Taxes on foreign investors are unlikely to slow rapid house price growth in Australia as much as they had in Canada because the restrictions on foreign investors are already greater in Australia and the tax imposts are smaller, according to new research by Australia and New Zealand Banking Group (ANZ).
The denting of price growth in the Canadian provinces of British Columbia and Ontario was found to be temporary, according to economists Daniel Wilson and Daniel Gradwell. Specifically, they cited Vancouver, BC, where the imposition of a 15% levy on foreign buyers in August 2016 only dulled the market for four months before prices began to rise again.
“Regulation can certainly have an impact on prices, at least in the first instances,” Gradwell told The Australian Financial Review. “But there’s still a question mark about the sustainability of those changes.”
Australia faces similar challenges to Canada: in both countries, wages aren’t rising as fast as house prices, a housing affordability crisis has locked young adults and low-income earners out of many markets, and foreign investors are often blamed for skyrocketing house prices in some premium market segments.
Wilson and Gradwell also pointed out the distinct differences in taxes and restrictions on foreign property buyers in both countries.
In Canada, foreign investors are permitted to buy both new and existing property, which means they play a greater role in the housing market of many Canadian cities. In Australia, non-residents are restricted to purchasing new property, meaning they account for a smaller share of the market.
Moreover, the 15% Non-Resident Speculation Tax levied by the authorities in BC and Ontario is greater than the foreign buyer surcharges imposed in New South Wales (8%), Victoria (7%), and Queensland (3%). This means that the financial disincentive for foreign investors in Australia is less severe than it is in Canada.
Canada’s housing affordability measures have been far less successful than anticipated. Since the imposition of foreign surcharges and separate rent controls in cities such as Vancouver and Toronto, foreign and local investors have shifted their attention to Canadian cities not subject to the same limits. This in turn has distorted smaller property markets that have even less ability to cope with the influx of investment.
To avoid similar pitfalls, Wilson and Gradwell said Australia should enforce consistent, nationwide policy measures. “Australia should avoid [regionalised] measures and instead aim for a coordinated policy response across all states and territories,” they said.
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