Policy Forum: Foreign Buyers and Local Housing Affordability—Indications from Vancouver

With condominium construction stalled despite severe housing affordability problems in Vancouver and particularly Toronto, attention has turned to the question of whether foreign buyer taxes may have overshot the goal of making homes more affordable for domestic residents, to the point of reducing affordability by making condo development unprofitable. In this article, a model that simplifies the foundational analysis in Favilukis and Van Nieuwerburgh (2021) shows that foreign buyers help or hinder domestic affordability depending on whether housing supply is elastic or inelastic, whether foreign buyers overpay for units in the same buildings as locals, how intense foreign demand is, and whether foreign buyers occupy units or instead rent them to locals or flip pre-construction contracts near building completion. Casual data analysis and back-of-the-envelope calculations suggest that, in the absence of empty homes taxes, foreign buyers in Greater Vancouver and Toronto likely hindered local affordability, but that, in the presence of empty homes taxes, foreign buyer bans or taxes may worsen affordability for locals.