Our latest edition is out in print and online this month. Subscribe today and start reading.

“Foreign Investors” Aren’t Causing Canada’s Housing Crisis. Capitalism Is.

Ahead of the coming election, Canada’s main political parties are arguing that "foreign investors" are causing a housing crisis. But the problem isn’t foreigners — it’s the commodification of housing.

Politicians are blaming the Canadian housing crisis on foreign investors. (Arthur Da Silva / Flickr)

Canada’s upcoming federal election, scheduled for September 20, will take place against a backdrop of public health as well as environmental crises. In addition to the thousands of deaths caused by the global pandemic, 569 people have died as a result of the heat waves that destroyed whole towns across the country this summer.

On their own, these events would be horrific. But the misery they have caused has been compounded by Canada’s unaffordable housing market. For nearly twenty-five years, the sector’s prices have risen, pricing out millions of working- and middle-class prospective renters and homeowners. Recent events have put into relief how insecure the housing market has made the lives of ordinary Canadians.

COVID-19 has not slowed the inflationary growth of Canada’s housing market. In fact, during the pandemic, home sales increased by an eye-popping 75 percent from 2019. Since 2020, average home prices have risen by 32 percent. Rents are headed in the same direction after a brief pandemic-related dip. Meanwhile, 81,000 applicants sit on the waiting list for subsidized housing in Toronto.

This is nothing new. For more than a decade, Canada’s property market has aggressively squeezed more and more money out of tenants and prospective home buyers as landlords, pension funds, and investors of all kinds freely speculate on real estate. These actors — empowered by a toxic brew of low interest rates, little regulation, meager public pensions, dwindling stocks of public housing, and advantageous mortgage policies — have won big at the expense of everyone else.

The political class now seems to recognize that they need to do something about Canada’s housing market. But politicians across the spectrum have almost universally failed to point out the structural causes of unaffordable housing. Instead, politicians have pointed to the bogeyman of the foreign investor. Foreign investors inflating the value of property with international capital are not the real problem — they are merely a symptom of a perverse system in dire need of repair.

The Foreign Bogeyman

Canadian political parties often trot out the shadowy foreign investor to absorb widespread anger aimed at Canada’s housing market. In doing so, they give political cover to the domestic architects and beneficiaries of the crisis: pension funds, banks, landlords, and politicians with rental properties or house-flipping hobbies.

Unsurprisingly, the Conservatives took a hard line early on in the election, threatening to “ban foreigners not living in or moving to Canada from buying homes.” The New Democratic Party (NDP) slammed the plan for not going far enough. The party argued that the Tories’ proposals were ineffective and unenforceable, and promised to properly “tackle foreign real estate speculation.”

To aid this effort, the party has pledged a “20 percent Foreign Buyer’s tax on the sale of homes to individuals who aren’t Canadian citizens or permanent residents.” This policy will, according to the NDP, “help put an end to speculation that’s fueling high housing prices.”

In fact, it’s the market itself that needs an upheaval — not select members of the speculative class. Socialists should use this election to change the narrative: we need a radical alternative to the present system — one that distributes housing according to human need, not private profit.

A Bank Machine for the Rich

Make no mistake: Canada’s property market has been attractive to both international and domestic capital for decades. Of course, foreign investors do play a role in exacerbating asset inflation, as they do in other countries. But data on the phenomenon is scant and does not explain the structural causes of foreign property speculators’ interest in Canada’s housing market.

Focusing too closely on foreign investors prevents a proper comprehension of the system that empowers them. To fully understand the broader picture, one must take a look at Canada’s sharp neoliberal turn in the 1990s.

After interest rates and prices fell following the 1980s recession, regular people everywhere found themselves able to buy homes. The late 1980s and early ’90s were, generally speaking, a period of relative affordability. But speculation began running rampant during the turn of the century and the 2000s, thanks to continued low interest rates and weak regulation. Cities like Toronto and Vancouver felt this most acutely because supply was already low relative to demand.

