Economists argue supply shortage, not foreign buyers, drives housing costs in Canada

• Canada's ban on foreign home buyers is criticized as ineffective
• Economists and realtors argue the real issue is a supply shortage, not foreign buyers
• Construction investment in Canada dipped slightly in July 2024
• Government officials plan adjustments to mortgage rules to improve housing affordability and encourage new construction

Policy impact: Canada's ban on foreign home buyers, aimed at reducing housing costs and increasing supply, has been criticized as ineffective by Royal LePage in a recent report. Economists and realtors argue that foreign buyers constitute a minor portion of home purchases and that the real issue is a supply shortage.

• The federal government's ban on foreign ownership has not significantly lowered prices or increased market inventory.
• Implemented on January 1, 2022, and extended until January 1, 2027, the ban was expected to have minimal impact on housing prices.
• Foreign buyers represent a small fraction of total buyers in Canada.

By the numbers: Canada's housing market is navigating a mix of optimism and hurdles. The luxury real estate sector is set for a robust fall season, buoyed by stabilizing economic confidence. Year-over-year sales up in most major cities except Toronto, Vancouver, and Halifax. High construction costs are nudging some buyers toward resales, while others forge ahead with new builds despite the expenses.

• Construction investment in Canada dipped by 1.7% to $20.9 billion in July 2024.
• Residential construction investment fell by 2.2%, or $330 million, to $14.6 billion.
• Significant gains were noted in Winnipeg, Edmonton, Calgary, and Quebec City.
• Vancouver and Montreal both experienced moderate declines in median prices by 1.8% and 2.8%, respectively.

Market dynamics: Interest rates dropped during the pandemic, spurring home purchases. However, sales activity plummeted when rates began to rise in 2022.

• High demand for housing is driven by immigration and investment interests.
• Supply has lagged due to slow construction rates.
• Regionally, Saskatchewan and Nunavut saw increases in single-family home investments by $6.4 million and $1.2 million, respectively. Conversely, Quebec experienced a notable decline in multi-unit construction investment.

What's next: Government officials announced adjustments to mortgage rules to improve housing affordability and encourage new construction, which will likely have even greater ripple effects as the market reacts.