Ontario government’s focus on foreign buyers misses the point

Businessman wrapped in red tape
Reading Time: 3 minutes

By Josef Filipowicz
and Steve Lafleur
The Fraser Institute

Rather than targeting a small group of foreign home buyers to stop pricing escalation, the Ontario government should focus on ensuring that regulations don’t prevent the supply of new housing from meeting demand.

According to a recent announcement from Ontario government, 4.7 per cent of properties purchased in that province’s Greater Golden Horseshoe (between April 24 and May 26) were acquired by foreign individuals or corporations. This in the wake of the raft of government measures announced in April, including a 15 per cent Non-Resident Speculation Tax, ostensibly aimed at improving housing affordability.

It’s difficult to say how foreign buyers ultimately impact the cost of buying or renting in Canada’s biggest urban region, and it’s far too soon to estimate the effects of the policy changes the Ontario government is introducing.

ontario housing foreign buyers
Josef Filipowicz

But we do know that the laws of supply and demand apply to housing, and it’s hard to believe that a small percentage of buyers are responsible for the massive appreciation of housing prices in the Greater Toronto Area (GTA) over the past decade.

For generations, the Greater Golden Horseshoe has drawn newcomers from across Ontario, Canada and the world, motivated by many factors (jobs, stability, high standard of living, etc.). To serve a growing population, developers and homebuilders (who must project several years into the future when conceiving new housing) respond by building thousands of units annually. If they can’t keep up with demand from buyers and renters, prices likely rise.

The Houston, Texas, metropolitan area is roughly as populous as the GTA (about 6.5 million people), and has grown substantially in recent years. Cities in the Houston area issued building permits for almost 64,000 housing units in 2014 compared to 36,000 units in the Toronto and Oshawa census metropolitan areas. In 2016, the average home in metropolitan Houston was valued at approximately US$250,000 despite the region accommodating almost twice as many newcomers as the GTA did between 2011 and 2016.

So what’s preventing cities in the Greater Golden Horseshoe from issuing more building permits?

ontario housing foreign buyers
Steve Lafleur

In short, municipal red tape. Between 2014 and 2016, Fraser Institute researchers surveyed hundreds of homebuilders across Canada to better understand how regulation affects their ability to obtain permits. In the Greater Golden Horseshoe, it typically takes 18 months to obtain a permit and per-unit costs to comply with regulation amount to almost $50,000. Approval timelines can also be affected by the need to rezone property. Approximately two-thirds of new homes in the region require this procedure, which adds 4.3 months (on average) before builders can obtain permits.

Another deterrent to more supply is local opposition to new homes. Survey results show that council and community groups in Toronto, King Township and Oakville are more likely to resist the addition of new units in their neighbourhoods, preventing newcomers from moving in.

Unfortunately, only one of the 16 measures proposed by the provincial government in April even mentions these barriers to housing construction. Buried near the end of the Fair Housing Plan is mention of a “Housing Supply Team” that would “work with the development industry and municipalities to identify opportunities to streamline the development approvals process.” Hopefully, that results in meaningful action on reducing barriers to housing construction, although the lack of emphasis is not encouraging.

A tight housing supply hurts everyone, from first-time buyers to renters looking to get a toehold in Toronto’s job market. It can even hurt longtime homeowners whose children can no longer afford to live nearby.

Thankfully, governments have the tools to tackle this problem by allowing Canada’s biggest and most dynamic urban region to thrive as a place to live, work and play. That should be their focus, rather than trying to sniff out foreign buyers.

Steve Lafleur and Josef Filipowicz are analysts at the Fraser Institute.

Steve and Josef are Troy Media Thought Leaders. Why aren’t you?

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The views, opinions and positions expressed by columnists and contributors are the author’s alone. They do not inherently or expressly reflect the views, opinions and/or positions of our publication.

By Steve Lafleur

Steve's past work has focused primarily on housing, transportation, local government and inter-governmental fiscal relations. His current focus is on economic competitiveness of jurisdictions in the Prairie provinces.

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