Taking a “citizens first” approach to housing policy
As leaders in the developed world contend with a deepening housing affordability crisis, they are considering more heavy-handed policies than they, traditionally, have. Prime Minister Justin Trudeau of Canada made headlines earlier this year when he announced that his government would impose a two-year ban on foreign homebuyers, in an effort to cool the country’s overheated housing markets. Benchmark home prices in Canada are up 20 per cent over prices, at this time, in 2021 (“year-over year”) and are even higher in major urban centres like Toronto and Vancouver. This upsurge has taken place in spite of steep new taxes on foreigners’ home purchases in both British Colombia and Ontario. British Colombia currently imposes a 15 per cent surcharge on these purchases, while Ontario recently raised its own tax to 20 per cent. The outright ban, which the Liberal Party promised during its parliamentary campaign last year, makes exceptions for permanent residents, refugees, international students, and several other categories of immigrants – though this hasn’t shielded it from critique that the policy is broadly out of step with liberal values. Scotiabank’s Head of Capital Markets has gone so far as to call the move an act of “xenophobic fear mongering”.
Despite the critique, Canada is not the first to go down the protectionist road. In 2018, Prime Minister Jacinda Ardern of New Zealand passed a similar law. At the time, it was estimated that approximately four per cent of homes, listed and sold within the country, were purchased by foreigners. This is roughly comparable with the 3.8 per cent of homes sold in Toronto, though far short of the 7.6 per cent of homes in Vancouver that are owned by absentee non-residents. In November 2018, just three months following the ban, home-building was on pace with population growth in the country’s financial capital, for the first time since 2009. To date, academic economists have, largely, failed to explore the impact of the ban, though corporate pundits have broadly minimized its role in restraining price growth.
As rich nations, increasingly, embrace housing policies that put their country-people first, Caribbean leaders may soon consider the same, without fear that it will stoke anti-market fears. After all, preferential real estate policies are not entirely without precedent in the developing world. Mexico, as recently as the 1990s, imposed restrictions on foreign ownership of land within 25 miles of its coast, or 50 miles of an international border. This ensured that coastal living did not become the reserve of foreign jetsetters – while also giving locals a sizable head-start and an ownership stake in the beach tourism industry.
This said, most Jamaicans are not in the market for a luxury or waterfront property. Yet, developers and financiers chasing the highest return on their investment, have consistently catered toward this market segment. The diaspora, unfortunately, also plays a part in pushing prices beyond the reach of locals. In terms of volume, The Inter-American Development Bank estimates that Jamaica has a deficit of about 17,400 homes each year. While rising interest rates may lower prices, it will take bolder policies to meet this shortfall in building volumes. It is quite plausible, given our size, that investors may respond to a foreign buyer ban by simply finding the next Caribbean island willing to host their upmarket development. Nonetheless, it is important that our leaders acknowledge that the world is increasingly shaping markets to fit their citizens’ interests – and on this point, we cannot be left behind.
Shua McLean (@shuakym) is a Master of Public Affairs student at Princeton University, concentrating in International Development. He writes regularly on issues of public finance, budgeting, and public-sector reform.
