Hot housing markets could be a drag on economy if unchecked, RBC chief warns
TORONTO — Royal Bank of Canada’s chief executive said Thursday the Toronto and Vancouver housing markets are at the “point of strain” and call for a “multi-faceted solution, which addresses supply constraints and speculative forces.”
Dave McKay, RBC’s president and chief executive, welcomed any effort by the municipal, provincial and federal governments “to coordinate their interventions, and to do so reasonably quickly.”
He also called for any solution to be “mindful of the rate environment, which can be a moderating force.”
“And while we remain confident in the strength of our mortgage book, we believe that if this issue goes unchecked, it could drag on consumer spending, locking up too much capital unproductively, and potentially becoming an inhibitor to Canada’s future economic growth,” McKay said in a speech to the bank’s annual meeting in Toronto.
His comments come a day after the Toronto Real Estate Board reported that the average home price in the metropolitan Toronto area jumped a record 33.2 per cent to $916,567 in March from a year earlier.
McKay warned in February that the Toronto market had reached a point at which it was time to consider bringing similar measures to that imposed in Vancouver to cool things down. The chief executive of Canada’s biggest lender cited “20 per cent house price growth in a market where you shouldn’t see that much,” a pattern that he called “concerning” and “unsustainable.”
He reiterated the same points of concern in his remarks to shareholders on Thursday, citing a longtime, persistent imbalance between supply and demand in the Greater Toronto Area and Vancouver, as well as low-interest rates and speculative activities which are “locking many people out of the housing market.”
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” for the sizzling Toronto housing market. However, he 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 doubledigit price increases, then I think it will clearly be time for further action.”
Scotiabank did not have a definitive stance on what action should be taken, but potential additional measures on the table for Toronto include a foreign buyers tax similar to that in place in Vancouver, or a tax on speculators or house flippers, O’Sullivan said.
McKay also addressed recent media reports of aggressive sales tactics at some Canadian banks.
These reports characterize “an environment that is not consistent with our experience or our values,” he told shareholders.
“Of the 2.4 million accounts we opened last year, less than 0.05 per cent of clients escalated concern about the way an account was opened,” he added.