Economist hits back at calls to curb foreign home investment

While political debate rages on in Vancouver over the impact of foreign investment on the housing market a well-known economist has spoken out against those who want tougher restrictions. Benjamin Tal of mortgage lender CIBC says that issue is “largely misunderstood” and that foreign investors make up a small proportion of homebuyers although there is a larger proportion of those overseas who are providing the funding to buy homes for family who live in Canada.

Mr Tal has written a report together with CIBC senior economist Andrew Grantham in which they dismiss comparisons between the Canadian housing market and the US market before the financial crisis. In the report they note: “One reason why it’s unwise to compare the Canadian housing market of today to the U.S. market before it crashed is that, unlike the situation stateside, there isn’t anywhere near the same degree of overbuilding in Canada relative to household formation. In fact, the ratio of housing starts to household formation is not far from its long-run average of 1.03.”

While noting that the condo market has had a balancing effect on the housing market the report expresses concern of oversupply in that sector as demand is slipping. There is also concern over the impact of higher interest rates in the years ahead. However the economists do not predict that a sell-off of condos would mean a crash but could affect overall confidence in the market and the wider economy.

MBN