The problem is that restricting purchasing is a tiny stop-gap. It might be a useful stop-gap depending on the circumstances, but it won't actually solve the problem. It's like having a hole in your boat, tossing two bucket-fulls of water out, and then calling it a day. The boat is better off, but the water is still coming in and eventually the problem will be back and will keep getting worse.
So Canada has shed a small portion of demand. That might lower prices over the short-term. However, it's not going to fix a growing population and an increasing percentage of people that want to live in major cities where opportunity is. They've shed some demand, but there's going to be plenty of demand as the Canadian population keeps growing and the percentage of Canadians who want to live in cities increases. Let's say demand is going up 1% per year and foreign demand is 5% of the market. Well, you dumped 5% of the demand, but 6 years from now the market will be worse off than it is today.
Many countries stopped building as many residential units as they needed after the 2008 crisis. However, many cities restricted building a lot when the market was really hot and labor/materials were cheap (2012-2019). A lot of homes would have been built if governments didn't restrict it. I can't speak to the Netherlands in particular, but in the UK, Ireland, and America, residents fight against new housing being built near them for many reasons: traffic, parking, shadows, not wanting "those people" living near them (which is usually just thinly veiled racism), etc. At the same time, these cities have built a lot of new commercial development bringing lots of jobs and people with good salaries to those cities. San Francisco has been building office space at a 5:1 to 10:1 ratio with housing - only 1 home for every 5-10 new jobs.
You really can't blame not building on the 2008 crisis. That doesn't explain the incredible number of units that weren't built as housing markets went crazy after that.
Plus, the pause in building in most places started a long time before the 2008 mortgage crisis. LA built around 150,000-250,000 units every decade 1940 through 1990. Since 1990, we've seen around 75,000 units per decade: http://www.betterinstitutions.com/blog/2021/3/25/what-housin.... This is a pretty familiar story in a lot of areas.
I'm not really sure what you mean by "low interest rates are the multiplier as they expand lending capacity." Low interest rates would allow builders to borrow at low cost and create new units cheaper. Low rates do mean that people can afford to spend more on a home, but most countries don't have fixed mortgages the way the US does so borrowers would need to anticipate rates going up.
It's not just zoning, but an attitude of being against new development unless it will benefit you personally. For so many owners, there's no reason to want new housing in their area - they lament traffic, parking competition, and they are actively hoping for prices to rise due to lack of supply.
Restricting who can buy (which would be a demand restriction) can be a stop-gap measure. However, it's not going to prevent the problem from returning. If the government can use the few years they'll get from this measure to make major changes, they can address the problem. However, it's not an easy thing to do. For example, in the United States around two-thirds of households own their home and it's often their life's savings. If you tell two-thirds of households "we're going to make housing cheaper - not for you since you already own, but for the young people you think are ruining the world and the immigrants you hate. Oh, and it's going to involve more traffic, less parking, and lower income people living in your expensive neighborhood," they're going to be quite angry. Zoning is local, but every locality has people that want the same thing: for their investment to go up.
Housing construction costs are really cheap compared to the cost of housing - close to 10-15% of the cost in expensive cities. The issue isn't building the housing. The issue is getting things approved. In many locations, people have gotten really good at stalling projects and the longer a project is stalled, the more interest the project has to pay, the more labor time wasted, etc. Let's say you're a builder. You take out a loan and buy a piece of land for $1M. You want to put up 3 1,500 square foot units costing you $600,000 and will go for $850,000 each, but the neighbors want you to put up a 2,000 square foot single-family home costing you $1.3M ($1M for the land + 150/sq ft construction) and which would go for $1.5M. You'd much rather build the 3-unit place - you're looking at $750,000 in profit rather than $200,000 in profit because you're splitting the land cost among three units. You need to get a zoning variance. The board hears some bad comments from neighbors and doesn't deny your project, but says they'll come back to it next quarter. Next quarter, they ask about the design or parking or shadows and put it off another quarter. A year later, you're $50,000 in the hole on interest plus a lot more in the professional labor necessary to deal with these meetings. Then they want an environmental review. More money gone, more time gone and you still haven't gotten the first approval. At some point, they'll basically bankrupt the project on interest if they can string it out long enough. You relent, build the single-family which has now cost you $1.4M instead of $1.3M, sell it for $1.55M (a little higher), lost a bit of potential profit, and move on.
If you could simply build housing in expensive cities, people would be doing it. Splitting a $1M plot of land between 5 units makes a lot of building projects very attractive. The problem is that you usually have to buy the land and then hope you can get an approval. If there's an existing structure that's worth $150/sq ft, you can still tear it down and rebuild if the land is worth so much. Let's say you have a 2,000 sq ft plot of land with a 2-story 3,000 sq ft building on it. Let's say the land is worth $1.5M and the building is worth $400,000 for a total of $1.9M purchase price. You tear down the building and build a 5-story building with 9,000 sq ft (1,800 per floor) at a cost of $1.4M. You're now in for $3.3M, but have 9,000 square feet of space. If you can sell 5 1,800 sq ft units for $912,000 a piece (20% lower per square foot than the single-family), you're at $4.6M netting you a pretty nice profit on the project.
The issue is that we won't let people split the cost of land easily. We drag out the process. If we let people split the cost of the land easily, we'd be doing it a lot more.
One of the reasons that people talk about zoning is that even expensive building costs usually pale in comparison to the cost of land in expensive cities. However, you often aren't allowed to build in a way that splits the cost of land without putting in a lot of time, money, and suffering a lot of uncertainty.
Yes. I mentioned this elsewhere, but Vancouver and Toronto have had foreign-buyer taxes on the books for a while now. Data seems to show that it has indeed dramatically reduced foreign purchases, but it's not at all clear that homes have become any more affordable in those areas. They need to build, period.
