On January 1, 2023, Canada implemented a two-year ban on foreign property buyers, part of the Prohibition on the Purchase of Residential Property by Non-Canadians Act. The government enacted this law to help alleviate the housing affordability crisis by limiting foreign ownership of residential properties. However, while this ban has garnered significant attention, its actual effect on housing affordability is still up for debate.

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What Does the Ban Involve?

The ban restricts non-Canadians—including individuals who are not citizens, permanent residents, or registered under the Indian Act—from purchasing residential properties. It also applies to corporations controlled by non-Canadians. Residential properties covered under the ban include houses, condominiums, and buildings with up to three units, located in metropolitan areas with populations of at least 100,000 people. Properties in rural areas and recreational homes like cottages are exempt from the ban.

There are some key exceptions to the ban. International students and temporary workers who meet specific criteria, such as long-term residency and income tax filings in Canada, are allowed to purchase properties. Moreover, the act permits non-Canadians to acquire property through inheritance or marital arrangements with Canadian citizens.

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Will the Ban Increase Housing Affordability?

The main goal of the ban was to make more housing available to Canadian residents and ease the strain on the housing market, especially in high-demand cities like Toronto and Vancouver. However, experts are skeptical about the long-term effectiveness of the ban. Before the ban, foreign buyers only made up a small percentage of total home transactions—around 1-5% in major cities like Vancouver and Toronto. Therefore, restricting this small segment of buyers may not drastically affect housing prices.

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Moreover, housing affordability is influenced by several other factors, including rising interest rates, supply shortages, and inflation. In 2022, the Bank of Canada raised interest rates seven times, making mortgages more expensive and slowing down buyer activity across the board. Experts like University of British Columbia professor Thomas Davidoff argue that the effects of the ban are likely to be overshadowed by these broader economic factors​.

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Early Data and Market Reactions

While data from 2023 is still being processed, early indications suggest the ban has not caused significant shifts in housing prices. In fact, the luxury real estate market has remained resilient. High-end properties, often purchased with cash, continue to attract buyers, with markets in cities like Toronto and Vancouver seeing modest price increases despite the restrictions​.

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Additionally, condominium sales—a key entry point for first-time buyers—have slowed, partially due to high interest rates and the wait-and-see approach many buyers are taking as they hope for interest rate relief​. As a result, competition has intensified for single-family homes, creating a bottleneck for affordability in this sector.

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A Small Piece of a Larger Puzzle

The foreign buyer ban is only one of many measures needed to tackle Canada's housing crisis. Increasing housing supply, addressing speculative investments, and keeping interest rates stable will likely have a greater impact on the market. For now, the ban may offer some relief, but it is not expected to be a game-changer in improving housing affordability.

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For further details on the foreign buyer ban and its ongoing impact, you can refer to official updates from the Canada Mortgage and Housing Corporation (CMHC) and real estate professionals tracking market shifts​.