‘Long-term’ fallout from housing
CEO calls on governments to take action as Toronto, Vancouver at ‘point of strain’
Royal Bank of Canada's chief executive warned Thursday that surging housing prices could become a “long-term drag ” on the Canadian economy as politicians from three levels of government agreed to jointly discuss how to tackle the overheated real estate market in Toronto.
In a speech to shareholders at RBC's annual general meeting on Thursday, Dave McKay said real estate markets in Toronto and Vancouver are at the “point of strain” and called for a “multifaceted solution, which addresses supply constraints and speculative forces.” He also called for any solution to be “mindful of the rate environment, which can be a moderating force.”
While RBC remains confident in the strength of its mortgage book, there is a real risk of a “long-term drag, by housing, on the rest of the economy as so much of a person's net worth and cash flow goes into servicing their home,” McKay told reporters after the meeting in Toronto. “That is really where I see risks, and we're calling on all levels of the government to solve this challenge.”
McKay's comments came as federal Finance Minister Bill Morneau invited Toronto Mayor John Tory and Ontario Finance Minister Charles Sousa to meet and discuss how to address housing issues in the metropolitan Toronto area, where March figures show the average home sale price jumped more than 33 per cent to $916,567 from $688,011 a year earlier.
Morneau said in a letter to Sousa that he was “concerned that dramatic house price increases will have long-term implications for housing affordability and housing market stability,” according to a copy obtained by Bloomberg.
The Canada Mortgage and Housing Corp. has found “strong evidence of problematic conditions,” Morneau said in the letter.
Sousa, who has urged the federal government to consider measures such as a tax on speculation or house-flipping, responded to Morneau with a letter of his own, Reuters reported.
"It is key that any future actions must ensure the stability of the market and do not negatively impact Ontario homeowners or the province's economy,” Sousa wrote, according to Reuters.
Upon hearing that the three politicians planned to meet, McKay said RBC was “really encouraged by that, because that's what it takes to solve the challenge we have.”
McKay said in February that the Toronto market had reached a point where it was time to consider bringing similar measures to those imposed in Vancouver — where the B.C. government imposed a foreign buyers' tax — to cool things down.
On Thursday, the RBC chief did not push for any specific policy, but said he was keeping a careful eye on the impact of B.C.'s foreign buyers' tax as it “seems to have slowed down activity without compromising prices.”
McKay added that the most acute driver of the run-up in housing prices “is the supply-demand imbalance.”
Another of Canada's largest banks also weighed in on Toronto housing this week.
James O'Sullivan, Scotiabank's group head of Canadian banking, on Tuesday called for “action sooner than later,” but urged officials to hold off until after the key spring home-buying season to see whether recent federal initiatives to slow the real estate market have taken hold.
“The spring market is everything in housing,” O'Sullivan told reporters. “If at the end of that spring market, Toronto still has, with higher volumes, strong double-digit price increases, then I think it will clearly be time for further action.”
McKay said Thursday it would likely require that amount of time to co-ordinate, design and implement any policy changes to address the housing issue.
“It isn't instantaneous . ... If we hurry, we will see ourselves through the spring market,” he said.
(Rising housing prices) is really where I see risks, and we’re calling on all levels of the government to solve this challenge.