For years, one of the main discussions among Canadian real estate experts had been the influence foreign buyers had on housing prices, particularly in a city like Vancouver. Critics warned that foreign buyers would scoop up condominiums and semi-detached homes and leave these properties empty or market the units on Airbnb. If any jurisdiction combated this trend, valuations could drop, helping to make housing more affordable. So, what happened?

Between 2014 and 2016, the number of foreign buyers in the Vancouver real estate market increased significantly. Vancouver’s natural beauty, stable political environment, and diverse culture made it an attractive place to invest in real estate, especially for wealthy individuals from countries such as China. In addition, the Canadian dollar was relatively low compared to other currencies, and interest rates were low, making real estate investments in Vancouver affordable and easy to obtain. The demand from foreign buyers drove up housing prices, making it more challenging for local residents to afford housing.

In 2016, the British Columbia government introduced a 15 per cent foreign buyers’ tax, which the province raised to 20 per cent. But now, the federal government has established a new one-per-cent speculation tax on foreign buyers if homes sit empty. The new levy from Ottawa will go into effect next year, promising that this money will go back into the housing industry. The government made it clear: “Speculative demand from foreign, non-resident investors contributes to unaffordable housing prices for many Canadians.”

Will these measures be effective in curbing unsustainable price hikes? Did previous measures improve the Vancouver real estate market for first-time homebuyers? The consensus among market observers was that it was a band-aid solution with very little effect on affordability. Even when B.C. raised the tax by a hefty amount a few years ago, benchmark prices of homes in Metro Vancouver still advanced. But some time has passed, and market conditions are vastly different; are foreign homebuyers still scooping up Vancouver real estate?

Are Foreign Buyers Still Purchasing Vancouver Real Estate?

In 2022, foreign homebuyers accounted for about one per cent of the British Columbia real estate market, down from 6.6 per cent in 2016, suggesting that the foreign buyers’ tax is positively affecting Vancouver real estate.

During the coronavirus pandemic, Ottawa imposed travel and border restrictions to curb the spread of the highly infectious respiratory illness. This substantially reduced the number of international students, limited outside investment, and discouraged foreign buyers from acquiring Canadian real estate.

North and West Vancouver have had close to zero foreign buyers. Did the vanishing act lead to lower prices? Quite the opposite: the average price of a home continues to sit around $1.2 million. It continues to be a supply-side issue for the housing industry, in addition to historically low interest rates and pent-up demand unbalancing the market. Until inventories improve, Vancouver real estate will continue to burn red-hot.

To be fair, the trend of foreign homebuyers had been declining before the COVID-19 public health crisis. According to B.C. Ministry of Housing data, foreign buyers’ representation of property purchases had fallen to around 1 per cent, down from three per cent in 2018. However, once again, as the post-coronavirus global economy returns to some semblance of normalcy, analysts say that foreign buyers could return since international demand never really disappeared.

It is unclear when Ottawa will lax restrictions at the border and resume travel and immigration. When it does, it could add further pressure on strained supplies. As investors became wealthier during the pandemic, they could afford to absorb a one-per-cent federal tax and shift their interest from British Columbia to Ontario, Quebec, or even Atlantic Canada.

Whatever the case may be, Brendon Ogmundson, the chief economist of the B.C. Real Estate Association (BCREA) believes these types of taxes only buy time rather than address the heart of the matter. The world is vastly different in 2023 than it was in 2016, so new trends could form in this day and age.

“We keep enacting these policies that buy us time, and then we don’t do anything with that time. The problem is that every time demand is on an upswing, it’s hitting a very undersupplied market,” he said, adding that a tiny sample drove public discourse.

The Effect of the New Temporary Ban on Foreign Homebuyers

Canada’s new temporary ban on foreign homebuyers, which took effect on January 1, 2023, bans most non-residents and foreign commercial enterprises from buying residential properties in Canada for the next two years. However, experts say it will likely do little to free up supply or bring down prices in B.C.

Since both British Columbia and Ontario already have foreign buyers’ taxes in place, the pool of non-resident buyers is significantly smaller than it used to be. However, the effects of the tax were mostly felt at the higher end of the housing market and have had little impact on affordability in one of Canada’s most expensive markets.

“I think this is very much a political policy, more than an economic policy,” says Ogmundson. “A lot of the public has been convinced over the last few years that it’s foreign investors and foreign money that are driving home prices, rather than what’s actually doing it: low interest rates and very low supply.”

Under the ban, non-Canadian entities, such as overseas corporations and foreign-controlled Canadian entities, will be banned from buying property in Canada. Non-residents who purchase a home in contravention of the ban, or realtors and lawyers who help them, can face a conviction and be fined up to $10,000.

Lawmakers Still Want Higher Foreign Buyers Tax

New Democratic Party leader Jagmeet Singh promised a 20-per-cent foreign home buyers tax, projecting that the revenues would be used to spend $14 billion on housing construction. It is unclear if this would complement certain jurisdictions’ penalties on outside buyers.

“Let’s massively invest in housing as a way to create jobs locally in communities and as a way to ensure people have a place to call home,” Singh said during a virtual news conference in May 2021. “We know that people are treating Canada like a stock market when it comes to housing and just plopping their money into the housing market, hoping it will continue to grow.”

But the types of homes being built are also a significant factor. “If you build 1.5 million homes and if they’re not affordable… that’s just going to lead to investors scooping up more of the supply,” says Singh.

The NDP ostensibly does not believe that the Liberals’ one per cent goes far enough. A recent study from T.D. Economics concluded that the speculative levy would be “unlikely to significantly dent current activity.”

Moving forward, the objective is clear: add fresh supply to ease sky-high prices. But is penalizing foreign buyers the way to go? Many industry observers have asserted that this is a feel-good tool that might look like it will improve the situation but will hardly achieve much of anything. Until new supply comes to the market, property prices across Canada will continue to escalate – with or without the involvement of out-of-country buyers.