B.C. housing stakeholders concerned about affordability and supply are engaged in renewed debate over foreign capital in Canadian real estate amid an industry slowdown.
The question of whether to allow overseas investors to buy Canadian homes is dividing industry, government and academia, and there is little agreement on whether to scrap the national foreign buyer ban or B.C.’s foreign buyer tax.
The foreign buyer ban, formally the Prohibition on the Purchase of Residential Property by Non-Canadians Act, has been in force since 2023, while in B.C., additional property transfer taxes have been levied on some foreign entities since 2016.
Recent letters sent by B.C. stakeholders to government leaders have reignited debate.
“We’re not going back to the old model of doing things,” B.C. Premier David Eby said in a July 30 press conference, when asked about one letter.
“Real estate prices became completely detached from what people were actually able to earn in British Columbia, meaning young people were priced out of the housing market.”
Others believe international investment could alleviate the current industry slowdown, with stalled projects, insolvencies, receiverships and layoffs reportedly on the rise.
“I think the net benefit will be better than what the fearmongers are saying, that it’s going to cause unaffordability. It’s already unaffordable,” said Mark Goodman, principal of Goodman Commercial Inc.
“We need supply. In order to get supply, we need money. In order to get money, let it come from a different country and they can rent out the suites and we’ll go back to some type of equilibrium.”
Amid the back and forth, some experts say middle ground may exist.
“A more nuanced approach to analyzing the benefits of encouraging some form of non-domestic real estate investment” is needed, said Rick Ilich, CEO of Townline Homes Inc., in a statement.
Ilich said unrestricted access by foreign investors was a contributing factor to skyrocketing home prices, but that the foreign buyer ban “has swung the pendulum too far” in the other direction.
Foreign capital could be a boon for rental housing, he said.
“We propose allowing foreign buyers back into the market but under regulated conditions that require their units be rented out through a professionally managed rental program for the first five years of ownership or the first five years after project completion,” Ilich said.
“A regulated rental program would help cities … meet provincially mandated housing targets, increase rental supply for locals, prevent empty homes and discourage quick resale for profit,” he said.
Michael Geller, a veteran planner and retired developer, put the spotlight on lenders’ presale requirements.
“I fully understand the perspective of the development community and can see a justification for bringing [foreign investment] back if … the lenders continue to require presales,” he said.
“Forty years, 30-odd years ago when I was involved in this business, presales were not a requirement. Lenders did their own underwriting. If the lenders could relax that requirement—and that’s what I’d like to see [Prime Minister] Mark Carney tell the lenders to do—we could then begin to get more normalcy back in the market.”
Erick Villagomez, a lecturer with the UBC School of Community and Regional Planning, said the presale model fuels the financialization of housing, land speculation and price inflation, and encourages building for investor markets rather than end users.
“The overarching question is, who are we building for?” he said.
Villagomez said the calls to lift the foreign buyer restrictions for presales and new construction are often framed as a way to unlock capital and get housing built.
Stakeholders lobby government
Two groups of B.C. stakeholders sent separate letters to government officials in late July with housing policy recommendations.
A July 22 letter was sent by 27 Metro Vancouver-based stakeholders to Carney and federal Housing Minister Gregor Robertson calling for advancing housing affordability “through bold, evidence-based policy.”
“Do not reintroduce foreign capital or investor demand to reflate prices artificially,” said the letter.
The letter also implored politicians to resist “short-term pressure to rescue flawed models” and instead fund long-term investments in public, non-profit and community-led housing.
One week later, a July 29 letter was sent by 25 industry leaders in B.C. to Carney, Robertson and their provincial counterparts calling for allowing foreign ownership of newly constructed homes and presales.
The letter cited recent housing reforms in Australia, which restrict foreign ownership of established homes but still allow it for newly constructed homes and presales.
Following the missives, the federal government hasn’t budged.
“By reducing the impact of foreign ownership demand, the Prohibition on the Purchase of Residential Property by Non-Canadians Act helps to ensure that homes are used for Canadians to live in, not as a speculative asset class for foreign investors,” the federal housing ministry said in a statement.
The provincial government, which levies additional property transfer taxes on foreign nationals and corporations, is also standing its ground, as Eby emphasized in his press conference.
“Our priority is housing for British Columbians first,” he said.
