Taxing foreign buyers: British Columbia and Ontario should reconsider

Montreal, Tuesday, June 6, 2017 – While Quebec has just announced that it will not impose a tax on foreign buyers, British Columbia and Ontario should take a step back and abolish those that they put in place. These kinds of measures, like rent control, are ill-advised responses to price increases in the housing market, and risk making the problem worse, shows a Viewpoint published today by the MEI.

“Public decision-makers are missing the mark with these policies. While they’re trying to resolve real problems, such measures will likely prove harmful in the long term,” says Mathieu Bédard, Economist at the MEI and author of the publication.

The prices of houses in cities like Toronto and Vancouver have been high since long before current worries about foreign buyers. In these two cities, it is rather zoning and land-use policies that have been driving up real estate prices for more than fifty years by reducing the availability of housing.

“When these policies become too restrictive, housing prices skyrocket and the burden falls disproportionately on the poorest, with fewer affordable housing units being built in favour of more luxurious housing units. This gentrification phenomenon has been happening in Toronto, Vancouver, and Montreal for some time now,” explains Mathieu Bédard.

As for rent control, imposing limits on rent increases helps some people, but it makes rental units less profitable for owners. Consequently, fewer are constructed, thus leading to higher rents for many other renters.

Empirical research on the consequences of bad housing policies is unequivocal. Indeed, in a survey of economists of all backgrounds, 93% agreed that a ceiling on rents reduces the quantity and quality of housing available.

“Taxing foreign buyers is not the solution for reining in the hot housing markets in certain parts of the country. Quebec Finance Minister Carlos Leitão seems to have understood that such a policy would have negative effects on the market,” adds Michel Kelly-Gagnon, President and CEO of the MEI.

“Instead of artificially limiting supply with these kinds of policies, governments should allow the price mechanism to work, incentivizing developers to build more when prices go up, all while targeting support for the less fortunate who are excluded from the market,” he concludes.

The Viewpoint entitled “Housing Prices: Before Taxing Foreign Buyers, Scrap Rent Control” was prepared by Mathieu Bédard, Economist at the MEI. This publication is available on our website.

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The Montreal Economic Institute is an independent, non-partisan, not-for-profit research and educational organization. Through its studies and its conferences, the MEI stimulates debate on public policies in Quebec and across Canada by proposing wealth-creating reforms based on market mechanisms.

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Interview requests: Pascale Déry, Senior Advisor, Communications, Current Affairs, MEI / Tel.: 514-273-0969 ext. 2233 / Cell.: 514-502-6757 / Email: pdery@iedm.org