can’t afford any disruptions.
And in Toronto, the argument can be made that international property investors have created rental opportunities that might not otherwise be available. In the last 10 years, just over 6,700 purpose-built rental units were constructed in the Toronto area. According to Urbanation, there were almost 6,300 new condominium apartments sold in the GTA in Q2 of 2015 alone. Considering that math, having an abundance of non-owner occupied properties would be a boon to renters.
Foreign ownership is obviously not without its downfalls. If it’s as prevalent as some are claiming, it’s driving up home prices to the point that some Canadians can’t afford to buy a home. If a financial crisis led a large number of foreign-based property owners to sell at the same time, prices could come crashing down. If a high percentage of homeowners suddenly owed more on their homes than they’re worth, it could have serious implications for the Canadian economy.
With the price of oil hurting our exports and the Canadian dollar, real estate is one of the bright spots in our economy. And while we don’t have all the research we need to know what kind of impact foreign investment is having on the market, it’s part of a delicate balance that needs to be managed carefully. Having proper statistics would be a good start, but let’s not forget that there are positives to having outside investment in our properties.
What do you think about foreign investment in Canadian real estate? Let us know in the comments!