Banning foreigners from buying real estate tends to be popular policy.

In a recent public opinion survey conducted in British Columbia, 77% of respondents said they approve of the provincial foreign buyer tax increasing from 15 to 20%, and 75% said they agree with the federal government's temporary ban on foreign buyers. This is consistent with what I'd expect. But for obvious reasons, the development industry doesn't like these policies.

Foreign-buyer bans are a demand-side measure. Meaning, they are intended to ease home prices by reducing demand. The development industry doesn't like this because low demand is bad when you're trying to build things. A better scenario is something involving high demand and high supply, which is why supply-side measures tend to be more popular with industry. Even though there's always the risk of overbuilding.

But it's pretty hard to argue that more supply will help to lower home prices and then not argue the same with reduced demand via the banning of certain buyers. Both levers should, in theory, have an impact, even if the former is suboptimal for builders. That said, there remains the important question of whether there's enough foreign demand for a foreign-buyer ban to actually have an impact or whether it's just political theater.

Anecdotally, I can tell you that we have not typically seen a lot of foreign buyers in our pre-construction condominium projects. The deposit structure we use is different for non-Canadians and it tends to be a very very small percentage of buyers. But for resales in markets like Vancouver, the numbers do seem to be higher, at least based on some historical data.

According to this recent research paper, once BC started tracking the nationality of buyers in June 2016, they discovered that in the 5-week period that immediately followed, about $885 million was spent by foreigners in the Greater Vancouver Area and that they represented about 10% of all sales. It was also discovered that of these foreign buyers, about 90% of them were from China.

This data was so impactful to policy makers that it is allegedly what led to BC's foreign buyer tax in August 2016. And since then, there's further data to suggest that it has worked to temper home prices. Here's a chart from the same research paper:

As a developer and proponent of open markets, I don't love this policy. It's a form of protectionism that discourages or flat-out blocks this kind of foreign investment from entering the country. I also worry that it can be a crutch or excuse not to expand the overall housing supply of a market. But this is seemingly not how many or most voters feel. And I can certainly appreciate why that would be the case.

Cover photo by Alejandro Luengo on Unsplash

Spain is a beautiful country and lots of people want to visit and/or buy property there. But here's what Prime Minister Pedro Sánchez recently had to say about this:

Just to give an idea, in 2023 alone non-European Union residents bought around 27,000 houses and flats in Spain. And they didn't do it to live in them, they didn't do it for their families to have a place to live, they did it to speculate, to make money from them, which we – in the context of shortage that we are in – obviously cannot allow.

And by cannot allow, he means that Spain is preparing to implement a 100% tax on property purchases made by buyers of non-EU countries, such as the UK. It's not quite a foreign buyer ban, but it's certainly a punitive tax that should, in theory, dissuade the majority of buyers.

I am, however, unclear as to how this will interact with Spain's golden visa program. For over 10 years, Spain has been encouraging foreigners to buy real estate in the country (minimum value of €500,000) in exchange for permanent residency.

Will this program remain, and will these foreign buyers now be taxed at 100%? Or will permanent residency also exempt you? I don't know.

Whatever the case, it is yet another example of government trying to appear as if they're doing something meaningful about housing affordability. You might also remember that, last year, Barcelona came out with a complete ban of short-term rentals starting in November 2028.

But once again, I think it's important to remember that economics is the study of choice and that there are always tradeoffs. A decision in one place, will create second-order consequences somewhere else.

Here's some data (via Jeremy Withers) explaining that a large portion -- about 61% -- of new condominiums built in Ontario between 2016 and 2021 were not owner-occupied. In the case of low-rise houses, the figure is lower -- about 24%.

Now, the premise of Jeremy's tweet storm is that non-owner-occupied housing is bad and that the government should be doing more to discourage this. Simply taxing and restricting foreign buyers is not enough (and I agree that this is mostly symbolic).

But is non-owner occupied really such a bad thing?

First of all, non-owner occupied implies that somebody else is renting the place. I don't think that a significant chunk of these homes are being left vacant. So isn't the fact that somewhere around 61% of all new condominium apartments are becoming rental housing something that is potentially positive?

One counter argument would be that these investors are bidding up new home prices and squeezing out end users. But that brings me to my second point: small-scale individual investors are a critical ingredient in the delivery of new condominium housing in Ontario.

This point cannot be overstated.

The lender requirement to pre-sell suites in order to obtain construction financing means that developers rely heavily on buyers who are willing to purchase many many years before occupancy. And this is generally a lot more challenging for end users, as we have talked about many times before.

So if it weren't for investors, I am certain that we would see a lot less new housing getting built. And in turn, that would mean a lot less new rental housing getting built.