Ottawa is expected to announce today that it will be closing a loophole on foreign buyers in an attempt to cool down Canada’s hot housing market
OTTAWA, Oct. 3, 2016 – Macdonald-Laurier Institute Munk Senior Fellow Sean Speer says Ottawa’s expected decision to close a loophole for foreign buyers is a sensible one, but it fails to address the most significant reasons for skyrocketing house prices in Canada.
Instead, says Speer, Ottawa should be doing more to reverse provincial and municipal policies that are responsible for the long-term increase in house prices.
Ottawa is expected to announce Monday plans to “close a tax loophole that allows non-residents to buy homes and later claim a tax exemption on the sales”, the Globe and Mail reported.
The Macdonald-Laurier Institute is a thought leader on addressing the housing price crisis.
Speer is the co-author, with MLI Managing Director Brian Lee Crowley, of a report that finds local decisions to restrict access to land are far more culpable than foreign buyers.
This has made less land available for development, which has contributed to fewer houses being built. Supply has thus failed to keep pace with demand, particularly in major centres like Toronto and Vancouver.
“It was not foreigners who caused the number of single-family detached homes in the Vancouver area to remain essentially unchanged for the past quarter century, or who limited detached home construction in the Toronto area in 2015 to its lowest level in 36 years”, write Crowley and Speer.
So while closing the foreign-buyer loophole will help, it will do little to address the long-term causes of today’s housing price crisis.
“It is far from a silver bullet especially given the extent to which provincial and local policies are a greater driver to the country’s housing affordability challenges”, says Speer. “More must be done to reverse provincial and local policies that are real impediments to homeownership in our major cities”.
Provincial and local governments influence the housing supply by designating where new homes can be built through land-use regulations, the cost of new homes through development fees and other levies, and the scope of renovations and additions to existing homes through building codes and city permits.
These policy levers have been overlooked in much of the political and media attention about foreign investment but their importance in understanding the dynamics of the housing market cannot be overstated.
Crowley and Speer argue in the paper that Ottawa should make itself the spokesperson and agent for the middle class on the housing file and use its spending programmes to spur provinces and municipalities to stop obstructing housing supply, which is hampering the rise of the middle class and hobbling the cities that are such important generators of economic activity.
Sean Speer is a Munk Senior Fellow at the Macdonald-Laurier Institute. He previously served in different roles for the federal government including as senior economic adviser to the Prime Minister and director of policy to the Minister of Finance.
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