Justin Trudeau has thrown himself into the great debate over Canada’s surging house prices, fueled in part by investors from China and elsewhere.
A conversation has been growing about the impact of foreign investors in Canadian real estate, who some argue are driving up Canada’s home prices, meriting calls for restrictions on foreign investment. But in an interview with Canada’s Global Television Network, the prime minister suggested that restricting investment is not a route he’s prepared to venture down just yet.
“You know you have to be cautious about decisions like that that are based on a single factor because at the same time [it] would potentially devalue the equity that a lot of people have in their homes right now,” Trudeau told Global TV (paywall) in an interview scheduled to air Dec. 25 (Christmas day).
Cutting out foreigners also might not lower house prices at all.
The price of the average property in Vancouver rose to C$752,500 ($540,000) in November, an increase of 17.8% from the same time a year earlier and 33% higher than five years ago. Prices of stand-alone homes (those not attached to other properties) have increased by almost 50% in that five-year period.
But Trudeau could be right to not dive headfirst into restrictions on foreigners. Vancouver and Toronto are hardly the only real estate markets in the world facing stiff price increases. Elsewhere, measures passed to address rising prices encouraged by, in part, foreign investment have offered mixed results at best.
Earlier this year, Australia announced new investment rules that mean foreigners can only purchase homes if they prove that their investment will add to the total housing stock. This means they could buy a newly built property but not a secondhand home—and they must pay an added fee of A$5,000 ($3,600) for the privilege (A$10,000 for properties over A$1 million).
Hong Kong has also made efforts to reduce property prices by curbing foreign investment; since 2012, non-locals have been charged an extra 15% property tax (paywall) on purchases. The UK took a different approach in 2013, offering financial support to British citizens buying a home, rather than charging foreign investors extra.
The problem for those advocating a ban on foreign buyers in Canada is that it’s still unclear whether measures such as the above have had their desired effect. Australian home price growth reached an 18-month high in the third quarter (paywall) thanks to low interest rates. Hong Kong’s measures slowed the rate of transactions but have had no visible effect on price rises, and while the UK’s strategy helped some first-time buyers, it has even been blamed for encouraging higher prices.