Canada’s defunct Immigrant Investor Program has long been associated with foreign plundering of Canadian real estate, and believed to have exacerbated unaffordability, but report from a University of British Columbia associate professor is calling for its reinstatement.
James Tansey of the Sauder School of Business at UBC says the principal funds from the IIP, as well as interest accrued, could fund rental housing in Metro Vancouver, of which there’s a pronounced dearth.
“If we have this investor demand for immigrants wanting to move to Canada and establish themselves principally from China and Asia and have a housing problem where there’s a shortfall of investment, my proposal is the federal government should at least look at a modified version of it where deposits made fund the gaps between what it costs to build starter properties and rental properties,” Tansey told REP. “I have no issue with that capital being tied up for 10 or 15 years as a form of a mortgage, and I’d have no issue with some of that capital not being refundable and it being a cost of a program.
“We had 50,000 people in the line for that program when it was cancelled, and even 2,000 a year paying $1mln a year would be $2bln annually into the space.”
The IIP, which essentially gave internationals permanent residency in exchange for $800,000 interest-free loans, to be repaid in five years, was discontinued in 2014. However, Quebec has its own version still in operation, but the windfall is substantially lower than the federal program.
Misinformation abound, the report elucidates how paltry the IIP’s impact was on real estate.
“If you look at all the immigrant investors that came into B.C. in one year, if every one of them bought an above-average-cost house—maybe a home for a few million dollars—the total cost of that spending would have been $500mln in Metro Vancouver,” said Tansey. “There was $37bln of residential real estate transactions last year, and if you look at the 1,100 people from the Quebec version, it’s far too few of them to have an effect. The supply side issues are much more significant and I think it’s simple economics: If the number of new household formations in Metro Vancouver is higher than the rate of housing starts, and housing is already fully subscribed, you’re always going to have more people looking for homes than there are homes available, and it’s just going to drive up prices.”
Tansey moreover alluded to a joint report released by Canada Mortgage and Housing Corporation and Statistics Canada in December that claimed foreign buyer activity in Canada is, in fact, negligible.
“Domestic demand from Canadian residential investors, CMHC showed very clearly, is playing a very big role and nobody is quite sure what the effect of immigrant investors or foreign capital is, but CMHC makes it very clear it’s a much smaller effect compared to low interest rates, household formation and economic development.”
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