“Houses should not be passive investment vehicles for offshore money. They should be homes for Canadian families,” said Finance Minister Chrystia Freeland in her budget address yesterday.
“So, on January 1st, 2022, our government will introduce Canada's first national tax on vacant property owned by non-resident, non-Canadians.”
The announcement follows through on a pledge in December 2020, when the federal government also announced a boost to the first-time home buyers incentive in its economic fiscal update.
SFU assistant professor Josh Gordon is noted for his research into the effects of foreign money on Canadian real estate. He says the tax is too narrowly targeted to have much effect on housing affordability.
“The impact of foreign ownership is much broader than foreign, non-resident owners leaving units empty,” said Gordon.
“Instead, they should have introduced something that is targeted on the main urban centres and ensures that those using substantial foreign income or wealth to buy property are forced to pay their fair share in taxes, regardless of whether units are vacant or not, since those buyers typically won't be paying much in income taxes.”
Competing with foreign buyers
Deep-pocketed foreign buyers can bid up prices and make it harder to get a foot in the housing market. Gordon says the 1 per cent tax won’t be enough of a deterrent.
“The idea, ultimately, is to put working, tax-paying households on a level playing field with those using substantial foreign money. This tax will not do that, even if it's a very modest step in the right direction.”
Toronto already has a 15 per cent foreign buyers tax, and Vancouver raised its levy to 20 per cent. Gordon says a national tax doesn’t make sense everywhere, so which communities will be exempt and how it will be administered will be something to keep an eye on.
“Arguably there are many communities in Canada where this tax will not be appropriate, and policy-makers will need to be alert to that. I foresee significant challenges in implementation,” said Gordon.
The Toronto Regional Real Estate Board (TRREB) says it will keep an eye on the situation.
“TRREB is watching this issue closely to determine what the actual impact of foreign investment in the real estate market is and if this tax is an effective measure to assist with supply,” said TRREB president Lisa Patel in a statement.
“We look forward to providing input to parliament on this and other issues.”
Money for affordable housing
The budget also includes $2.5 billion more for Canada Housing and Mortgage Corporation (CMHC) and reallocates $1.3 billion to “speed up the construction, repair, or support of 35,000 affordable housing units.”
“TRREB is encouraged that the federal government made housing issues a priority in the budget it announced today. Home ownership and healthy real estate markets continue to be a key to the economic success of Canada and Canadians,” said Patel.
Paul Kershaw, UBC professor and founder of an advocacy group for young Canadians, Generation Squeeze, says the measures announced in the budget don’t go far enough.
“The budget does relatively little to reduce wealth inequalities that are emerging between older and younger generations as a result of the ongoing rise in home prices, which have skyrocketed once again during the pandemic," said Kershaw.
Jessy Bains is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jessysbains.