“Something has changed in London,” declared a 2014 New York Times op-ed. “Townhouses in posh areas of the capital stand empty, sold to Russian oligarchs and Qatari princes.” An indication that the problem of absentee landlords due to foreign investment has plagued the European neighborhood for years.
In London alone, the number of empty long-term homes and second homes is set to exceed 80,000 in 2022, according to a study by Action on Empty Homes. In Lisbon, that figure has risen to 48,000 homes, according to councilor Filipa Rosetta.
With the start of 2023, Canada has enacted a new law to further prevent foreign investment in the real estate market from taking over: foreigners will not be able to buy homes for the next two years.
“Homes are for people, not investors,” President Justin Trudeau justified the measure. When they announced the plan in 2022, prices had increased by more than 27% over the previous year.
What is the effect of this type of law in Canada and can it be implemented in European cities?
Canada Model: Prohibition to Foreigners
The introduction of foreign purchase restrictions was an election promise by the Trudeau government for the 2021 elections. His Liberal Party complained that foreign investors were driving up prices, making it difficult for Canadians to own a home.
The law offers exceptions for refugees or permanent residents and applies only to urban housing, not tourist structures such as summer homes.
However, experts argue that this is more of an electoral measure than effective. According to the Agency for National Statistics, foreigners make up less than 5% of homeowners in Canada.
“I think governments need to be more ambitious and creative when it comes to tackling the housing crisis,” says Leilani Farah, director of The Shift Platform, which advocates for housing as a human right.
Prime Minister Jensinda Edner’s government introduced similar legislation when Farah visited New Zealand in 2020 as a UN envoy. Then the New Zealand authorities accepted that it had failed for two reasons:
– He had underestimated the extent of foreign ownership and its impact on the New Zealand housing market.
– There was a potentially discriminatory element in that type of legislation.
“In the Canadian context, that discriminatory element is actually directed against people from China,” says Farah, who points out that this is a very problematic law from a human rights perspective.
Farah believes the real problem is the institutional financial players “who may be foreign, but they are just building companies in Canada and other countries and buying up massive swaths of affordable rental housing.”
Among them are pension funds, insurance companies and investment companies in the real estate sector that are listed on the stock market and can monopolize up to 30% of rental homes in Canada, according to data managed by Farah.
“Players are global. Money is global. Why would someone living in China be considered a foreign owner?”
Even Chris Bailey of Action Empty Homes doesn’t think this is a win-win model for European capitals like London.
“Essentially, the (Canadian) government is looking for voter-appealing measures that make it look like they’re doing something with their property prices,” Bailey says. “But I think the focus on foreign investment is potentially quite a toxic issue in all economies.”
For Bailey, the paradigm shift is before the sale and when planning construction: “Are you building this for investors or for homes?”
The Vienna Model: Democratizing Social Housing
Vienna is famous for its royal palaces, but also for its social housing. Known as the “cheap rent capital” for nearly a century, the city defends an affordable housing model that makes it a European exception.
So when Bailey thinks of a model applicable to European cities, instead of looking beyond the Atlantic, he stays on the continent: Vienna’s social housing model, “which imposes restrictions on both real estate investment and rental”.
But the Vienna model emerged 100 years ago in an extraordinary way: as a response to the housing crisis following World War I.
The city council launched a housing construction program financed by luxury goods taxes to provide rental flats to the workers.
Today, the city of Vienna rents a quarter of all flats in the city and rents some 200,000 affordable houses for citizens, explains Judith M. Lehner, a professor at the Faculty of Architecture and Spatial Planning in Vienna.
Due to a complex subsidy system, social housing is characterized by a high level of construction quality.
“These measures have a price-smoothing effect that goes beyond the social housing sector and also affects the Viennese private market, which is mainly rental,” says Lehner.
“The Viennese model is not a residual housing policy aimed at providing housing only to the most vulnerable, but the income threshold is very high so that even middle-class families can access subsidized housing.”
The requirements for obtaining a rental contract in social housing include living in the Austrian capital for at least two years.
However, Lehner points out that the Vienna model is being threatened by “financialization”: more and more Viennese cannot find affordable flats on the private market and turn to the subsidized housing market, but new construction of social housing is increasing. It has become difficult because of the cost of land.
“For this reason, the municipal government approved a new zoning law in 2019, requiring that 2/3 of apartments built in areas to be zoned be social housing.”
Can this model be transferred to other European capitals? Lehner believes this is compounded by the particularities of Vienna and the fact that it is a centennial model. It is difficult to access the land in a short time.
“However, recognizing housing as a human right and a condition for the well-being of residents, rather than as an investment object, seems like a good start to move towards the Viennese model.”
Singapore model: tax on second homes
Looking for replica models in Europe, Leilani Farah likes to look to Singapore. His legislation raised taxes on foreign owners.
“If someone from Australia, China or Malaysia wants to buy property in Singapore, they can do so, but they will have to pay very high taxes,” Farah explains. “They taxed other property very heavily as well.”
The Singapore government uses this tax base to provide social housing for local residents.
Neither of these models is sufficient for Fahra, who argues that “all of these policies are marginalizing.”
The underlying problem, in his opinion, is economic speculation with real estate.
Fahra explains, “What is a bit outrageous is that since the pandemic happened and there has been a huge increase in the number of genuine individual investors who were buying more than one home.”
“Why not do what Singapore has done, which imposes higher taxes on second and third tier properties?” asks the former UN envoy.
“So you wonder and really question the government’s commitment to addressing the elephant in the room.”