In Vancouver, there’s a great deal of concern that the new 15% foreign buyer tax could be, in a sense, too successful and drive away legitimate potential investors; among federal government officials in Ottawa, however, the true concern is that the tax may not be enough.
There is reportedly some doubt among these officials about the tax’s potential to slow the market, though some offsetting factors include Canada’s remarkably-low interest rates and lack of supply from Vancouver. While Prime Minister Justin Trudeau has pledged to act on this issue, he has also expressed concerns that any “full-blown attempt” to contain the housing markets of Vancouver and Toronto (the two most expensive in Canada) could potentially lead to declines throughout the rest of the economy.
“Fifteen-percent, when prices have been escalating at more than ten-percent per year, won’t do very much,” says David Dodge, former governor of the Bank of Canada. “It will have some initial disruption but it really won’t do very much.”
However, the tax’s potential failure in B.C. could also put further pressure on the federal government to act. “One thing that is very hard for governments to learn, and this is a new government very much in the learning process, is that there are some issues you don’t want to take responsibility for,” said Dodge. “The housing market in Vancouver is not an issue that the federal government really ought to take responsibility for.”
Minister of Finance Bill Morneau has vowed to take a “coordinated approach” to ensure the stability and accessibility of Canada’s housing market. In June, he established a group of officials from both Ontario and British Columbia to help monitor and study the market and possibly propose additional measures in the coming months.