Canada's housing crisis is so bad its government wants to ban foreign buyers for a while
- Canada sits in a housing crisis, and its government is eyeing some unconventional fixes.
- Prime minister Justin Trudeau aims to ban blind bidding, which keeps buyers from seeing others' offers.
- The ban will "crack down on predatory speculators," he said. "You shouldn't lose a bidding war ... to speculators."
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Canada desperately needs affordable homes. Revamping the home-buying process might be the key, according to Prime Minister Justin Trudeau.
Home prices in Canada surged 22% over the past year, and the median home price sits at a record high, according to the Canadian Real Estate Association. Material shortages and soaring construction costs also place the country in a bleak supply shortage. The Bank of Nova Scotia estimates the country has fewer homes per 1,000 residents than any other G7 nation.
The government is taking a multi-pronged approach to address the problem. On the supply front, Trudeau rolled out a plan last week that aims to build 1.4 million homes over the next four years. Yet the prime minister's plans for accessible home-buying are perhaps more ambitious.
For one, Trudeau seeks to ban blind bidding. In that process, bidders can see the asking price of the home, but not what other prospective buyers bid. It's been criticised as a way for sellers to pad prices. Outlawing such bidding would help "crack down on predatory speculators" and make for a fairer market, Trudeau said in an August 24 speech.
The prime minister also plans to bar the buying of Canadian homes for investment purposes. Housing markets in Canada's largest metropolitan areas have been increasingly flooded by foreign buyers as investors look to capitalise on soaring prices. Trudeau's plan promises to prohibit new foreign ownership of Canadian homes for two years and expand on taxes of vacant foreign-owned homes.
"You shouldn't lose a bidding war on your home to speculators," Trudeau said. "No more foreign wealth being parked in homes that people should be living in."
Some of Trudeau's plan has already received pushback from Canadian homebuilders. Banning blind bidding would keep homeowners from selling their properties "the way they want," and boosting supply is a much more effective way to aid affordability, the CREA said in a statement.
"Open bidding is still bidding," the association added. "Homeownership remains out of reach for millions of Canadians because there is not enough housing supply to meet demand."
Canada's Conservatives see other options for healing the market. Erin O'Toole, the party's leader, proposed a plan last week that would also ban foreign investors from buying for two years and lift supply by refurbishing 15% of federal buildings for housing use.
Regardless of their differences, each party's plan strikes a starkly different tone from their southern neighbour. While the US continues to grapple with similar affordability pressures, the American federal government has done little to aid buyers. The bipartisan infrastructure plan backed by US President Joe Biden lacks the $213 billion initially set to create and retrofit 2 million housing units.
Bidding wars have also boosted homeownership out of reach for many Americans. The hottest markets frequently saw interested parties furiously bid up homes to avoid losing out, Insider previously reported. And rampant speculation by firms like BlackRock and Blackstone means thousands of homes have been taken off the market over the past decade to be rented out for steady income. The investing trend grew even more popular throughout the pandemic as home values spiked higher.
On the rental front, lawmakers are struggling to assist Americans on the verge of eviction. The Supreme Court struck down Biden's 60-day eviction ban on Thursday, putting roughly 7.4 million Americans at risk of homelessness. Democrats have slammed the court's ruling and called for fresh aid, but such support is unlikely to materialize. With the ban reversed, Goldman Sachs estimates 750,000 households will face eviction by January.