Over the next two decades, the trend accelerated. Those able to get in on the housing game in the 2010s were able to reap the rewards. This meant big profits for property companies, pension funds, investors, average landlords, and house flippers. For everyone else, asset inflation led to high rents and being shut out of homeownership.

Despite a minor downturn in 2017, the property market has not been subject to a major price correction in nearly twenty-five years. For a quarter century, housing has been, as one investor said, “safer than gold.” Canada’s macroeconomic stability is linked to its speculative property market because of the outsize contribution the latter makes to the nation’s GDP. A housing crash would therefore be a disaster for landlords as well as ordinary people. According to the housing news website Better Dwelling, Canada is “50 percent more dependent on housing than the US bubble in 2006.”

Housing and Pensions: A Gordian Knot

In addition to ensuring that the Bank of Canada keeps interest rates low, the government also helped the market heat up by beating a major retreat from building social housing in the 1990s. Between the 1960s and the 1990s, the government built tens of thousands of units every year: 550,000 over thirty years. During the Liberals’ austerity regime under Prime Minister Jean Chretien, these numbers plummeted sharply. The building of public housing has never returned to its pre-austerity levels.

During these three decades, the value of private and state pensions has fallen, creating incentives for property speculation among homeowners worried about their future security. Certain that the value of their assets, if not their pensions, will continue to appreciate, older people have come to overwhelmingly rely on their housing as a key investment for their retirement. In the absence of generous public pensions, it’s hard to criticize the desire to protect one’s housing investments.

A Broadbent Institute study found that half of Canadian couples between fifty-five and sixty-four lack employer-provided pensions. The same study also found that less than 20 percent of middle-class families can sufficiently supplement the paltry sums doled out by the Canada Pension Plan (CPP) and Old Age Security (OAS) — including families that are eligible for the low-income Guaranteed Income Supplement.

This means that a large proportion of Canadians’ future livelihood is intimately bound up with the continuing growth of Canada’s speculative property market. Investors are, of course, delighted by this situation.

To be clear, controlling Canada’s housing crisis will require clampdowns on investors and speculators. And as foreign direct investment (FDI) taxes and other policies in the past have shown, cracking down on foreign investors can make a significant, albeit limited, impact.

But in the absence of a proper analysis of the deprivations caused by the market, and a reckoning with the immiseration of the welfare state, parties like the NDP miss the forest for the trees. Pointing to a few bad actors draws attention away from our need to build a real, meaningful, public alternative to the irrational and destructive status quo. This can only be accomplished by ensuring that homes are homes, not investment vehicles.

Whack-a-Mole: Solving the Housing Crisis

Because of the decline in generous public pensions, homes have become de facto retirement plans for the rapidly retiring boomer generation. This creates support, among people whose material interests do not usually align with those of wealthy investors, for continuous stable growth in home values.

A slew of Canadian pension funds invest heavily in real estate because of its nearly unmatched returns. It is this state of affairs that encourages the likes of Liberal MPs like Adam Vaughan to claim they will do everything to limit a decline in house values. This is the rub in discussion of attempts to bring down the cost of Canadian housing.

But is there another way? A generous public pension program would drastically lessen ordinary people’s reliance on ever-growing home values. Canada is certainly rich enough to provide a decent retirement for everyone through CPP and OAS. Taxing the rich, removing tax subsidies for the financial industry’s pension “products,” and replacing pension funds — which take part in property speculation — with wage-earner funds could pay for increased pensions.

The unpopular reality of making housing more “affordable” and less lucrative for investors is that it necessarily involves reducing home values — a hard sell to voters in a country with two-thirds homeownership. Lowering housing prices is an even harder to sell to those who have fought hard to make it onto the property ladder and would suffer most from a downturn in the market.

Of course, the fact that so many homeowners, well-off or poor, have hitched their wagons to the star of continued asset inflation has been a major benefit to investors. It allows for the appearance of an alignment of their interests with those of regular people. This legerdemain means that elites can offer the same response to workers worried about the security of their pensions and renters desperate to become homeowners: “Don’t worry, we will all benefit from endless inflationary growth.”

