In April 2022, Canadian Prime Minister Justin Trudeau announced a foreign buyers ban on Canadian real estate in a bid to slow climbing house prices. Many experts have expressed scepticism over the ban, doubting whether it will have the intended impact.
The foreign buyers ban in Canada is part of a number of measures that Trudeau’s government is taking to bolster the country’s real estate market. Others include a tax-free savings account and a tax credit for first-time Canadian buyers.
Meanwhile, Canada’s neighbour, the US, is experiencing similar pressures around its real estate and housing market. In July 2022, US home sales decreased by 20.2% compared with the same month in 2021, the steepest decline in seven years, according to existing home sales data.
Alongside this, house prices and mortgage rates have been climbing steadily in the US, with mortgage applications falling to their lowest level in 22 years in July 2022. This issue of affordability, particularly for younger first-time buyers, is something that US President Joe Biden vowed to address in May. As part of his Housing Supply Action Plan, Biden set an objective of reducing housing costs and high rental prices alongside addressing the house shortage crisis. Could outlawing foreign buyers be in line with Biden’s protectionist approach to solving the US’s housing problems?
Less buyers, more billions
Despite the scepticism surrounding Canada’s foreign buyer ban, a $59bn foreign buyer value in the US real estate market – between April 2021 and March 2022 – begs the question of whether Biden could afford to follow in Trudeau’s footsteps.
This $59bn foreign buyer value equated to nearly 100,000 US homes sold within the April 2021 to March 2022 period (although it represented the lowest number of homes sold to foreign buyers since records began in 2009).
Yet notably, the rising cost of housing made it a higher expenditure by foreign buyers than in the previous year, which totalled $54.5bn. So although non-US citizen sales accounted for only 2.6% of the total existing home sales in the country – a year-on-year decrease of 0.2% – it indicated that the rising cost of houses was biting foreign pockets as well as those of US house buyers.
Who is buying US houses?
Among foreign investors, Chinese buyers held the lion’s share of sales despite the overall number of Chinese investors decreasing by 600. On average, the price paid per home increased by 41% to $1m between April 2021 and March 2022.
This is notable given the continuing and rising tension between the US and China, seemingly making the implementation of a foreign buyers ban on real estate a potentially strategic move for Biden amid the ongoing trade war between the two countries.
More generally, the sale of US residential real estate grew by 8.5% in total dollars between April 2021 and March 2022, but fell by 7.9% when accounting for the number of homes that were purchased.
In 2022, although foreign buyers are paying more in dollar value, they owned a smaller portion of US homes. This indicates a wider trend in US real estate overall, with prices rising due to the housing shortage and inflation.
Yet if foreign residents make up such a small percentage of the real estate market and the ones that are investing are willing to foot hefty bills to do so, why would the US be inclined to follow Canada’s lead?
Will Biden’s flirtation with protectionism bring a foreign buyer ban to the US?
During his presidency, Biden has implemented a number of policies that appear to continue the protectionist theme that was adopted by his predecessor, Donald Trump. Biden has implemented a ‘Buy American’ policy across a number of government actions, including in efforts to resolve the semiconductor crisis through the Chips and Science Act.
It may not be out of the question then that the same reasoning could be applied to the US housing shortage. Although a popular opinion on Canada’s foreign buyer ban is that it is more about political positioning than it is about addressing the problems plaguing Canada’s real estate market, it isn’t out of the question that Biden will be inclined to make a similar move – particularly in the midst of a mid-term election year.