So much has been made of how efforts to address the housing crisis and purchase / rental unaffordability have been hampered by economic factors that are hard to counter and have been constricting the effectiveness of efforts to increase housing supply. Anyone who’s been keeping tabs of the discussions around how to remedy the situation will undoubtedly have heard the suggestion that restrictions need to be put on foreign investment and ownership.
What you’ll find among those who work in the industry is that while there’s some receptiveness to the idea of limiting foreign ownership, you’re not going to find any person who has real insight into the market and how it has the ability to work that will be advocating for cutting out foreign investment. Quite simply, the cost of facilitating real estate development here in North America is beyond the capacities of domestic investment engines, and there’s really no disputing that.
And it’s interesting to note that many realtors who’ve been in the business for a long time will tell you that embracing this investment source did a great deal of good over previous decades when it came to increasing the supply and variety of both residential and commercial real estate in Canada. Add to this we should not look past the fact that an unhealthily large part of Canada’s GDP is in real estate, and even newer realtors will know that. Realtors who struggle to build up their clientele base are encouraged to use our online real estate lead generation system here at Real Estate Leads.
But turning back onto track with our topic here, we are in line with this way of thinking regarding being more open to foreign investment in Canadian real estate, and here’s why.
Much Needed
Over the last two decades, housing costs have been eating up a progressively larger percentage of HHIs – household incomes. In 2000, home ownership costs made up 36.6% of median Canadian HHI. By 2016 this had gone up to 41%, and by Fall 2022 it had climbed to more than 60%. The average unit price of housing in Canada increased more than 100 per cent in the last decade, from $365,700 to over $760,000. And rentals are of course caught up in the conflagration too – The Canadian Mortgage and Housing Corporation says that the national rental vacancy rate at the end of 2022 was 1.9% , its lowest point since 2001.
All of this is occurring at a time when Canada has it’s highest levels of population growth via immigration ever seen. The house of cards does need to be propped up at all costs, but unfortunately this is one heck of a cost to be absorbing. But we’re absorbing it with a ramifications be dared approach, and so off we go. The way this is pushing housing prices up meteorically given the severe shortage of supply given demand is causing the government to approve various laws and regulations aimed at controlling the price of housing.
British Columbia’s 20%foreign buyer tax and the federal government’s 2023 nationwide foreign buyer ban are examples. But both had absolutely zero effectiveness in making housing more affordable.
Growth Outpacing Stock
A Coldwell Banker real estate study had indicated how over the last 60 years, population growth consistently outpaced the growth in the housing stock. It is estimated that Canada will require 22 million housing units by 2030,, but we’re currently on track to have a shortfall of some 3.45 million units nationally.
But banning or taxing foreign buyers extensively will most likely actually exacerbate the underlying housing shortage. The belief that it will leave more units available for local buyers has no basis in any type of reality and is really just wishful leftist thinking. How these new housing starts are financed has everything to do with how well they can be financed, and plain and simple we’re not capable of it on our own.
In order to obtain construction financing for condo and townhome projects, developers must establish a volume of pre-sales that lines up with the construction loan required. Regulations that artificially reduce the size of the potential pre-sale and investment market are entirely detrimental and can make it more difficult for projects to achieve financing. We don’t need to explain the ramifications of that.
These constraints absolutely do hurt would-be homebuyers down the line, and not only for homeownership but also for the rental market. Total rental housing stock in condos and other forms of multi-family dwelling accommodations constitute 19% nationally. Lessening the supply of condos worsens the shortage of rental accommodation, and we’re not going to be financing the development of them if we’re doing so entirely with domestic investment.
This is the simple fact of the matter, and it is the long and short of why curtailing foreign investment in real estate development is not a good idea. The most pressing matter for government should taking the business imperatives of housing developers and pairing them with a regulatory framework that promotes increased volume and velocity in the supply of housing. Foreign investment is needed for that.__
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