Ban on Foreign Buyers in Canada Stumps New Rental Housing Starts

New rental housing construction is slowing after the Canadian government implemented a new ban on foreign homebuyers.

Housing prices across Canada have been soaring for the past few years, pushing homebuyers out of the real estate market. According to the Canadian Real Estate Association (CREA), the average price for a home in Canada as of February 2023 is $662,437.

Rent prices vary across the country, with the priciest centres being Toronto and Vancouver. The average rent prices for a 1-bedroom apartment in these cities are $2,356 and $2,595, respectively.

Ban on Foreign Buying Meant to Make Housing More Affordable For Canadians

There are a few key reasons for the spike in prices, including foreign buyer activity. In an effort to make housing more affordable for Canadians, the federal government recently placed a 2-year ban on certain foreign buyers from purchasing homes across the country.

The ban started January 1, 2023, named the Prohibition on the Purchase of Residential Property by Non-Canadians Act, which applies to foreign workers, international students, and foreign corporations. Before buying a house, temporary residents must live in Canada for at least 244 days for 5 straight years.

Further, such buyers can only purchase homes under $500,000. Foreign workers must be employed in Canada for a minimum of 3 years before buying a home. In addition to these requirements, foreign students and workers can only buy one property at a time.

Rental Housing Stars Slowing After the Ban Took Effect

While the purpose of the ban may be to make buying real estate more accessible for Canadians, it's also causing other issues; namely, it's slowing the construction of new rental housing. But some argue that foreign buyers only comprise a small percentage of the real estate market in Canada.

The biggest culprit in the housing affordability crisis lies in low supply and interest rates, instead of foreign buyers. In an effort to make housing more affordable, including for renters and buyers alike, new housing starts are desperately needed. Without adequate supply, the upward pressure on home prices and rent will continue.

The recent ban has already caused hundreds of commercial property deals to be cancelled. That's because the rule's definition of residential real estate includes land zoned for both residential or mixed use. Further, the law stipulates that a maximum of 3% of funds used to purchase residential real estate can come from foreign sources.

Developers with plans to construct rental-only buildings with some overseas financing are stuck in limbo until the ban is lifted. In the meantime, they're sitting on land for years waiting to be able to build, and rent prices continue to increase, leaving many Canadians unable to buy or rent.

While some developments may simply be stalled, others are being terminated altogether.

The thing is, a lot of rental housing developments involve foreign investor money, even if it only represents a very small portion of the financing. Because of the ban, every financial source must be screened to see how much of the development they own, particularly non-Canadian residents. At least 97% of the funding must come from Canadian sources.

Many investors are also getting nervous about getting involved in these developments because of all the rules in effect. They're simply concerned about breaking one of the many rules and getting slapped with penalties.

The ban is also having a negative effect on foreigners looking to move to Canada. Newcomers tend to rent first when they first immigrate, but with rent prices so high, there's little within the affordable range. Others who can afford a home are not allowed to because of the ban. Since foreigners don't yet have permanent residency status, they're cannot purchase a home just yet.

There's simply not enough inventory, and the rental market is at its maximum peak. 

It certainly may be a challenge to find a rental unit that fits within your budget, but they’re out there. If you’re looking for a place to rent, reach out to the experts at The April Williams Group today!