Still, a statement by B.C. Housing Minister Christine Boyle suggested openness to reform.
“We are … mindful of the federal government’s ban on foreign homeownership, but we are willing to listen to industry experts and find a balance where we can leverage investments and deliver more purpose-built rental homes for people,” she said.
Academics weigh in
Foreign capital restrictions don’t necessarily make sense in B.C. where there is already an empty homes tax, said Thomas Davidoff, a real estate finance professor with the UBC Sauder School of Business.
“It isn’t the nationality of the owner that matters, it’s the use of the apartment,” he said.
“Whether somebody is a rich guy from Toronto, Beijing or New York doesn’t really matter in terms of if the home isn’t occupied, but that’s what empty homes taxes are for,” he said.
Davidoff said buyers of existing apartment buildings are investing in rental housing no matter the country they come from, and foreign investors who speculate on presale contracts may not necessarily occupy local housing at all.
“They are just financing development and they should be greeted as affordability liberators, not attacked and certainly not banned,” he said.
Davidoff has proposed an alternative minimum tax, whereby homeowners would pay one per cent of property value in total tax to Canada through income taxes or property tax surcharges. He said B.C. tax policy, with its low property taxes, and high income and sales taxes, currently doesn’t ensure owners of expensive homes pay high taxes.
“That’s why we drew so much international capital. Because, you know, the sort of instruction book provided by taxes says: ‘Buy real estate, don’t work for a living.’ And that needs reform,” he said.
Andrey Pavlov, finance professor with Simon Fraser University’s Beedie School of Business, said B.C.’s original 15-per-cent property transfer tax introduced in 2016 on foreign buyers purchasing in Metro Vancouver was targeted and necessary.
It did not completely shut the door to foreign capital, and raised meaningful revenue. But its increase to 20 per cent and its expansion to further geographic areas in 2018 paved the way for “misguided” federal policy that undermines housing supply and economic growth, he said.
“The foreign buyer ban on the federal level is, to me, very absurd because we have the most land per capita of any country in the world, so it is inconceivable to me why we’re restricting foreign buyers,” he said.
“Our economy can greatly benefit from foreign capital.”
Pavlov called the foreign buyer ban a “completely ideological move that only hurts people across the board.”
“Projects are becoming insolvent and not going to get built and not going to get completed,” he said.
“At the end of the day, this does not help affordability for anyone, but it does kill our economy and makes it much more difficult to make ends meet, not just for people in construction and real estate investment but really for everyone in B.C. and Canada.”
Foreign buyer legislation in focus
The Prohibition on the Purchase of Residential Property by Non-Canadians Act came into effect on Jan. 1, 2023, aiming to curb foreign investment in Canadian housing markets and improve affordability. Initially set for two years, the ban has been extended to Jan. 1, 2027.
The act defines “non-Canadians” as individuals who are not Canadian citizens, permanent residents or registered under the Indian Act; corporations incorporated outside Canada; or Canadian corporations that are privately held and controlled by non-Canadians.
Control is defined as owning 10 per cent or more of the equity or voting rights in a corporation, or having influence over its decisions either directly or indirectly.
There are several important exceptions that may apply to business transactions, said Damon Chisholm, Vancouver-based partner with McMillan LLP, in a statement.
The development exception allows non-Canadians to acquire residential property for development purposes, though “development” is not yet clearly defined in the regulations, he said. The work permit exception allows temporary residents with valid work permits to purchase property under certain conditions.
The joint purchase exception is for properties purchased jointly with a Canadian spouse or common-law partner, and the vacant land exception means land zoned for residential or mixed use is generally not restricted, offering opportunities for future development, he said.
The restrictions apply to residential properties located in census metropolitan areas (cities with populations of 100,000 or more with at least 50,000 in the urban core) and census agglomerations (communities with populations of 10,000 or more). Properties outside these zones, typically rural or remote areas, are not subject to the ban, he said.
Chisholm said the restrictions apply to residential properties only, so commercial real estate such as offices, shopping centres and apartment buildings may be fair game for foreign investors.
“It is challenging to assess the impact of the legislation on the residential housing market, particularly due to the limited data available prior to its enactment suggesting that foreign ownership was a significant concern,” he said.
“Moreover, several other variables must be taken into account, including interest rates, municipal regulations and development requirements, as well as broader economic factors such as inflation and tariffs.”
