New foreigner-targeted taxes proposed by the Liberal party will not likely help the housing market, industry observers warned.
Barclays Capital analyst John Aiken stated that any such levy will be just an “incremental factor” that will reduce demand only slightly.
“Realistically, the inelasticity in demand that these type of buyers have, I’m not sure if this is going to have an overly material impact on pricing or the housing market,” Aiken told the Financial Post.
The remarks came in the wake of a new campaign promise by the Liberal party, which vowed that it will “address the impact of foreign speculation, which drives up housing costs” upon re-election.
A 1% speculation and vacancy tax will be slapped on residential properties with “non-resident, non-Canadian” owners – on top of already existing levies in markets like Ontario and British Columbia, where a 2% foreign ownership tax is in place.
Bank of Montreal chief economist Doug Porter cautioned that the proposal will likely not prevent the national housing market’s return to its previous red-hot state.
“I don’t rule out that it could have an impact on cities other than Vancouver and Toronto, but I think they’re much less influenced by non-resident purchases,” Porter said. “And what’s driven the housing market has largely been healthy job gains, strong population growth and, yes, a pullback in long-term mortgage rates this year.”
However, Porter added that any such measure will be a powerful message to unscrupulous wealthy foreigners taking advantage of current conditions.
“In a world where, especially in the big cities, housing affordability is such an issue, I don’t really think we can afford to allow any forms of speculation, especially from outside of the country, to be influencing the market.”