Foreign buyer taxes and housing affordability

Abstract

To improve housing affordability jurisdictions in different countries has introduced taxes on nonresident home buyers. We use the foreign buyer tax introduced in British Columbia, Canada, in August 2016 to investigate the extent to which such taxes improve housing affordability through their effect on local house prices. Our work uses direct transaction-level identification of foreign buyers that resulted from policies prior to the announcement and subsequent introduction of the tax. Using a difference in differences methodology, we compare house price changes pre- and posttax between high and low foreign buyer concentration neighborhoods. We find that house prices decline by 6% in neighborhoods with above median concentrations of foreign buyers after the tax relative to prices in neighborhoods with below median concentrations of foreign buyers. The quantitative effects are also striking with overall foreign buyer share falling from 13.2% of single-family transactions in the 6 weeks prior to the announcement of the tax to 1.7% for the 3 months following the tax. The unique contribution of this article is our use of transaction-level data to explicitly identify the properties purchased by foreign buyers to create more accurate control and treatment groups than found in other analyses.