Good comment. The same thing happened in Berlin - the government has been actively working against new housing for decades now, to the point that in the last few years, the rent price went up the most in Berlin while salaries obviously didn't.
Maybe new towns are part of the solution. Incentivise (or mandate) companies to bring manufacturing onshore and build the new factories in the middle of nowhere like the gigafactory and then build the infrastructure around it like the old days.
So Canada has shed a small portion of demand. That might lower prices over the short-term. However, it's not going to fix a growing population and an increasing percentage of people that want to live in major cities where opportunity is. They've shed some demand, but there's going to be plenty of demand as the Canadian population keeps growing and the percentage of Canadians who want to live in cities increases. Let's say demand is going up 1% per year and foreign demand is 5% of the market. Well, you dumped 5% of the demand, but 6 years from now the market will be worse off than it is today.
Many countries stopped building as many residential units as they needed after the 2008 crisis. However, many cities restricted building a lot when the market was really hot and labor/materials were cheap (2012-2019). A lot of homes would have been built if governments didn't restrict it. I can't speak to the Netherlands in particular, but in the UK, Ireland, and America, residents fight against new housing being built near them for many reasons: traffic, parking, shadows, not wanting "those people" living near them (which is usually just thinly veiled racism), etc. At the same time, these cities have built a lot of new commercial development bringing lots of jobs and people with good salaries to those cities. San Francisco has been building office space at a 5:1 to 10:1 ratio with housing - only 1 home for every 5-10 new jobs.
You really can't blame not building on the 2008 crisis. That doesn't explain the incredible number of units that weren't built as housing markets went crazy after that.
Plus, the pause in building in most places started a long time before the 2008 mortgage crisis. LA built around 150,000-250,000 units every decade 1940 through 1990. Since 1990, we've seen around 75,000 units per decade: http://www.betterinstitutions.com/blog/2021/3/25/what-housin.... This is a pretty familiar story in a lot of areas.
I'm not really sure what you mean by "low interest rates are the multiplier as they expand lending capacity." Low interest rates would allow builders to borrow at low cost and create new units cheaper. Low rates do mean that people can afford to spend more on a home, but most countries don't have fixed mortgages the way the US does so borrowers would need to anticipate rates going up.
It's not just zoning, but an attitude of being against new development unless it will benefit you personally. For so many owners, there's no reason to want new housing in their area - they lament traffic, parking competition, and they are actively hoping for prices to rise due to lack of supply.
Restricting who can buy (which would be a demand restriction) can be a stop-gap measure. However, it's not going to prevent the problem from returning. If the government can use the few years they'll get from this measure to make major changes, they can address the problem. However, it's not an easy thing to do. For example, in the United States around two-thirds of households own their home and it's often their life's savings. If you tell two-thirds of households "we're going to make housing cheaper - not for you since you already own, but for the young people you think are ruining the world and the immigrants you hate. Oh, and it's going to involve more traffic, less parking, and lower income people living in your expensive neighborhood," they're going to be quite angry. Zoning is local, but every locality has people that want the same thing: for their investment to go up.
Housing construction costs are really cheap compared to the cost of housing - close to 10-15% of the cost in expensive cities. The issue isn't building the housing. The issue is getting things approved. In many locations, people have gotten really good at stalling projects and the longer a project is stalled, the more interest the project has to pay, the more labor time wasted, etc. Let's say you're a builder. You take out a loan and buy a piece of land for $1M. You want to put up 3 1,500 square foot units costing you $600,000 and will go for $850,000 each, but the neighbors want you to put up a 2,000 square foot single-family home costing you $1.3M ($1M for the land + 150/sq ft construction) and which would go for $1.5M. You'd much rather build the 3-unit place - you're looking at $750,000 in profit rather than $200,000 in profit because you're splitting the land cost among three units. You need to get a zoning variance. The board hears some bad comments from neighbors and doesn't deny your project, but says they'll come back to it next quarter. Next quarter, they ask about the design or parking or shadows and put it off another quarter. A year later, you're $50,000 in the hole on interest plus a lot more in the professional labor necessary to deal with these meetings. Then they want an environmental review. More money gone, more time gone and you still haven't gotten the first approval. At some point, they'll basically bankrupt the project on interest if they can string it out long enough. You relent, build the single-family which has now cost you $1.4M instead of $1.3M, sell it for $1.55M (a little higher), lost a bit of potential profit, and move on.
If you could simply build housing in expensive cities, people would be doing it. Splitting a $1M plot of land between 5 units makes a lot of building projects very attractive. The problem is that you usually have to buy the land and then hope you can get an approval. If there's an existing structure that's worth $150/sq ft, you can still tear it down and rebuild if the land is worth so much. Let's say you have a 2,000 sq ft plot of land with a 2-story 3,000 sq ft building on it. Let's say the land is worth $1.5M and the building is worth $400,000 for a total of $1.9M purchase price. You tear down the building and build a 5-story building with 9,000 sq ft (1,800 per floor) at a cost of $1.4M. You're now in for $3.3M, but have 9,000 square feet of space. If you can sell 5 1,800 sq ft units for $912,000 a piece (20% lower per square foot than the single-family), you're at $4.6M netting you a pretty nice profit on the project.
The issue is that we won't let people split the cost of land easily. We drag out the process. If we let people split the cost of the land easily, we'd be doing it a lot more.
One of the reasons that people talk about zoning is that even expensive building costs usually pale in comparison to the cost of land in expensive cities. However, you often aren't allowed to build in a way that splits the cost of land without putting in a lot of time, money, and suffering a lot of uncertainty.