Ottawa tackles hot housing markets
Toronto and Vancouver targets of new working group in what minister calls ‘real pockets of risk’
Finance Minister Bill Morneau has announced the creation of a working group to study the hot housing markets in Vancouver and Toronto, signalling that concerns about overheating are largely isolated.
“We have real pockets of risk,” he said at a Toronto breakfast speech.
Morneau spoke with the finance ministers of Ontario and British Columbia and called the mayors of Toronto and Vancouver this week to discuss creation of the working group.
It will study factors affecting supply and demand, affordability and the long-term stability of the housing market. The group will not include officials from other provinces, nor any private sector experts such as bank economists or academics.
“We want people to understand that while the feder- al government has some levers under its control we don’t have all of them,” Morneau said. “This is a shared responsibility with provincial governments and municipalities, having regulatory and taxation powers to respond to unique local concerns.”
The federal government and its predecessor have made several moves to try to tamp down frothiness in the Canadian housing market, which has been an economic hot spot since the end of the 20082009 recession.
Most recently, Morneau raised the minimum down payment on CMHC-insured homes from 5 per cent to 10 per cent on the portion of homes over $500,000. He said Ottawa still needs to to gauge the results. The change began in February.
But federal level tools are a blunt instrument that could also cause unintended consequences in markets in the majority of Canada that are either stable — such at Halifax or Ottawa — or cooling — like Calgary.
Morneau announced this month the government was doing “a deep dive” into Canada’s housing market to address growing calls for it to act.
BMO chief economist Doug Porter said the government’s decision to target Toronto and Vancouver makes sense.
“The reality is that whatever strength we have in Canada’s housing market is so concentrated in two cities that it really is more of a provincial, municipal issue.
“It shows they are concerned about this issue and they likely realize they need to get the municipalities and provinces on board to form an effective strategy.”
Average home prices have surged 15 per cent in Toronto and 17 per cent in Vancouver in the past year.
In Vancouver, a detached home cost $1.5 million in May, a 37 per cent rise over the year prior. In Toronto, those homes cost just slightly less, at $1.3 million, a 15 per cent year-over-year increase.
In Vancouver, where there are 5.5 families for every detached home, compared to 1.8 nationally, the city has proposed to tax empty houses.
Officials are concerned that investors are buying up homes that sit unoccupied while Vancouverites struggle to find affordable housing.
The city wants the provincial government to create a new tax for unoccupied homes, but said, failing that, it would impose a business tax on empty homes. Some have blamed foreign ownership for the problem.
The federal government is studying the degree to which foreign investment is playing a role in the overheated market. But Morneau would not comment on whether it is considering measures such as higher land-transfer taxes or restrictions on foreign ownership, as Australia has done.
“Of course foreign ownership is some element in this,” Morneau said.
“But before getting to conclusions, we really need to look at the data so we really need to get it right before taking action.”