The government tries to restrain sky-rocketing home prices with a foreign-owners tax

The government’s new budget shows it’s taking measures aimed at sky-rocketing home prices in Canada with plans to raise the market supply and restrain foreign homeowners.

The budget includes $3.8 billion (US$3 billion) for help in building and repairing thousands of housing units. Moreover, on January 1, the government will implement a tax on vacant properties owned by non-residents.

Such changes follow demands from economists and industry experts to cool down the national real market, as historically low interest rates and buyers’ interest in larger spaces are pushing growing prices even higher. In March, the average home cost in Toronto showed a 21.6% annual increase and reached $1.1 million. More double-digit hikes in cities all over Canada are increasing worries that many Canadians are priced out of the market. This tendency is increasing the range of a possible sharp correction (decline) later.

“Houses should not be just passive investment options for offshore money,” – Finance Minister Chrystia Freeland says. “They should be homes for Canadian families.”

The new measure will apply a 1% annual tax on the cost of vacant or not used properties owned by non-resident, non-Canadians. Such a step may restrain home prices in those regions where non-residents have purchased real estate at elevated prices in order to shelter their finances.

In terms of raising the market supply, Freeland pointed to new measures, including a $2.5 billion investment and a $1.3 billion reallocation of existing funds aimed at building or repairing 35,000 housing units. The plans include $300 million for transforming empty office spaces in downtown regions into affordable residential properties.