It has been announced this week that Canadian Prime Minister, Justin Trudeau, is seeking to ban non-Canada-based persons and companies from buying homes in Canada. Currently it is mooted that the ban will be in place for 2 years, initially then reviewed thereafter. The reasoning for this move is to allow Canadians, who have been priced out of their domestic markets to be able to afford to purchase properties in their locality. It has been quoted that the prices have increased by up to 20%, making the cost of the average Canadian home almost $650,000 (£495,000). This figure is nine times more than the average household’s income. While it is an interesting move in prospect, and the news is awash with stories of large parts of desirable areas in major cities being owned by foreign nationals, will this move have the desired effect of allowing those based in these cities, likely on low-to-medium incomes to be able to buy these properties?
My initial thought is that this will be unlikely, as a solo measure. It is a very simple premise of free market economics that markets are dictated by micro and macro forces, such as those of supply and demand. By that, I do not mean simply that too many people want to buy the properties, and removing some of those people will improve the chances for natives to buy property. But rather, you must look at prices, geographical location and wider socioeconomic factors, then from there consider what is it that the legislation is seeking to achieve. If it is to give those on lower incomes a better chance of buying property, then consider a price cap on foreign nationals where they can only buy properties at a value which is at the higher end of the market.
One other issue that may arise from this is the potential litigation which could be brought, as it curtails an individual’s civil liberties and their ability to conduct business, should they be developers, or indeed there may even be a human rights argument that the individual may wish to buy to establish a family home in the country, and the legislation is depriving them of that.
I have laboured the above points to draw parallels with the Scottish situation. In every major Scottish city, with the exception of Aberdeen where the flat market stalled for various microeconomic reasons specific to the area, prices have increased exponentially, even from the beginning of the COVID pandemic. Part of this is clearly people reassessing their priorities and prioritising green space, together with work-life balance, however what we have also seen is a move towards a ‘work from anywhere’ policy. This means those living in the more congested population centres of the UK can keep the same wage, but work from any location they please. Anecdotally the writer has picked up a few clients from the Southeast of England, wishing to live the ‘shortbread tin’ perception of rural Scottish life. This has driven prices up above levels previously seen in ‘pre-COVID’ times. This also means locals are priced out in certain situations, which is similar to the above Canadian example. However, the problem does not seem to be as rife as it is in the Canadian example above.
Does this therefore mean that a Canadian-style policy of stopping non-Scots buying property could be viable in Scotland? The writer’s view of this would again be no. Rather than seeking to restrict market activity which could cause a price crash, the answer lies with Government and private developers to action the building of more housing. The increase in stock would lower competition for homes, and could lead to a greater parity in prices. Taking the market to a place where a property is your home, rather than simply an investment to be bought, improved and sold on at a profit in the short term.
The writer would be at pains to state that the above is simply his musing, with no political affiliations or inflections, and not an economic treatise. But hopefully it gives some ammunition for your dinner table conversation.
Jamie Robertson, Legal Director
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