Supply, not foreigners, behind high Canada home prices: data

Economy grew 3.5% in Q3

VANCOUVER, Dec 3, (Agencies): A housing shortage, not a rush of foreign demand, is probably driving up Canadian property prices, the country’s housing agency chief said on Wednesday, as he warned against blaming overseas buyers for the decade-long market boom.

New government data shows foreign ownership is only a small factor behind the high prices, Canada Mortgage and Housing Corp (CMHC) Chief Executive Evan Siddall said in a speech at the Greater Vancouver Chamber of Commerce.

Foreigners have been blamed for driving up prices, particularly in Vancouver, Canada’s most expensive housing market, where locals believe wealthy Chinese buyers have made housing unaffordable for ordinary Canadians.

But that may be a case more of perception than reality, Siddall told an audience in Vancouver. “When a white person buys a house, we don’t notice. When a person of color buys a house, we do. That’s not good economics,” he said.

The housing agency said in a report on Wednesday that foreign ownership of Canadian condominiums dropped in 2016 after the introduction of a foreign buyers tax in Vancouver, and remains a fraction of overall ownership, concentrated mostly in newer buildings.

The share of foreign ownership fell to 2.2 percent in Vancouver in 2016 from 3.5 percent in 2015, the agency said, suggesting that the August introduction of a 15 percent tax on foreign buyers in that city had dampened demand.

Buyers did not appear to have shifted to other cities where the tax was not imposed, as some analysts had predicted, with foreign ownership falling to 2.3 percent in Toronto from 3.3 percent a year earlier.

Siddall said the most important factor driving up home prices was a supply shortage, particularly in Vancouver, along with rising disposable incomes, immigration and lower mortgage rates.

He urged municipalities to increase housing supply by, for example, speeding up housing development approvals.

Demand by foreigners for Vancouverarea homes dropped almost immediately after British Columbia imposed the tax on such purchases, but it crept back up in October.

The government has moved in recent years to cool the market, mostly among buyers, by tightening mortgage rules to make it harder to take on too much debt.

Siddall said the most recent tightening, announced on Oct 3, has resulted in a “slight slowdown in activity” for the CMHC, which insures the bulk of mortgages issued by banks and other lenders. The new rules affect less than one-third of CMHC’s business, he said.

Meanwhile, the Canadian economy grew at an annualized rate of 3.5 percent in the third quarter, the government statistical agency said.

The pace of growth was in line with analysts’ expectations that a rebound in energy exports from a second quarter decline would boost gross domestic product (GDP), the broad measure of the economy’s output.

Wildfires in Alberta had shut down oilsands production in May and forced the evacuation of nearly 100,000 residents from nearby Fort McMurray.

Statistics Canada said this, as well as routine maintenance shutdowns at oilsands mines, led to a 5.1 percent drop in energy exports in the second quarter.