What Singapore can teach Canada about curbing home prices without the xenophobia

Political expediency and incomplete data have led to foreign buyers being targeted in Canada instead of those with multiple properties
Rather than going by nationality, Canada should emulate Singapore and penalise speculative activity regardless of citizenship

Nicholas Spiro

Published: 6:45am, 7 Jun 2022

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In July 2016, the Canadian province of British Columbia imposed an additional 15 per cent tax on foreign nationals and overseas corporations buying residential property in Vancouver, one of the world’s hottest real estate markets.

At the time, the provincial government had barely begun to collect data on foreign ownership of real estate. What little information was available showed that foreigners accounted for just 5 per cent of transactions in Vancouver and the surrounding region.

However, in some areas the share was significantly higher. Moreover, most of these overseas buyers were Chinese.

Still, foreign purchases as a whole were tiny in relative terms, other domestic and external factors played important roles in driving up home values, and the extra tax contributed to a sharp fall in sales to foreigners in the ensuing months. Yet these facts rarely made the headlines.

A combination of mounting concerns over rapidly diminishing affordability, media-fuelled concern about foreign investors paying above the odds to park their money in a safe haven, and political expediency, made foreign buyers an easy scapegoat for the failures in Canada’s housing policy.

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In 2017, the province of Ontario joined British Columbia in imposing taxes on overseas buyers. This was mainly in an effort to deter speculation in Toronto’s housing market, where prices have risen at an equally ferocious pace during the previous decade.

In a sign of the extent to which foreign speculators remain the bogeyman in Canada’s housing market, the federal government went a step further on April 7 by banning most foreigners from buying residential properties for two years in response to a 50 per cent rise in national house prices since the Covid-19 pandemic erupted in March 2020.

Canadian Finance Minister Chrystia Freeland deplored the “intergenerational injustices” that have made it much harder for young people to get on the property ladder. She also said supply constraints were the cause of the nation’s housing affordability crisis.

While her first point is beyond dispute, the second is debatable. Just days after the government announced the two-year ban, Canada’s statistics agency published data revealing that individual owners of multiple properties held between 30 and 40 per cent of the housing stock in Canada’s leading real estate markets just before the virus struck.

A chart originally produced by Vancouver property analyst Richard Wozny shows the decoupling of house prices and incomes in various Vancouver municipalities, and how the gap widened from 2008 to 2016. Graphic: Richard Wozny

The figures chime with separate data from consumer credit reporting agency Equifax showing that, among Canadians, the growth rate for those with at least four mortgages was four to five times the rate for those with just one mortgage in the first quarter of this year, compared with the same period in 2020.

It is not foreign investors who are squeezing first-time buyers out of the market but, rather, existing homeowners who capitalised on ultra-low interest rates to buy a second, third or even fourth property. Years of surging prices have delivered huge windfall gains to owners, which federal and provincial governments have been reluctant to tax.

Steve Pomeroy, one of Canada’s leading housing experts, said the key to improving affordability was to suppress this excess demand by confiscating part of the unearned capital gains. Instead, governments fearful of antagonising owners have persisted in scapegoating foreigners. “They’re going after parts of the market where they think they have more leverage,” Pomeroy said.

Canada would be better advised to take a leaf out of Singapore’s book. While there are stark differences between both countries’ housing markets – about 80 per cent of Singaporeans live in state-subsidised flats – Singapore’s government has correctly identified the sources of speculative demand and targeted them more effectively.

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In the past 12 years, the city state has introduced several rounds of pre-emptive and discriminating cooling measures aimed at nipping excessive price appreciation in the bud.

Not only have the curbs distinguished between different types of buyers – purchasers of second or third properties have been hit with increasingly punitive taxes – they have penalised speculative activity regardless of buyers’ citizenship.

Policymakers have pricked housing bubbles before they had a chance of inflating. “It’s a professional civil service staffed with technocrats who scrutinise the numbers and act quickly,” said Nicholas Mak, head of research and consultancy at ERA Singapore.

To be sure, Singapore’s housing market has its own problems. The government is finding it harder to dampen demand in the public market, where prices are rising more sharply. Furthermore, some buyers have exploited loopholes allowing them to purchase additional properties without paying higher taxes.

Blocks of condominiums in Singapore on May 15. Singapore’s success in providing public housing and managing property prices can be an example to Canada. Photo: Bloomberg

Yet, Canada can learn from Singapore’s approach to taking the heat out of its real estate market. First, there should be no discrimination based on a buyer’s nationality, not least since Canadian citizens and permanent residents can still use foreign money to buy properties in Canada.

Second, and more importantly, Canada’s federal and provincial governments must do a better job of targeting the most important drivers of speculative demand. While this is mainly down to political will, it is also a function of the quality and accuracy of data on owners of residential properties, statistics that are still patchy.

What is clear is that foreign investors are the least of the Canadian housing market’s problems. Instead of scapegoating them, policymakers should start reining in wealthier owners and investors with multiple properties. This would do more to relieve the plight of first-time buyers.

Nicholas Spiro is a partner at Lauressa Advisory

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