The Canadian economy can be likened to a three legged stool supported by the following sectors: resources, manufacturing and housing. With sagging oil prices and a weak dollar, the latter a benefit for exports, it’s truly been the housing market carrying the weight of the others.
We all know that the Canadian housing market is regional to say the least, and without the heated (some say overheated ) markets of Toronto and Vancouver it would be considered moderate at best. Yet, the average Canadian household debt to income ratio is at record high level of 165.2% and that’s something to be concerned about.
In contrast to the crisis of 2008, Canadian homeowners have much more skin in the game with homeowner equity relative to outstanding real estate valuation in excess of 70% as compared to sub 50% encountered in the US.
Nevertheless, the powers that be are keeping an eye on things to say the least. The Bank of Canada’s Stephen Poloz’s recently brought serious attention to the matter of surging prices in those two aforementioned cities but truly his hands are tied. Raising interest rates in a fragile economy would do little to stifle the fires and would do more damage than good especially to housing markets throughout the rest of Canada that don’t need any cooling.
The BOC however, isn’t predicting a outright downturn in prices but more of a slowdown in price increases and if you ask me, this wouldn’t be the end of the world.
Clearly lenders are tightening up on their credit scoring which is prudent. There’s talk of imposing a luxury tax on foreign based sales but quite frankly, these folks will not likely be financially deterred. Higher downpayment requirements? Stiffer buyer qualification protocols? Take notice – all of these measures focus on the demand side of the equation.
Let’s just say that Toronto and Vancouver remain in high demand just because people want to live in these two cities. This isn’t unfathomable…after all, nothing has slowed housing down in Manhattan and their prices have been wonky for-almost-ever.
So, isn’t it time we focused on the serious supply issues at hand.
Residential building permits are down by 30% in both cities and single family housing starts are down by 6% in Ontario and 3% in BC. A softening on land use restrictions, zoning restrictions and releasing municipal lands for development might alleviate some of the constriction. These are just a few potential solutions.
This is not to say that Canadians don’t need to be conscious of their debt levels and invest wisely. But rather than squeeze an entire generation out of being able to live in Canada’s two most exciting and dynamic cities, why not put some pressure on policy makers to think outside the box and make some changes on the supply end rather than try to figure out ways to stifle demand?