How A Ban On Foreign Investors Could Create Affordability Issues In Canada

Most countries put into place protective laws that are geared towards protecting indigenous businesses and industries from being out-performed by their foreign counterparts. These laws limit the influx of foreign businesses into the country and also try to reduce the dominance of already existing businesses in the country.

Canada has recently been exploring that option in their real estate market. The reason was to try to curb the recent hike in housing prices which they attributed to foreign investors. But is this a wise decision to take? Or should they take a more calculated look at it and weigh its pro and cons?

In a recent report, an industry analyst stated that the decision could indeed be counterproductive. What may seem to be a very good decision on the surface could have very toxic long term implications.

Ben Myers, Fortress Real Development’s senior vice president of market research and analytics wrote in a piece by Huffingtonpost business Canada saying “Before Canadians and our government make a decision to ban, restrict or add taxes to foreign buyers, we need to consider the potential negative side-effects and consequences of such actions: less tourism, less immigration, fewer consumers, less new construction, marred reputation,”. He added that “This potential solution creates new dilemmas: In a country of immigrants, do we truly have the right to say ‘we were here first?’” he said. “With tourism, immigration and construction being strong contributors to economic growth, do we really want to discourage potential second-home owners and future Canadians from coming here? Is it worth the potential damage to our national reputation as a welcoming nation?”

He urged for a more thorough view to be taken to get to the real reasons for these sharp increase in prices. He believed that there are other more salient factors that are at the root of this malady which are totally unrelated to foreign investors. So to solely lay the fault at the feet of foreign investors would be ill-advised. One of the factors he believed caused these increment is housing prices is a disparity between supply and demand in the housing sector.

A half a million dollar allocation was made in the 2016 Canadian federal budget to Statistics Canada for them to provide information on the impact of foreign investors in the economy. The organization is yet to come up with a way to derive the impact of foreigners in the economy. Another survey of Fortress agents and brokers revealed that 8% percent of their customers were foreigners and immigrants.

All these findings point to one conclusion. This policy should indeed be revised and more thoughtful approach adopted. A ban would surely aggravate existing problems and search for a solution would be further dented. A law that was originally made to arrest a problem could only increase the problem further and then it would be back to the drawing board again.