Recently, the Free Press ran a clever editorial cartoon depicting a home floating over the horizon attached to a balloon. Without having to say so, this cartoon represented the concern for housing prices currently taking place in Vancouver and Toronto.
There should be concern. The rapidly increasing home prices in those two major urban centres are quite astounding. According to the Canadian Real Estate Association, for the month of April, home prices were up more than 25 per cent year over year in Vancouver and more than 12 per cent in Toronto. Starter homes are increasing at an even greater pace.
Some are blaming this situation on foreign investment and are calling on the federal government to limit this influx. Others are calling for economic action. However, and quite rightly so, the federal government is not taking any knee-jerk actions.
As you may recall, the previous Conservative government reduced amortization periods from 40 years to 25 years. Recently, Finance Minister Bill Morneau has increased the minimum down payment for homes priced above $500,000, requiring a 10 per cent down payment for the portion over that figure. Neither action seems to have cooled these two markets.
Some have suggested a capital gains tax or a tax on flipping houses in an effort to target foreign investors. In Australia, foreign investors can only purchase new developments and not existing homes.
Many see these measures as too restrictive as Canada has always encouraged foreign investment. However, the recent budget designated $500,000 for Statistics Canada to develop methods for gathering data on purchases of Canadian housing by foreign homebuyers.
New permanent residents don’t appear to be the problem as these numbers have been consistent for the past six years. However, the number of non-permanent residents has been all over the board, particularly with respect to students and work permit-holders.
When there is a shortage of existing housing, prices go up. It’s a simple supply-and-demand issue. Some economists have offered the federal government would be better served by encouraging the construction of new homes in an effort to maintain ample inventory. There have been 30 per cent fewer residential building permits approved in Toronto and Vancouver in the past year and prices have skyrocketed, severely hindering the prospective first-time homebuyer, the most price sensitive of buyers on the market.
Although the problem appears to be centred in these two municipalities, the concern is national. Federal and provincial governments seldom make policies for two cities. If they try to manage the problem through legislation, the impact on every other Canadian city could be extremely negative. We are a vast country with many different economic and social cultures.
A one-size-fits-all solution may just cause more problems.
Mike Moore is the president of the Manitoba Home Builders’ Association.
