Not only foreigners – Canada also have speculators, an expert says

According to an expert Mike Moffat of the University of Ottawa’s Smart Prosperity Institute, speculation by Canadians who invest in the housing market is definitely one of the factors supporting a significant prices increase.

He says the focus on speculation by foreign buyers ignores the issue of domestic speculation that also exists in Canada.

“The problem is that certain measures aimed at fighting speculation, blame foreigners for the issues that we are also the reason of,” – he noted.

As you can remember, the federal Liberals made housing unaffordability a key issue in their 2021 campaign platform. Since then, they have promoted the promises made during the campaign that in their opinion will help to ease the prices pressure.

The measures include banning home purchases by foreigners for two years and implementing higher taxes on people who sell properties within 12 months after buying them. It’s all part of their attempts to aim at the financialization of the Canadian real estate market.

The term financialization is used in reference to investors who purchase real estate (usually, residential properties that could serve as starter homes or affordable rental units) and then use them as financial assets to receive profit through resale or raising rents.

According to the central bank’s data from December 2021, investors (the report says “mainly domestic buyers”) outpaced first-time homebuyers during the COVID-19 pandemic. Last week, Statistics Canada warned that many home buyers are “constraining” already low supply in urban housing markets.

Meanwhile, Global News reported that one-third of the Liberal cabinet have rental or investment housing assets, and at least 20% of MPs from all parties show the same results.

Nevertheless, Trudeau refuses to discuss whether he plans to consider taxing secondary or subsequent property purchases at a higher rate in order to reduce speculation, and seems to be defending Canadians who use real estate as an investment.

“It looks like it’s a different situation when it comes to domestic speculation, when it comes to MPs,” -noted Moffat.

“It’s problematic how they’re blaming only non-Canadians, while both Canadians and foreigners absolutely play a role in our real estate market.”

In Moffat’s opinion, the promise to build more residential properties is “fantastic,” but it’s more complicated than it seems.

The main question is whether interest rate increase by the BoC will cool the demand in a market that’s been practically boiling for the previous two years.

Today, inflation is at 6.7%, which is “higher than anybody was predicting,” Moffat said, pointing to stronger forecasts of a 0.75% rate hike in June.

“If that happens, you’ll see many people deciding to wait and not to get a five-year mortgage amid such interest rates.”