This is why “solving” the problem created by allocating housing through the free market is so difficult: it can’t be done without solving a number of related problems. Imagining an alternative system requires reimagining — and reinvigorating — the whole of the welfare state.

To retool the housing system, we must also transform our commitment to help the elderly retire with dignity through public pensions; massively expand public infrastructure and services; tax the rich aggressively; and significantly raise wages and protections to stave off economic insecurity.

In sum, we need to counteract — and shrink — how much the market controls our lives.

Public Housing Is Key

The NDP’s platform does offer a few good ideas. The party’s commitment to build 500,000 units of “affordable housing” over ten years — which includes investments in social housing — is ambitious, and certainly a more ambitious proposal than simply fighting foreign investors.

Nevertheless, its vagueness undermines its boldness. The plan pledges to “build capacity for social, community, and affordable housing providers, to provide rental support for co-ops.” This is far from a full-throated commitment to the provision of public housing. “Affordable housing” has become a buzzword that often provides cover for housing that is still unaffordable for the working poor. Getting the language right would be a good start to building a real alternative: “universal,” not “accessible”; “public,” not “affordable.”

Socialists should demand an ambitious program of public housing — something that will give tenants a real exit from insane rents and cause suffering among housing speculators. Most important, though, that plan must limit the scope of the market — it must allocate housing according to need, not profit.

The NDP plan is unclear about how directly it will intervene in the housing market. The soft language of building “partnerships” to create “affordable” units falls short of the clarity necessary to distinguish the suggestion from a merely liberal reform. No doubt such a big investment in supply would depress rents and give renters a better option, but the lack of commitment to strict public provision of these units means their effectiveness would be limited. It would change the game considerably if all 500,000 units were public. The NDP could benefit by taking a page from the Communist Party’s pledge to “recognize housing as a universal human right” and drastically expand actual “affordable” units by building rent-geared-to-income housing.

The NDP Is Missing the Mark

While the NDP has clearly made some progress on both building housing and retirement — as well as other necessary ideas like wealth taxes — the party still lacks a comprehensive, radical program for transforming the situation.

Why it lacks this program is a matter of debate. Currently, the NDP lacks the political wherewithal and conviction to properly analyze the political economy of the crisis. This precludes, for example, identifying what and whom to blame for the problem. If the party is to produce a truly radical housing agenda, it can’t fear alienating the business class, the banks, aggrieved Liberal voters, or the landlords in the party’s own caucuses. Nor can it shy away from the depth of the crisis — its complex imbrications with retirement, macroeconomic stability, and the weakening of the welfare state.

Unfortunately, at present, the NDP obscures the issue by relying on the very same attacks against foreign investors as the Tories and Liberals. Where the party differs from its conservative and centrist counterparts is in its modest proposals to achieve vague goals of “affordability.” The party combines these proposals with nice-sounding but ultimately meek plans to expand the welfare state. Although the NDP’s left flank certainly diverges from these milquetoast policies, their views are far from mainstream within the party’s brain trust.

Pinning so much blame on phantom investors from abroad allows leaders to sidestep responsibility for this gargantuan crisis. Threats of taxes and residency requirements — even if they would make a small difference — create an illusion of action against a problem so much broader and complicated than most politicians are willing to admit.

Setting a Different Agenda

Given the scale and depth of the crisis, the Left must intervene to change the narrative. Addressing Canada’s housing debacle requires, first and foremost, an ambitious plan to build more public housing to free renters from the brutality of the market. Generous public pensions are also necessary to help people whose only source of security in retirement is the value of their home. Socialists need to fight to allow the elderly to retire with dignity.

A broad vision is a necessary component of any radical housing plan. Otherwise, we’ll succumb to the hoary falsehood that there is no alternative. The Left must not shy away from pointing out the complexities of the current housing crises. This means avoiding simplistic narratives that demonize specific sections of the capitalist class. Instead, the Left must recognize that the only solution is to decommodify housing and expand the welfare state. Only then can we break the Faustian pact between property speculators and homeowners.