Money Foreign homebuyer tax? Not the best fix for Vancouver, Toronto: CMHC

06:51  08 february  2018
06:51  08 february  2018 Source:   globalnews.ca

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Want to fix the unaffordability crisis in Canada ’s two largest cities? Building more new homes may be a better way to go about it than taxing foreign Over half of Vancouver and Toronto homebuyers recently polled by CMHC believed that foreign buyers have an impact on local home prices.

Foreigners who buy homes in Toronto and its surrounding area now face an additional 15% tax – echoing a recent measure adopted in Vancouver – as It will apply to all residential purchases made by those who are not citizens or permanent residents of Canada , as well as foreign corporations .

a house that has a sign on the side of a building: Canada's Mortgage and Housing Corporation published research that suggests one of the main reasons for skyrocketing housing prices in Vancouver and Toronto isn't foreign buyers but a limited availability of new homes for eager buyers.© THE CANADIAN PRESS/Graeme Roy Canada's Mortgage and Housing Corporation published research that suggests one of the main reasons for skyrocketing housing prices in Vancouver and Toronto isn't foreign buyers but a limited availability of new homes for eager buyers.

Want to fix the unaffordability crisis in Canada's two largest cities? Building more new homes may be a better way to go about it than taxing foreign buyers, the Canada Mortgage and Housing Corporation said Wednesday.

That is a key takeaway from a new report by the agency, which concluded that the housing price surge experienced by Vancouver and Toronto is, in part, the result of a failure to create enough living spaces to meet demand from both new residents and investors.

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READ MORE: Foreign homebuyer tax ? Not the best fix for Vancouver , Toronto : CMHC . The CMHC carried out its research at the behest of the federal Ministry of Families, Children and Social Development

Bidding wars have become common for townhouses and apartments, the Canada Mortgage and Housing Corporation ( CMHC ) noted in a recent report. Shortly after Vancouver ’s foreign homebuyers tax came into effect, prices in Toronto started skyrocketing.

The research appeared to question the effectiveness of recent provincial measures aimed at limiting the flow of capital from abroad into the Vancouver and Toronto, such as a tax on foreign homebuyers.

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Davidoff’s best guess is that the new tax in Vancouver would drop home prices by 10%. “Some foreign buyers may find a way to get around the tax ,” he said. “And some people will just pay the 15%.

CMHC also says that foreign buyers owned less than one per cent of the condo stock in 17 metropolitan areas across the country. READ MORE: The Vancouver foreign homebuyer tax is one year old. Here’s what Canada can learn from it.

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"Measures targeted at alleviating supply challenges are more likely to have positive impacts on high-priced markets than measures focused on the demand side," the agency said in a statement.

Over half of Vancouver and Toronto homebuyers recently polled by CMHC believed that foreign buyers have an impact on local home prices. And on Tuesday, the agency released data showing that nearly 10 percent of mortgages issued to people under the age of 25 in Vancouver and Toronto in 2016 went to non-permanent residents. This signifies "some younger NPR (non-permanent residents) may be receiving parental support to purchase homes," it noted.

Today's report, however, points to weak housing supply as a main culprit for runaway prices.

READ MORE: How over 46,000 wealthy immigrants took a back door into Vancouver and Toronto’s housing markets

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New report says a foreign buyers ' tax alone won't halt skyrocketing home prices in the GTA. A homebuyers surtax may be needed tied to the Gordon expects tax to come to Toronto . But Gordon said Vancouver 's experience after imposing a 15 per cent tax was the best indicator of whether

Foreign homebuyer tax ? Not the best fix for Vancouver , Toronto : CMHC . Not enough new homes is the main reason behind home price surges in both cities, according to a new report by Canada ’s mortgage insurance agency.

"When you have weak supply responses, as you do in these markets, prices have nowhere to go but up," said Aled ab Iorwerth, deputy chief economist at CMHC.

The trouble, according to the report, is that the pace at which both cities increased their housing stock was much slower than the pace at which both received new inflows of people wanting to settle and buy a house there. By contrast, in Montreal, Calgary and Edmonton, housing supply and demand remained roughly aligned, with home prices climbing at a much slower rate.

WATCH: Vancouver home prices have some living in campers

The research shows the weighted average home price in Vancouver rose nearly 50 per cent between 2010 and 2016. Population growth and climbing local disposable incomes, coupled with low mortgage rates, accounted for 75 per cent of that growth, according to CMHC.

READ MORE: Foreign buyers may not live in Vancouver, but their money sure does: StatsCan

In Toronto, home prices rose by 40 per cent over the same period, with 40 per cent of that growth attributable to those conventional economic factors.

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Opinion: The lesson, one year into Vancouver ’s foreign buyers tax , is that real-estate supply may actually be the city’s biggest problem. Bob Dugan is the chief economist at the Canada Mortgage and Housing Corporation ( CMHC ).

Bidding wars have become common for townhouses and apartments, the Canada Mortgage and Housing Corporation ( CMHC ) noted in a recent report. Shortly after Vancouver ’s foreign homebuyers tax came into effect, prices in Toronto started skyrocketing.

According to the CMHC, much of the unaccounted-for price growth was due to policies restricting new residential construction – especially of new single-family homes.

In both cities, price growth was driven by detached homes, which faced the biggest supply shortage. In the condo segment, where the supply-demand mismatch wasn't so severe, prices climbed at a slower rate, the report shows.

"Supply responses have been proportionately greater for condominium apartments than for single-detached housing," the CMHC said.

The report follows new data released by Statistics Canada late last year that showed that non-residents homeowners account for 3.4 per cent of homes in Toronto and 4.9 per cent in Vancouver. While that number appears low, several economists and housing experts say the share of foreigners buying homes in a given period may be significantly higher, with potentially sizable effects on prices.

But CMHC noted that the same StatCan numbers also show that the percentage of non-residents homeowners is higher for condos, which didn't see as pronounced a price increase as single-family homes.

READ MORE: There’s so much we still don’t know about foreign homebuyers

Understanding the extent to which foreign capital affects home prices in Canada remains extent "a persistent challenge," the report said.

– With a file from Reuters

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