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