The housing supply is so low in most of America that many buyers, frustrated with losing their bid on a home, are in many cases just giving up altogether on the homebuying process. And if bidding wars aren't the reason for throwing in the towel, rising prices are making homes unaffordable, particularly for many first-time homebuyers.
Canadian homebuyers are experiencing a similar scenario, and Prime Minister Justin Trudeau has a plan. But will it work?
The Trudeau plan
To help alleviate the problem of domestic buyers being priced out of Canada's housing market, Prime Minister Trudeau of the Liberal Party, as part of his re-election campaign platform, pledged to place a two-year temporary ban on foreign homebuyers, hoping this measure will lower housing prices by eliminating some of the competition for Canada homes.
It's especially galling for Canadian citizens (as it would be for citizens of any country) to lose out on buying a home to a foreign investor who doesn't even plan to live in the house. Says Trudeau: "No more foreign wealth being parked in homes that people should be living in."
Trudeau's opponent, Erin O'Toole of the Conservative Party, would also put a two-year ban on foreign investors, if elected. The third major political party in Canada, The New Democratic Party, wouldn't ban foreign investing in Canada, but is proposing a 20% tax on foreign buyers.
The Canadian housing situation
Vancouver and Toronto are two of the most expensive cities in the world to buy a home, making it particularly difficult for lower- and middle-income Canadians to buy a house. In Vancouver, the median price of a home at the end of 2020 was $1.1 million and is expected to jump to $1.265 million by the end of this year. As of July 2021, the median home price in Toronto was just over $1 million.
Will a foreign buyer ban work?
The Chinese have been the most active foreign buyers in the Canadian market. The South China Morning Post reports such a ban won't have much effect on bringing housing prices down and instead will push overseas investors to rush into buying before any type of ban is implemented.
And even if a ban on foreign investing is implemented, the Canadian Real Estate Association (CREA) says the high home prices are because of a lack of housing supply.
Will a foreign buyer ban happen in the United States?
There are no plans to ban foreign investing in the United States. In fact, foreign investing is down in this country, anyway, reaching the lowest levels seen in a decade.
Like in Canada, the Chinese are the No. 1 foreign buyer of U.S. real estate, but ironically, Canadians come in a close second.
Foreign investors do tend to drive up prices of real estate in the United States: The median home price in America is $305,500, but foreign investors pay about 15% more, making the median price paid by foreign investors $351,800.
The main reason for high home prices in the U.S., however, is low supply. Last year broke a record for being the lowest housing inventory year ever recorded.
The Millionacres bottom line
It looks as if no matter which party wins the election in Canada, there will likely be a ban, at least temporarily, on foreign investing. It will be interesting to see whether the ban will make a difference by lowering housing prices in Canada.
Because rising housing prices are such a huge problem in Canada, other measures will probably be adopted in an effort to lower prices. Ideas on the table include adding more supply, allowing renters to turn part of their rent into a down payment savings, and implementing a tax-free savings plan for young buyers.