HOUSING HEADACHE
Mulling ways to cool market
Finance Minister Bill Morneau says he recognizes supply issues are at least partly responsible for fast-rising housing prices in booming cities such as Toronto and Vancouver, and is not ruling out further targeted reforms to cool Canada’s real estate market.
However, in an interview with the Financial Post on Thursday, he said the federal government must be mindful that whatever it does affects the entire country and may have negative consequences in markets that don’t share the demographic characteristics of metropolitan cities in British Columbia and Ontario.
“We’ll always consider whether we should be looking at new (federal tools), but we’ll do that recognizing that our approaches are national and when we look at what happens to the Toronto and Vancouver markets, we also need to remember what happens to the Moncton and Winnipeg markets,” Morneau said Thursday. “We don’t want to do something that’s going to cause … challenges somewhere else.”
In Wednesday’s budget, the federal government committed $39.9 million over the next five years to “address gaps in current nationwide housing data” and create a comprehensive database with upto-date information on purchases and sales, including the degree of foreign ownership and information on homeowner demographics and financing characteristics.
Morneau said the database will be a welcome tool, the first of its kind. But he noted that federal officials who deal with housing are in “continuing discussions” with their counterparts in Ontario, British Columbia, Toronto, and Vancouver about the characteristics of the real estate market in those provinces and cities.
“There are clearly supply issues in places like Vancouver and Toronto around housing,” Morneau said, noting that healthy economies, low unemployment and immigration in those markets are contributing to demand for scarce detached and semi-detached single-family homes. “What we can do is we can work together with the provinces and the cities to identify tools that various levels of government have to ensure the market is healthy, and … co-ordinate a way to make sure we’re being as effective as we can to manage the market.”
Morneau declined to discuss what potential intervention is under discussion, such as whether an additional 15 per cent land transfer tax B.C. imposed late last year on foreign homebuyers in Vancouver would be adopted by Ontario.
“The specific measures, I’m not going to comment on, but we continue to be in discussions,” he said. “I’m in regular contact with Mayor (John) Tory, as an example. That’s part of what we see as the responsible way of ensuring the market’s healthy.”
Jason Mercer, an analyst who has written reports on Canada’s real estate market for Moody’s Investors Service, said housing supply is not an easy problem for government to solve if it’s truly driven by domestic demand including immigration patterns.
“Now, if the demand is from speculative investment, then a number of policy issues could be on the table,” he said, adding that these could include a speculation tax or a foreign buyer tax.
Dave McKay, chief executive of Royal Bank of Canada, said last month it might be time for Canada’s most populous province to consider measures similar to B.C. foreign buyers’ tax to tamp down housing prices, a move that was initially rejected by the Ontario government. The bank executive said his concern stemmed from rapid double-digit price increases for average single-family homes in some markets.
But officials at the Toronto Real Estate Board have argued that the land transfer tax would be a mistake, one that would lead to unintended consequences such as higher price growth in surrounding areas that did not have a tax, and would not address the more serious supply issues. In a January statement, TREB said the additional land transfer tax in Ontario could also hurt the rental market and crimp immigration, which is driving population growth in Toronto.
The federal government took steps last year aimed at cooling real estate markets across Canada. Among other measures, buyers seeking insured mortgages are now required to qualify at posted interest rates that are higher than the rates they will actually be paying.
Canada’s banking regulator, the Office of the Superintendent of Financial Services, proposed that banks hold higher capital against some residential mortgages to keep up with the rapid rise of house prices and highly leveraged buyers in certain markets.
What we can do is we can work together with the provinces and the cities ... to ensure the market is healthy.