Extension of foreign buyer ban won’t solve affordability woes

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Benjamin Tal says the move is “sensible” but foreign buyers don't play a big enough role in the real estate market to make a big impact

Published on February 6th, 2024 • Last updated on February 6th, 2024 • 2 minutes reading time

Homes under construction in Toronto. Photo by James MacDonald/Bloomberg Files

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Ottawa's decision to extend a ban on foreign homebuyers for another two years is a sensible move, but it won't do much to address the country's housing crisis because such buyers aren't a major factor to begin with, a leading banking economist says.

The plan to extend the ban, which came into force on January 1, 2023 and was due to expire on January 1, 2025, was announced on Sunday by Deputy Prime Minister Chrystia Freeland. The ban will now expire on January 1, 2027.

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Benjamin Tal, deputy chief economist at CIBC World Markets Inc., said that while the ban was “sensible policy” and “a step in the right direction,” he did not consider it a major macroeconomic step.

“I'm not surprised at all that they extended it,” Tal said, noting that foreign buyers are an easy target for a government that wants to show it is taking action on housing.

Mortgage strategist Robert McLister said the ban on foreign buyers was “like a magician's handkerchief” that diverted attention from the real problem, which is that there are too many immigrants relative to the number of homes built.

McLister, who writes a column for the Financial Post, said a large proportion of foreign buyers buy high-value properties and a ban on these people could cause them to miss out on tax opportunities and jeopardize the wealth of wealthier Canadians who benefit from price increases. is diminished at the upper end of the real estate spectrum.

Under the ban, foreign commercial entities and persons who are not Canadian citizens or permanent residents of Canada are prohibited from directly or indirectly purchasing residential property in Canada.

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“For years, foreign money has flowed into Canada to buy up residential properties, heightening concerns about housing affordability in cities across the country and particularly in large urban centres,” Freeland said in a news release announcing the extension. “By extending the foreign buyer ban, we are ensuring that homes are used as places to live for Canadian families and do not become a speculative financial asset class.”