Real estate run-up concerns economist
Post City chats with Benjamin Tal, of CIBC World Markets, about rentals and sky-high prices by Ron Johnson
Is there still a financial advantage to buying a home in his red-hot real estate market with constant double-digit price increases, or is it now just better to rent? The rental market is basically the solution to the crisis. I think we have to see the propensity to rent rising. I do believe [more] people renting should be a part of the solution whether or not it is [in] the condo market or it is purpose built, which I think is going to be a very important part of the solution.
Clearly in 2016 we have seen some acceleration in the market that suggests we are entering a situation in which there is some speculation in the market. Probably foreign investment is larger than perceived.
Until 2015, it was easy to explain most of the change in prices just by lack of supply.
Clearly lack of supply is still there, also in the condo market. But we have seen this trajectory in 2016 that makes me wonder what else is happening there in addition to lack of supply, especially in the low-rise market.
Also probably more demand in terms of speculation activities, so I might be concerned about that. That’s why I think that one of the ways to solve the affordability problem and slow down the market is really to increase the supply of rental activity, and purpose built should be part of it. Many big names in the financial world are calling the market a bubble. What’s your take? I think it is not productive to put names on anything. It serves no purpose. It’s not what is important. What’s important is what we do.
There is no question about the fact that we have an affordability crisis or are approaching an affordability crisis in the city.
So I’m interested in what we are going to do about it, as opposed to giving it a name.
Nobody knows what a bubble is, and giving it a name is not productive.
To me, what we need to do is make sure we slow down the market.
So when the market is tested, namely when interest rates start rising, we will pass this test. That’s why I supported what the government did in October regarding mortgage qualifications and I will support any increase in availability of rental activity.
I will even support further action as far as the government is concerned coming from Finance if needed.
I do believe that we need to find a way to slow this market before it is too late.
The proposed 29-storey Rosehill Tower is an example of a new purpose-built rental, inset: CIBC economist Benjamin Tal