Foreign Buyers and Home-Price Growth

Major cities have been the entry gateway for immigrants to both the U.S. and Canada.  About 14 percent of the U.S. population and 21 percent of the Canadian population is foreign born.[1]  In Miami, San Jose, New York, Los Angeles, and San Francisco, more than one-third of the population is foreign born. Immigrants to Canada have concentrated in the Toronto and Vancouver metro areas, where at least 40 percent of the population is foreign born. (Exhibit 1) In fact, these two metro areas account for one-half of all immigrants residing in Canada.

While immigrants add to economic growth and housing demand, there has been growing concern over the role played by nonresident foreign buyers.  These buyers often have substantial financial resources, enabling them to buy above-average homes without mortgage financing, potentially adding to speculative pressures especially for expensive homes.[2]  Further, these buyers may effectively restrict supply if they leave their homes vacant.  These effects will be greater in areas where nonresident buyers account for a larger portion of sales.  While the share of home sales to foreign buyers will vary by locale, the National Association of Realtors reported that the overall share of existing homes sold to nonresident foreign buyers in the U.S. has remained relatively small since 2010, averaging about 2.2 percent of sales.[3]

Two Canadian metros have sought to minimize the effect that nonresident foreign buyers have by implementing a 15 percent tax on sales to these buyers.  This was enacted after steep price increases in the Toronto and Vancouver markets.  The new tax on sales was effective April 21 in Toronto and has been in place in Vancouver since August 2016.[4]

After imposing the nonresident foreign buyer tax in Vancouver, home-price growth slowed from a torrid 26 percent annual rise in August 2016 to 8 percent in June 2017.  As a benchmark, two neighboring cities that do not have a foreign buyer tax, Victoria and Seattle, have seen home-price growth remain robust since August 2016, suggesting the tax may have had its intended effect.[5] (Exhibit 2) In comparison, two months after enacting the tax in the Toronto area, home sales have fallen but price growth has yet to slow, perhaps because of the far larger size of the Toronto market.

In summary, nonresident foreign buyers appear to have a larger effect on prices for expensive homes and a bigger effect in smaller markets than in larger markets.  Affordability is affected further if homes are kept vacant.

[1] U.S. Census Bureau, 2016 American Community Survey 1-Year Estimates, and Statistics Canada, 2011 National Household Survey.

[2] National Association of REALTORS, 2017 Profile of International Activity in U.S. Residential Real Estate, July 2017, reported on homes bought April 2016 to March 2017 in the U.S.  The study found that 72 percent of nonresident foreign buyers paid all cash to purchase their home.  The average price paid by nonresident foreign buyers was $626,814, well above the average sales price of $277,733 for all existing homes sold during the same period.

[3] National Association of REALTORS, REALTORS© Confidence Index.

[4] Ontario enacted the “Non-Resident Speculation Tax” effective April 21, 2017, and British Columbia enacted the “Additional Property Transfer Tax” effective August 2, 2016:

[5] The S&P CoreLogic Case-Shiller Index for Seattle and the Teranet-National Bank of Canada House Price Index for Vancouver and Victoria were used to measure price change.

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