Anti-Liberals in Canada are now controlling home purchases: Foreigners not allowed. Their hope is that this will force demand and thereby prices down.
Dwell on that for a moment. The Canadian government is telling Canadian home owners: We want to make your homes less valuable.
Or this: Suppose that 1,000 foreigners want to buy million-dollar homes in Canada. The Canadian government is saying: Keep that billion dollars out of Canada!
Or this: Businesses wanting to hire talented foreigners to come work in Canada will find their job offers less attractive, as the Canadian government is saying: You can live only in rental housing!
The federal minister for housing said this for public consumption: “Through this legislation, we’re taking action to ensure that housing is owned by Canadians, for the benefit of everyone who lives in this country.” Ha ha. Clearly not everyone, Mr. Minister. In fact, and not anyone is closer to the truth.
Analogy: Imagine the Japanese government thought car prices too high, so it banned foreigners from buying Toyotas and Nissans.
Analogy: Imagine the US government though stock prices were too high, so it forbade foreigners from buying stocks in American companies.
Price controls are regularly tempting to politicians, almost always as a band-aid to cover for previous bad political decisions.
In this case, Canada does not have a shortage of land upon which to build homes—it’s the second largest country in the world. But it does have a politically entrenched set of anti-building regulations that make construction very expensive or impossible. Hence the supply of housing is artificially low, prices are artificially high, people who want buy homes become frustrated—and politicians react in economically illiterate ways. In this case, rather than removing the regulations that caused the problem, they pile on new regulations that mask it and that end up making it worse.
Related: The economics, ethics, and politics of Rent Controls:. Case study for my Business Ethics course: