“Chinese buyers are driving up the cost of homes in Vancouver!” This may as well have been a political bumper sticker for nearly a decade in this country as politicians at all levels of government looked for someone to blame for the skyrocketing prices in Canadian real estate.
Unsurprisingly, this line of thinking became part of the established wisdom in Canada and ultimately led to a series of policy changes across the country to discourage and/or ban “foreign buyers” (read “Chinese buyers”) from participating in our housing market.
Initially, this took the form of various new taxes applied to foreign buyers to discourage them from investing in Canadian real estate, and then finally the federal government imposed a sweeping ban on foreign ownership of real estate in Canada, set to expire on January 1, 2027.
Once this policy was in place though, home price escalations didn’t seem to slow—and new home construction did. So very quickly, politicians needed another group to point the finger at. This time, “foreign students” (read “Indian students”) in Canada on temporary visas.
And of course, predictably, we’ve now ramped up aggressive new policies to slow the number of foreign student visas being issued annually.
My prediction: home prices and the rate of new home construction will not change at all because of these policies.
So what are we missing? Now that we’ve ostensibly blocked Chinese and Indians from “manipulating” our housing market, how come the average Canadian still can’t afford a house or a condo?
Well, the reality is that these groups were never the problem in our housing market to begin with.
Let’s step back to consider a different perspective.
First, it’s important that we not overcomplicate the issue. Think of housing as any other industry selling any other product in the country. Companies selling goods need capital to invest in the production of goods and they need customers to consume their goods. The same is true for real estate.
Second, let’s divide the residential real estate market into two broad categories: 1) built to own and 2) built to rent. Naturally, there are “consumers” of housing that want to buy and live in the home they purchase, and there are “consumers” of housing that want to rent a home that is owned by somebody else.
With these two concepts in mind, let’s reconsider the role of the foreign buyer and the foreign student.
The foreign buyer played a very specific and frankly crucial role in the Canadian housing market: they invested the capital needed to create more rental units in our biggest cities.
For a number of reasons that I won’t expand on here, Canada’s real estate industry stopped building purpose-built rental buildings a few decades ago. Instead, we built condos. When a condo development went up for sale, developers would heavily rely on what the industry knows as investors (rather than end users). Essentially, condo sales centres would sell large percentages (often more than 50 percent) of the new units in a building to investors—many of whom happened to be Chinese foreign buyers. These buyers would then turn around and list their new condo for rent.
Condo construction is shown in Ajax, Ont., Nov., 30, 2023. Christopher Katsarov/The Canadian Press.
In the absence of a functioning purpose-built rental market, these Chinese foreign buyers were essentially financing the construction of the majority of rental units available in our biggest cities. So naturally, once these buyers were banned, that money went away and with it new condo developments plummeted, dramatically reducing the supply of rental units and causing rental prices to skyrocket.
Of course, any reader could point to the obvious fact that during this same period of time, interest rates in Canada experienced the fastest increase in our history. But for argument’s sake, let’s ignore that and isolate the specific impacts (positive or negative) of foreign buyers.
Now what about foreign students? Aren’t they really the ones to blame for all of our ills? Putting aside the argument (that I don’t dispute) that our student and temporary visa programs were in desperate need of review, these people—as with any other consumer of housing—are simply looking for a roof over their heads at the market rate of housing in the city they end up studying in.
I was a student once, and I also piled into housing with as many roommates as I could near the university campus that I attended. There’s nothing new about this. In fact, I strongly believe that we should be extremely encouraged by the fact that ambitious foreigners want to study in Canada and potentially build their lives here.
So going back to my earlier point that housing should be thought of no differently than any other industry producing any other good, what have we really accomplished by demonising foreign buyers and foreign students? Well, in general terms, we’ve told the world we don’t want them to invest their capital in Canada, and we’re not interested in them as customers of one of our most desired products.
Why? Because our politicians refuse to accept that the real problem is and has always been an unnatural restriction on building homes. If we were building cars instead of homes, this would be equivalent to implementing a policy that mandated a maximum cap on the cars coming off an assembly line, rather than a company building enough to satisfy growing demand.
My policy prescriptions:
For foreign students
- We should absolutely reform our student visa programs to make sure we’re getting the world’s brightest into properly credentialled institutions that meet the demand of our labour force; AND
- We should aim to attract as many of these people as possible—the more the better!
For foreign buyers
- Foreign buyers should be strongly encouraged to invest in Canada if the housing units they are buying are made available for rent
- We should provide a fast track to permanent residency for foreign investors who are deploying significant sums of capital into Canadian real estate—we need more capital to build more housing!
Matthew Spoke is a Toronto real estate entrepreneur. As such, Matt spends a lot of time focused on housing policy, advocating at…
