How immigration is shaping real estate market
Friday, December 04, 2020 @ 8:43 AM | By Kelly Goldthorpe and Jonathan Green
Due to the COVID-19 pandemic resulting in travel bans and economic slowdown, the housing market is experiencing a shock. International students, temporary foreign workers and new immigrants are not coming at the same rates as before. The demand for rental units has dropped as temporary residents are not able to enter the country. The demand for short-term rental units, rented through companies like Airbnb, has also decreased. As well, the demand for luxury homes has also declined as foreign investors are unable to enter the country to view a large real estate purchase. How long this shock will last and the effects of the pandemic are yet to be seen, but once immigration comes back, the market is going to have to react and be prepared for pent up demand. Immigrant settlement patterns will have an impact on the supply and demand for housing units in Canada.
Between 2015 and 2019, Canada welcomed more than 1.5 million new immigrants. Canada intends to welcome 400,000 new immigrants in 2021. Important questions exist as the new immigrants enter the country. Where do these newcomers settle and live? Do they rent or buy their home?
It is not just immigration that impacts the housing market. Economic factors such as employment levels, population growth, availability and demographics can also influence housing prices. Along with first-time homebuyers, newcomer demand for housing has an impact on the real estate market as the demand for houses places upward pressure on prices. Net demand for housing, considered alone, will always lead to increased prices. With an increased number of individuals in a specific area requiring more housing, demand will exceed a capped supply. This will raise costs as there is limited supply for an increasing population.
For more than a decade, the majority of new immigrants have settled in just three cities in Canada: Toronto, Vancouver or Montreal. While these cities have seen significant real estate value increases, there was also increased demand for rental housing.
The 2016 Census shows that about 63 per cent of the population owns their home in Canada. Among the Canadian-born population, 62 per cent own their home. In contrast, 39 per cent of recent immigrations, defined as those who arrived in Canada between 2011 and 2016, owned their homes. For established immigrants who had lived in Canada for at least five years, home ownership rates were 70 per cent. It is clear that immigration has an impact on the housing market.
Statistics Canada data reveals that immigrants own more expensive single detached homes than the Canadian-born and they also tend to own newer properties. In addition, those who became permanent residents of Canada through an investor program owned more expensive homes than immigrants who came under a different program, such as the skilled worker program or through family reunification.
Unlike in other countries, it is not possible to obtain permanent residence status in Canada through real estate investments. Purchasing Canadian real estate does not confer any residual immigration benefit to the buyer. Despite this, there has been an increasing trend of non-residents interested in the Canadian market and purchasing real estate assets. Canada is seen as stable both politically and economically and therefore a safe place to make an investment. In Toronto, non-residents are reported to own 3.5 per cent of all residential properties and 4.8 per cent in Vancouver. Non-residents own 7.2 per cent of condominiums in Toronto and 7.9 per cent in Vancouver.
Global buyers are believed to contribute to increased housing prices, especially in the Vancouver and Toronto metropolitan areas. In Toronto, average listing prices have more than doubled in the past decade. Provincial governments are intervening to minimize the effects of these increasing prices through taxation.
British Columbia, to address concerns of rising housing prices, introduced Bill 28, the Miscellaneous Statutes (Housing Priority Initiatives) Amendment Act, 2016. The Act created multiple new taxes for foreign buyers in Vancouver. Specifically, a municipal vacancy tax was introduced for individuals holding real estate solely for investment purposes and a foreign-buyers tax was created, imposing a 20 per cent additional property transfer tax. The results of these taxes were immediate. Foreign investment in the Vancouver area dropped by 40 per cent in October 2016, three months after the bill was introduced.
Ontario similarly introduced a non-resident speculation tax in April 2017 of 15 per cent for any residential property purchases in the Greater Golden Horseshoe Region of Ontario, which includes Toronto and its surrounding area. Exemptions exist for the Ontario non-resident speculated tax. Protected persons, spouses of Canadian residents and individuals who have been nominated under the Ontario Immigrant Nominee Program do not have to pay the tax. Becoming a permanent resident or citizen removes the obligation to pay these taxes. However, many individuals with temporary status, such as a work permit or study visa, would still have to pay a non-resident speculation tax.
Immigrant settlement is often viewed through the lens of economic integration, employment indicators and income levels. But looking at integration in terms of home ownership rates reveals an important milestone towards social and economic integration among Canada’s immigrant population.
Kelly Goldthorpe is an immigration lawyer at Green and Spiegel, LLP and Jonathan Green is an articling student at the firm.
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