Canada Prime Minister Stephen Harper vows limit on foreign home buyers if needed
Prime Minister Stephen Harper promised new measures to track foreign home ownership in Canada and even hinted at restrictions on buying, during a press conference in Canada’s most expensive housing market
Read more The party boldly predicted the country will add another 700,000 homeowners and increase the percentage of Canadian households that own their property from 70 per cent to 72.5 per cent.
But the question some critics are quick to ask is whether we actually want so many people owning their homes, with some pointing to the housing crash in the United States that happened almost a decade ago as home ownership rates there soared to all-time highs just below 70 per cent before dropping to about 63 per cent earlier this year.
“The home ownership rate has been rising and it could go higher,” said David Madani, an economist with Capital Economics. “The problem is the only real two markets that are holding up are Vancouver and Toronto. Do you want home ownership to go up in those two markets? These are the markets that are the most overvalued.”
Affordability concerns have dogged those markets and the Tories once again promised Tuesday to investigate whether foreign ownership has been fuelling the housing markets in Toronto and Vancouver where the average detached homes sell for about $1 million and $1.4 million respectively.
Related If Stephen Harper has his way, 72.5 per cent of Canadians will be homeowners by 2020 ‘Playing with fire’: How the Tories’ renovation tax credit promise may affect Canada’s hot housing markets Harper promises to introduce permanent home renovation tax credit if he is re-elected But the Conservatives say the policies they are proposing in the election are actually helping with affordability. Changes being proposed are a permanent renovation tax credit and increasing the amount Canadians can withdraw without penalty from their registered retirement savings plans from $25,000 to $35,000. Annual contributions limits to tax-free savings accounts were already bumped from $5,500 to $10,000 and some of that money is expected to go into housing.
Harper calls the Tory measures a “plan for affordable, responsible home ownership in Canada” but the latest announcement does not offer any specific new program, just a new target.
Not surprisingly, organized real estate loves everything the Conservatives have done to boost housing and believes the government can reach the goals it has set.
“We need to have strong policies in place to meet that target,” said Kevin Lee, chief executive of the Canadian Home Builders’ Association, about the goal of reaching a 72.5 per cent home ownership rate.
Lee says comparisons to the U.S. market are not valid, even as our home ownership rates soar past its highs. ‘The American situation and the way mortgages were handled and the stringency were entirely different than (Canada today.).”
THE CANADIAN PRESS/Nathan Denette THE CANADIAN PRESS/Nathan DenetteConservative Leader Stephen Harper, centre, and candidate Julian Fantino, right, look over a new home construction site while making a campaign stop in Kleinburg Ont., on Tuesday, September 29, 2015. From the CHBA point of the view, the concern should be on jobs. The Ottawa-based group estimates real estate directly and indirectly supports 90,000 jobs and contributes $125 billion annually to economic activity.
Gregory Klump, chief economist with the Canadian Real Estate Association which represents about 100 boards across the country, says the Tory targets are achievable. He adds low interest rates and income growth are probably just as big a factor as any new policy measures being proposed.
In terms of whether the proposed Tory changes could be inflationary, Klump said there really isn’t any “evidence to show current policies” have impacted Toronto and Vancouver. “There is just a shortage of single family homes in those markets,” he said.
The goal the Conservatives hope to attain almost seems to fly in the face of some of the measures Ottawa has instituted over the last four years to slow the market, the most prominent being a reduction in maximum amortization lengths from 40 to 25 years.
“There is no question that policies until now have worked to reduce the home ownership rate,” said Benjamin Tal, deputy chief economist with Canadian Imperial Bank of Commerce. “The home ownership probably would have been higher without (regulatory changes).”
Tal says there is nothing wrong with seeking a higher home ownership rate but it can’t come with increased risk to the market. “We’ve been through this game in the U.S.,” he says.